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    Class10 Class10 Presentation Transcript

    • Economics for Journalists Week 10: Corporations Jeffrey TimmermansMonday, 2 April, 12
    • Why companies exist ✤ Allow individuals to pool capital and share risk ✤ To accomplish complicated tasks like international trade & creation of complex products ✤ To make money (profit) for its ownersMonday, 2 April, 12
    • Private vs. Public ✤ Private companies (“closely held”) ✤ Family-owned ✤ Private-equity owned ✤ Public companies ✤ Owned by shareholders ✤ Shares traded on stock exchangeMonday, 2 April, 12
    • Public corporations ✤ Legal entities registered in a particular location ✤ Add value to raw materials or provide services, and sell them for a profit (hopefully) ✤ Sell shares in the company to the public ✤ Disclose details on performance every three or six monthsMonday, 2 April, 12
    • How public companies function Initial capital Additional share/bond Produce goods or sales services Use profit to grow Sell goods for more company or than cost of production compensate owners for riskMonday, 2 April, 12
    • Types of corporate stories ✤ Initial public offering (first sale of shares to public) ✤ New product/line of business ✤ Top executive changes ✤ Fundraising: secondary share sales & bond issues ✤ Mergers & acquisitions ✤ Earnings announcementsMonday, 2 April, 12
    • Earnings announcements ✤ Three main types of corporate disclosure documents: ✤ Profit & Loss Statement (also called P&L or income statement) ✤ Balance Sheet ✤ Cash Flow StatementMonday, 2 April, 12
    • The importance of cash Profit is opinion, cash is fact COMPANIES CAN LIE, BUT CASH CAN’TMonday, 2 April, 12
    • Profit & loss statement ✤ Also called an “income statement” ✤ A roadmap that leads you from revenue (sales) to net profit ✤ Details the expenses that are incurred on the way to net profit ✤ Consolidated vs. company ✤ Always check the footnotes!Monday, 2 April, 12
    • Types of profit ✤ Gross profit: Just revenue minus cost of sales ✤ Operating profit: Profit from core operations ✤ EBIT & EBITDA: Earnings before interest, tax, etc. ✤ Net profit: The bottom line ✤ The profit attributable to shareholders ✤ Dividend payments come from net profitMonday, 2 April, 12
    • The importance of net profit ✤ Net profit, or earnings or profit attributable to shareholders, is the main driver of share prices ✤ particularly expectations about net profit ✤ The definition is standard, so net profit is comparable across industries ✤ Net profit, after subtracting dividends, becomes working capitalMonday, 2 April, 12
    • Hutchison Whampoa Limited Consolidated Income Statement for the year ended 31 December 2009 As restated Note 1 2009 2008 Note HK$ millions HK$ millions Company and subsidiary companies: Revenue 2 208,808 235,478 Cost of inventories sold (74,275) (77,172) Staff costs (28,309) (31,929) Telecommunications customer acquisition costs (16,544) (22,926) Depreciation and amortisation 2 (16,258) (24,876) Other operating expenses (60,769) (66,001) Change in fair value of investment properties 1,117 672 Profit on disposal of investments and others 3 12,472 3,458 Share of profits less losses after tax of: Associated companies before profit on disposal of investments and others 5,927 12,522 Jointly controlled entities 3,677 5,286 Associated companys profit on disposal of an investment and others 3 - 3,122 2 35,846 37,634 Interest and other finance costs 4 (9,613) (17,286) Profit before tax 26,233 20,348 Current tax charge 5 (4,588) (3,443) Deferred tax credit 5 92 2,576 Profit after tax 21,737 19,481 Allocated as : Profit attributable to minority interests (7,569) (6,800) Profit attributable to shareholders of the Company 14,168 12,681 Earnings per share for profit attributable to shareholders of the Company 6 HK$ 3.32 HK$ 2.97 Details of interim dividend paid and proposed final dividend payable to the shareholders of the Company are set out in note 7.Monday, 2 April, 12
    • Accrual accounting $4 000 HKMonday, 2 April, 12
    • Accrual accounting Revenue Card balance +HK$4000 +HK$4000 Accts. receivable +HK$4000 Net profit +(HK$4000-cost)Monday, 2 April, 12
    • Accrual accounting Accts. receivable -HK$4000 Cash Card balance +HK$4000 -HK$4000 Cash -cost of iPhone Accts. payable -cost of iPhoneMonday, 2 April, 12
    • From revenue to cash ✤ Customer buys $100 phone with credit card ✤ Company increases revenue by $100 revenue (P&L) ✤ Company increases accounts (trade) receivable by $100 (Bal. sheet) ✤ Customer pays credit card bill, bank pays company $100 cash ✤ Company reduces accounts receivable by $100 (Balance sheet) ✤ Company increases cash by $100 (Balance sheet & cash-flow statementMonday, 2 April, 12
    • Balance sheet ✤ A snapshot at a particular time of a company’s assets (what it owns) and liabilities (what it owes) ✤ Assets – Liabilities = Working capital or Shareholders funds + Reserves ✤ Current assets can be turned into cash within one yearMonday, 2 April, 12
    • Current liabilities 157,260 130,581 187,680 Current liabilities Trade and other payables 10 Trade and other payables Bank and other debts 10 73,029 82,599 90,141 Bank and other debts Current tax liabilities 17,589 23,945 50,255 Hutchison Whampoa Limited Current tax liabilities 3,249 1,274 2,336 Consolidated Statement of Financial Position 93,867 107,818 142,732 at 31 December 2009 Net current assets Net current assets 63,393 22,763 44,948 As restated As restated Note 1 Note 1 Total assets less current liabilities Total assets less current liabilities 597,530 560,363 647,776 31 December 31 December 1 January Non-current liabilities 2009 2008 Non-current liabilities 2008 Bank and other debts Note HK$ millions andHK$ millions HK$ millions Bank other debts 242,851 234,141 260,086 Interest bearing loans from minority shareholders ASSETS Interest bearing loans from minority shareholders 13,424 13,348 12,508 Deferred tax liabilities Non-current assets Deferred tax liabilities 13,355 13,616 17,957 Pension obligations Pension obligations 2,436 2,541 1,468 Fixed assets 171,399 173,246 181,342 Other non-current liabilities Other non-current liabilities 4,520 4,586 5,929 Investment properties 42,323 41,282 43,680 Leasehold land 33,984 34,745 36,272 276,586 268,232 297,948 Telecommunications licences 70,750 72,175 91,897 Goodwill 28,858assets Net 30,436 31,573 Net assets 320,944 292,131 349,828 Brand names and other rights 7,351 10,486 10,901 Associated companies 84,748 CAPITAL AND RESERVES75,545 76,478 CAPITAL AND RESERVES Interests in joint ventures 51,568 capital 45,865 Share 39,725 Share capital 1,066 1,066 1,066 Deferred tax assets Reserves 14,657 13,248 17,619 Reserves 282,465 259,253 300,803 Other non-current assets 5,286 8,904 5,082 Liquid funds and other listed investments Total shareholders funds 23,213 30,735 69,192 Total shareholders funds 283,531 260,319 301,869 Minority interests Minority interests 37,413 31,812 47,959 534,137 537,600 602,828 Total equity Total equity 320,944 292,131 349,828 Current assets Cash and cash equivalents 8 92,521 57,286 111,307 Trade and other receivables 9 48,146 54,767 55,374 Inventories 16,593 18,528 20,999 Appendix 157,260 130,581 187,680 HWL 2009 Annual Results Current liabilities Page 3 of 27 Trade and other payables 10 73,029 82,599 90,141 Bank and other debts 17,589 23,945 50,255 Current tax liabilities 3,249 1,274 2,336 93,867 107,818 142,732 Net current assets 63,393 22,763 44,948 Total assets less current liabilities 597,530 560,363 647,776 Non-current liabilities Bank and other debts 242,851 234,141 260,086 Interest bearing loans from minority shareholders 13,424 13,348 12,508 Deferred tax liabilities 13,355 13,616 17,957 Pension obligations 2,436 2,541 1,468 Other non-current liabilities 4,520 4,586 5,929 276,586 268,232 297,948 Net assets 320,944 292,131 349,828 CAPITAL AND RESERVES Share capital 1,066 1,066 1,066Monday, 2 April, 12 Reserves 282,465 259,253 300,803
    • Cash-flow statement ✤ Tracks the inflow and outflow of cash during the course of one financial period ✤ Three sections: cash flow from operating activities, from investing activities, from financing activitiesMonday, 2 April, 12
    • Covering results ✤ Always focus on net profit, and how it changed from a year earlier ✤ Make sure to include revenue, so reader can judge the “quality” of earnings ✤ Make sure to include year-earlier figures! ✤ Look for any dramatic year-on-year changes in figures in disclosure, or big asset sales/purchases ✤ Is cash flow from operations positive, growing?Monday, 2 April, 12