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Class4 Class4 Presentation Transcript

  • Economics for Journalists Week 4: Corporations, cont. Jeffrey TimmermansMonday, 18 February, 13
  • 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, 18 February, 13
  • Costs ✤ Fixed costs ✤ Overhead (rent, equipment, etc.) ✤ Variable costs ✤ Raw materials ✤ LaborMonday, 18 February, 13
  • Profit ✤ Profit is what’s left from revenue after all costs of doing business are subtracted ✤ A public company’s main responsibility to shareholders is to maximize profit ✤ Maximize revenue/minimize costs ✤ Because profit is what’s used to pay dividends and grow the businessMonday, 18 February, 13
  • 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, or earnings: The bottom line ✤ The profit attributable to shareholders ✤ Dividend payments come from net profitMonday, 18 February, 13
  • 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, 18 February, 13
  • Corporate disclosure ✤ Three main types: ✤ Profit & Loss Statement (also called P&L or income statement) ✤ Balance Sheet ✤ Cash Flow StatementMonday, 18 February, 13
  • Profit & loss 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, 18 February, 13
  • 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, 18 February, 13
  • Balance sheet ✤ A snapshot at a particular time of a company’s assets (what it owns) and liabilities (what it owes) ✤ Current assets can be turned into cash within one year ✤ (Current) Assets – (Current) Liabilities = Working capitalMonday, 18 February, 13
  • 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, 18 February, 13 Reserves 282,465 259,253 300,803
  • The importance of cash Profit is opinion, cash is fact COMPANIES CAN LIE, BUT CASH CAN’TMonday, 18 February, 13
  • 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, 18 February, 13
  • Reporting on earnings ✤ 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, 18 February, 13
  • HK’s Hutchison Whampoa reports 12pct rise in profits 01-Apr-2010 | AFP | 7:01 AM Hong Kong’s Hutchison Whampoa said Tuesday net profit rose 12 percent last year, as gains from property sale and the sale of assets more than offset losses at its energy and 3G technology units. The port-to-telecoms conglomerate, headed by Hong Kong’s richest man Li Ka-shing, said in a statement to the city’s stock exchange that net profit was 14.17 billion Hong Kong dollars (1.8 billion US) in 2009, up from 12.68 billion dollars in 2008. The result was lower than the average forecast for a net profit of 15.54 billion dollars in a poll of six analysts by Dow Jones Newswires. The group’s total revenue dropped 14 percent to 300.55 billion dollars, mainly because of a business slump at its Canada-listed affiliate Husky Energy resulted from sharp declines in oil and gas prices last year, it said. And income at its ports division dived 16 percent due to lower trading activity amid the global financial crisis, the statement said. Losses in its third-generation technology operations slumped 67 percent to 5.28 billion dollars, primarily due to the merger of its 3 Australia with the Australian unit of British mobile phone giant Vodafone. Li said in the statement that its 3G results were expected to improve and make a positive contribution to earnings. The company was one of the world’s first to introduce 3G mobile business and has operations in Italy, Britain, Ireland, Australia, Sweden, Denmark and Austria. The group’s earnings have been dragged down since 2003 due to the cost of the 3G business. But last year’s losses were partially offset by a 50 percent jump in profits from the completion and sales of several residential projects. The gains also came from a 12.47 billion Hong Kong dollar total profit from the disposal of investments including its equity interest in three power plants in mainland China and its telecoms assets in Israel and Indonesia. Li said the company performed satisfactorily despite the challenging conditions last year and its operations “are well placed to benefit from a recovering economic environment.” Source: AFP via IntellasiaMonday, 18 February, 13