2. 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 owners
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3. Private vs. Public
✤ Private companies (“closely held”)
✤ Family-owned
✤ Private-equity owned
✤ Public companies
✤ Owned by shareholders
✤ Shares traded on stock exchange
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4. 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 months
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5. 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 risk
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6. 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 announcements
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7. Earnings announcements
✤ Three main types of corporate disclosure documents:
✤ Profit & Loss Statement (also called P&L or income statement)
✤ Balance Sheet
✤ Cash Flow Statement
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8. The importance of cash
Profit is opinion, cash is fact
COMPANIES CAN LIE, BUT CASH CAN’T
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9. 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!
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10. 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 profit
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11. 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 capital
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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 company's 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.
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14. Accrual accounting
Revenue Card balance
+HK$4000 +HK$4000
Accts. receivable
+HK$4000
Net profit
+(HK$4000-cost)
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15. Accrual accounting
Accts. receivable
-HK$4000
Cash Card balance
+HK$4000 -HK$4000
Cash
-cost of iPhone
Accts. payable
-cost of iPhone
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16. 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 $100 (Balance sheet & cash-flow
statement
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17. Balance sheet
✤ A snapshot at a particular time of a company’s assets (what it owns)
and liabilities (what it owes)
✤ Assets – Liabilities = Working capital or Shareholders funds +
Reserves
✤ Current assets can be turned into cash within one year
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18. Current liabilities 157,260 130,581 187,680
Current liabilities Trade and other payables 10
Trade and other payables Bank and other debts 10 73,029 82,599 90,141
Bank and other debts Current tax liabilities 17,589 23,945 50,255
Hutchison Whampoa Limited Current tax liabilities 3,249 1,274 2,336
Consolidated Statement of Financial Position 93,867 107,818 142,732
at 31 December 2009 Net current assets
Net current assets 63,393 22,763 44,948
As restated As restated
Note 1 Note 1 Total assets less current liabilities
Total assets less current liabilities 597,530 560,363 647,776
31 December 31 December 1 January
Non-current liabilities
2009 2008
Non-current liabilities 2008
Bank and other debts
Note HK$ 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 1,066
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Reserves 282,465 259,253 300,803
19. 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 activities
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20. 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?
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