Category

Corporate Governance

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Airliners: Assumptions Flying High

By | Corporate Governance | No Comments

Anyone reading a company’s financial reports should be aware of the assumptions and estimates used by the preparer of the report because it can lead to a distorted picture of a company’s performance

In this article, Multi-Act experts analyze the financial reports of a major airline company and uncover key assumptions in calculating yearly pension cost. In this case, higher assumption of expected return can lead to lower pension expenses and higher earnings. Assumption relaxation in revenue recognition was observed by another major airliner thus boosting revenues and earnings in their reporting period.

Investors need to pay close attention to assumptions and estimates that may be used by the preparer of any report. The examples of these airline companies give a clear picture of how assumptions can be used to project companies in better light.

“Figures often beguile me…particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: ‘There are three kinds of lies: lies, damned lies, and statistics.” – Mark Twain

Had Mark Twain seen the financial statements of various companies, he would have exclaimed- “Lies, damned lies, statistics and accounting”.

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Playing Hopscotch with the Revenue Recognition Principle: A Case Study

By | Company Insights, Corporate Governance | No Comments

In This Article:

Can investors be hoodwinked by a company’s revenue and profit figures? Multi-Act experts discuss how a global consumer technology company changed the revenue recognition; misleading investors to believe that they have had massive growth in revenues and profits over the past decade. This revenue recognition case study explains how they achieved this over four periods of revenue recognition methods and its implications for analysts. You’ll learn why it’s impossible for analysts to show reliable trends;  resulting in a precarious situation for investors. Read More

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Chinese E-Commerce Co: Real Growth or just Creative Accounting?

By | Company Insights, Corporate Governance, Global Equity | No Comments

Ever made an investment decision based on market hype? Multi-Act experts review a Chinese e-commerce company headed by a celebrated personality that appears to be outdoing its competitors. While the company seems to be a victor; a careful quality of earnings analysis by our team reveals some creative accounting practices that investors should not ignore. Analysis includes the company’s:

  • Adjusted Non GAAP EBITDA and Net Income
  • Capital Allocation
  • Low Tax Rate Sustainability
  • USD Denominated Debt

Questions arise about the said company’s profit margins, cash-flows and valuation. Read how this can impact investor decisions.

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Farm Sector: Ploughing the Books

By | Company Insights, Corporate Governance, Global Equity | No Comments

Given that the fundamentals in the agricultural sector appear stable and the sharp rise in the use of renewable fuels across the world, market participants seem to be positively biased towards stocks that are part of the “agricultural story”. But, as always, at Multi-Act, we believe that following the herd and placing bets on stocks that enjoy a pro-cyclical review is futile if one does not also cast an eagle’s eye at the quality of the company’s financials. Read More

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A Specialty Canadian Pharma Company: High on High Yield

By | Company Insights, Corporate Governance, Global Equity | No Comments

Lately, a lot of market participants are becoming skeptical about zero interest rate policies. This is particularly reflected in retail investors’ tendency of reaching for high yield (HY ETF inflows/popularity) and the incentive to the CEO community for related buybacks/acquisitions to boost reported performance during their tenure. Read More