tag:blogger.com,1999:blog-37872616.post5946948970038814808..comments2024-03-29T17:14:25.039+08:00Comments on BULLy the BEAR: Woe be to those who missed out ROEla papillionhttp://www.blogger.com/profile/01372278083694506953noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-37872616.post-7325506829040687082009-02-13T19:35:00.000+08:002009-02-13T19:35:00.000+08:00Dear Site Owner,My name is Caren. We would like to...Dear Site Owner,<BR/>My name is Caren. <BR/>We would like to say that your blog is well-written and it contains lots of useful and up-to-date information.<BR/>We really got interested in your web resource http://bullythebear.blogspot.com/<BR/> and we would like to cooperate with you in future.<BR/>Our website is devoted to credit cards and it's at the top 10 in Google for the keywords 'credit cards'.<BR/>It's a high traffic site with PR4 and it contains loads of useful financial information presented in news and articles<BR/>that highlight the most much-talked-of issues such as credit cards, debt solutions, financial crisis, ways out of it, and many more.<BR/>We believe this information can awake interest in your guests as well.<BR/>We would like to purchase a link in a fresh post at your site.<BR/>We thank in you in advance for your cooperation.<BR/>Best regards,<BR/>Caren.<BR/>caren@acclaimnetwork.comUnknownhttps://www.blogger.com/profile/09000264511639215868noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-2797180770068616412009-02-11T14:48:00.000+08:002009-02-11T14:48:00.000+08:00ROE can be manipulated. One should not just relied...ROE can be manipulated. One should not just relied on ROE alone but look at the Financial Statement for totality.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-37872616.post-61365744769356078982009-02-07T19:46:00.000+08:002009-02-07T19:46:00.000+08:00Hi akatsuki,I treat your word 'maintain' to mean t...Hi akatsuki,<BR/><BR/>I treat your word 'maintain' to mean this: to keep the ROE (26.4%) of FY08 constant, and not let it decrease. I've already shown in a oversimplistic way that paying off their total debts using their cash/cash equivalent actually increases their ROE. Thus if your definition of 'maintain' is 'to keep constant, and not increase or decrease', then we're on different grounds to begin with.<BR/><BR/>With regards to your reasons, I think there's a lot of hypothetical 'if's here. By saying that china milk is uncertain of their net profit, hence they don't want to pay debts so as to maintain ROE is a bit far fetched, in my opinion. Well, they could have reduced their equity by giving out dividends (which they did before), this will still increase ROE. How about selling away their livestock, so as to reduce their equity base, this will increase ROE too. How about buying back their shares? These are measures which the management can be sure of too, since they are the ones to decide.<BR/><BR/>My point is that while I do not know why the company do not wish to pay off their debts with their cash, i seriously doubt that it's used to increase their ROE. Not many pple even see ROE as an important criteria before they start investing, so they really have no vested interest in maintaining it. Of course, all this boils down to trusting the company to uphold the interests of shareholders and not squander it on frivolous pursuits.<BR/><BR/>Hey, thks for debating with me on this issue :) Keep it coming :)la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-76025568087685857422009-02-07T10:02:00.000+08:002009-02-07T10:02:00.000+08:00Hi, excuse me for imposing again ahah. I could jus...Hi, excuse me for imposing again ahah. I could just be right in saying this statement "refuse to pay up all their liablities, just so that they can maintain this strong ROE" the word here is maintaining, ok soo lets see if im correct. <BR/>Say in 2009 China Milk's Net profit increased quite abit beause it alrdy paid up all its debts, Ok -no interest exp. So for that FY 09 the ROE will indeed be higher then FY 08. However, if management doesn't give away all its net profit, this figure will be pump in back to OE (Owner's Equity) in the account called retained earnings, therefore with this huge figure under OE, going into FY 10, ChinaMilk must work even hard to maintain its ROE ,<BR/>Beacse their OE has increased and prediction of the same amt of net profit to be deprived from FY10 is uncertain..therefore having loans, keeps the amount of NP in check, so that is gives managment time to plan out what to do with those cash and in the same time maintain the ROE.. i think >_<Chlorophyll Inchttps://www.blogger.com/profile/14216258429478884397noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-30911757602542437122009-02-07T09:53:00.000+08:002009-02-07T09:53:00.000+08:00This comment has been removed by the author.Chlorophyll Inchttps://www.blogger.com/profile/14216258429478884397noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-48124614327303547362009-02-07T00:52:00.000+08:002009-02-07T00:52:00.000+08:00Oh ic ic, my mistake. Cause the interest expense b...Oh ic ic, my mistake. Cause the interest expense belongs to the P/L component, say if interest expense where to be gone, the Net profit will be higher , thus using simple caculation, the ROE will likewise be higher. Youre correct.. NAV will not change, this then result in a higher ROE. Logical... very logcial heheChlorophyll Inchttps://www.blogger.com/profile/14216258429478884397noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-44345674314373842212009-02-06T13:14:00.000+08:002009-02-06T13:14:00.000+08:00Hi Akatsuki,I'm having lunch and pondering your qu...Hi Akatsuki,<BR/><BR/>I'm having lunch and pondering your question on whether it's true that China milk can increase their ROE by NOT paying off their liabilties using their cash/cash equivalents.<BR/><BR/>I decided to test it out. So, we already have the data for the ROE if they decided not to pay off their liabilities...which gives an ROE of 26.4%.<BR/><BR/>Let's see what happens if they use their cash/cash equivalent to pay off ALL their liabilities. I'll work on their FY08 results. This will result in two things:<BR/><BR/>1. The net profit will rise because there is no more interest charged. In the statements, 91,481k RMB will be added back to the net profit to give a new net profit of 572,088 k RMB.<BR/><BR/>2. Cash/cash equivalent will drop from the present 1,736,724 k RMB to 661,855k RMB after using it to pay for all the liabilities. Equities will thus be just the total assets, which is 1,818,649 k RMB. In other words, there's no change in equities if they pay off their debts using cash/cash equivalent or if they did not.<BR/><BR/>The new ROE if they pay off all their debts using their cash will thus be 31.5%. Compare this against 26.4%.<BR/><BR/>Thus, your statement that "Could it be that they deliberately refuse to pay up all their liabilities, just so that they can maintain this strong ROE?" is not true. Their ROE will be even higher should they wish to pay off their liabilities in full using their cash.<BR/><BR/>Of course, my calculations might be over simplified. It's essentially a multi-variate problem.la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-60574865277631055942009-02-06T12:32:00.000+08:002009-02-06T12:32:00.000+08:00Hey akatsuki,Hmm, it's possible. ROE is made up of...Hey akatsuki,<BR/><BR/>Hmm, it's possible. ROE is made up of 3 components, financial leverage (assets/equities), asset turnover (revenue/assets) and net margins (net profit/equities). If we multiply these 3 components, we get ROE. <BR/><BR/>This analysis, Dupont analysis of ROE, can help one to analyse what makes a ROE good (or bad). Let's take a look at the figures (based on FY08)<BR/><BR/>Financial leverage: 1.59<BR/>Net margins : 87.9%<BR/>Asset turnover : 0.19<BR/>ROE : 26.4%<BR/><BR/>I suppose you can say that the financial leverage is pretty high. But look at the net margins, it's also very high. I believe it's these two factors that makes the ROE high. If the financial leverage is only 1.0, then the ROE will be adjusted to 16.6% instead of 26.4%. Still respectable though.la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-76011478115836557922009-02-06T11:52:00.000+08:002009-02-06T11:52:00.000+08:00Very interesting topic indeed! China Milk for etc ...Very interesting topic indeed! China Milk for etc can maintain their ROE for the past few years since listed, and yet they hold tons of cash in their assets. Could it be that they delibratly refuse to pay up all their liablities, just so that they can maintain this strong ROE? Beacuse the more liabilities they have, the more cash is leaked out via interest paid, this in turn lowers retained earnings , thus ROE is mainted that way ..heheChlorophyll Inchttps://www.blogger.com/profile/14216258429478884397noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-67240130147376697582009-02-05T18:54:00.000+08:002009-02-05T18:54:00.000+08:00Hey PG,Haha, to have been praised by an trained ac...Hey PG,<BR/><BR/>Haha, to have been praised by an trained accountant regarding this article is the greatest compliment of all - hey, thank you!<BR/><BR/>I couldn't agree with you more - once the relationship between assets, liabilities and equities are sorted out, it really does make it much easier :)la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-60146887694200511912009-02-05T17:01:00.000+08:002009-02-05T17:01:00.000+08:00Just to add, even accountants were non-accountants...Just to add, even accountants were non-accountants once...hahahaPanzerGrenadierhttps://www.blogger.com/profile/15836438378215893219noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-65357978528077374482009-02-05T17:00:00.000+08:002009-02-05T17:00:00.000+08:00Hi LPA concise but accurate analysis. As an accoun...Hi LP<BR/><BR/>A concise but accurate analysis. As an accountant, I couldn't have explained it better!<BR/><BR/>It's great when non accountants pick up the numbers. Actually accounting is not that mystical, it's overcoming the initial paradigm of debit credits and the assets - liabilities = equities equation. :)PanzerGrenadierhttps://www.blogger.com/profile/15836438378215893219noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-75072755604913329492009-02-05T14:17:00.000+08:002009-02-05T14:17:00.000+08:00Paul,Thks for reading :) I thought nobody will bot...Paul,<BR/><BR/>Thks for reading :) I thought nobody will bother reading :)<BR/><BR/>To answer your questions, no, the ROE isn't based on previous year's capital base. In fact, in the balance sheet, they will not even beak up the retained earnings according to the years accumulated. What they do is they will lump it all up together as one consolidated 'retained earnings' accumulated over the years.<BR/><BR/>Second thing that is wrong is that it's not revenue on the numerator. It's net profit. Revenue is how much the company earns before minusing all the costs. Net profit is after all cost are subtracted, and after tax. To be even more specific, it's net profit attributable to non-minority holders (i.e. to company's ordinary shareholders).la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-2895932000753061372009-02-05T13:40:00.000+08:002009-02-05T13:40:00.000+08:00It's a really cool and concise post u did there! :...It's a really cool and concise post u did there! :)<BR/><BR/>With regards to your ROE, shouldn't the equation be current_year_revenue/(shareholder equity + previous_year_retained_earnings)?<BR/><BR/>This is because you are calculating returns on the previous year's capital base right?Anonymousnoreply@blogger.com