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As a result, the share value of xxxx has fallen about 50% over the last year and xxx has concluded that the book value of previously capitalised investments should be adjusted down by £3.1 billion.
In plain English what does the above mean?
your pension is ****ed ?
Pension is, apparently, separate pot so hopefully not!!
Depends on the nature of the investments.
Assets such as fixed asset investments (property, say), or financial instruments (swaps e.g.) have been had a revaluation and ouch.
Or more commonly
Goodwill has been written off in a corporate capitalisation. Say, after a takeover/merger, cooler heads realise they cant make massive savings once merged, or dominate the market or some other such promised gain and so the fluffy "marriage" value of the merger that justified that high price has to take a big hit. Ouch too.
It doesnt mean any cash necessarily needs to leave the company, only the balance sheet will have taken a hoof in the slats until the next over valuation event.
impairment adjustment, whatever you've got in isn't worth what it used to be
Yup, sounds like a goodwill write-down on some intangible assets. It's a 'paper' adjustment rather than someone carrying-out suitcases of cash. If you have shares, then don't expect a big dividend payout.
then don’t expect a big dividend payout
Balance sheet shuffle shouldnt have a major bearing on divi.
Balance sheet shuffle shouldnt have a major bearing on divi.
Yep. Good will doesn't affect cash flow, so writing it off shouldn't make a big difference.
JLR I presume?!
Effectively something is designated as an asset if you believe you will get some future economic value from it. So, as an example if you’d spent £500m on developing say, a range of Diesel engines that you expect to be able to flog for the next ten years, you can treat those costs as an asset to be depreciated (ie written off bit by bit). But if the a**e drops out of the diesel market then all the money you’ve spent will have to be written off (or the asset impaired) in one go.
Hope that makes sense!
Thanks all.
Shares fell 30%
timbog160 - couldn't possibly say re JLR...
The rest makes perfect sense, another example being developing a vehicle exclusively for China and then the bottom falls out the chinese market?
This was covered in the wake up to money podcast r5 this morning, download it.
It seems that so much of the stock market values are based on the value of intangible assets now, re-valued upwards on corporate transactions, that it is all becoming a house of cards game.
Some of the most opaque accounts are in pharma, hence why Terry Smith calls "BS" and will not put them in his funds.