Comprehensive income and equity valuation, Part 2: Importance of corporate balance sheet management ability

- Hosting an IFRS seminar — "We will be hosting a seminar on October 13, 16:00–18:00, at the 9th floor conference room in the Shin-Marunouchi Building. Our guest speakers will be Mr. Ikuo Nishikawa, chairman of the Accounting Standards Board of Japan (ASBJ), and Mr. Takehiro Arai, Vice Chairman of the ASBJ. The theme will be Convergence with the IFRS and reform of Japan’s accounting system."
- What is profit? — "We believe comprehensive income, rather than NP, is coming to exert a substantial impact on share prices. This is in our view particularly pronounced when NP is positive and comprehensive income is negative. Companies with sizeable overseas assets, equity holdings, and corporate pensions see big swings in comprehensive income."
- The case of Mitsubishi Corp. — "Mitsubishi Corp. reported FY3/09 NP around the ¥370bn mark. However, comprehensive income was in the red to the tune of ¥384.9bn. The shares fell that year by 57.3%, while TOPIX was down only 36.2%. To our mind, this is a good example of the impact of comprehensive income on share prices."
- The case of April–June 2010 — "Mitsubishi Corp. reported NP of ¥140.4bn but a comprehensive loss of ¥59.4bn (other comprehensive losses amounted to ¥199.9bn). The shares fell 23.9% in the quarter. Sumitomo Corp. reported NP of ¥64.6bn but a comprehensive loss of ¥22.3bn. The shares fell 16.5%."
- The cases of Toyota Motor and Panasonic — "Leading companies that were in the red for comprehensive income but in the black for NP are Toyota Motor and Panasonic (Toyota does not disclose comprehensive income, so this is our estimate). In April–June, Toyota shares fell 17.8% and Panasonic 21.5%."
- Companies with few equity holdings — "Among other global Japanese companies, we consider balance sheet risk to be relatively slight at Hoya, Canon, Fanuc, and Murata. We think they offer more investment appeal in the current strong yen, low share price environment than companies with volatile comprehensive income."


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