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  Canada Immigration Forum > About Canada > Accounting and Taxation > How to identify ill advised Capex spending by looking at a company reports
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How to identify ill advised Capex spending by looking at a company reports




A large canadian company with over 10 billion in sales and 4.5 gross profit and 1.5 million net profit.

The company invested 500 million in a large IT software replacement initiative that failed.
The spending was done as capex hence it does not show on P/L

How would this investment show on the balance sheet..


 
dudewheresmycar

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Post ID: 187262 08-09-11 14:03:47
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pratickm
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Quote:
Originally posted by dudewheresmycar
A large canadian company with over 10 billion in sales and 4.5 gross profit and 1.5 million net profit.

The company invested 500 million in a large IT software replacement initiative that failed.
The spending was done as capex hence it does not show on P/L

How would this investment show on the balance sheet..

It should show on the cash flow statement, usually after Cash from Operations.
It won't be on the balance sheet directly, but the effect can be seen as a reduction in cash and increase in tangible assets (assuming some computers or software were purchased).
However, if the total thing is a disaster i.e. company has nothing to show for that expenditure then the net effect will be simply a reduction in cash balance.

-----------------------------------------------------------------
"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."

-- Rhett Butler in "Gone with the Wind"

 
Post ID: 187277 08-09-11 21:18:56
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dudewheresmycar
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Member since: Jan 07




Posts: 980
Location:


But reading BS increase in tangible asset does not tell us the project failed.

Why i ask is because i know a company where a project has failed but has not come out in the market..

So how do u identify such issues with companies.



Quote:
Originally posted by pratickm

Quote:
Originally posted by dudewheresmycar
A large canadian company with over 10 billion in sales and 4.5 gross profit and 1.5 million net profit.

The company invested 500 million in a large IT software replacement initiative that failed.
The spending was done as capex hence it does not show on P/L

How would this investment show on the balance sheet..

It should show on the cash flow statement, usually after Cash from Operations.
It won't be on the balance sheet directly, but the effect can be seen as a reduction in cash and increase in tangible assets (assuming some computers or software were purchased).
However, if the total thing is a disaster i.e. company has nothing to show for that expenditure then the net effect will be simply a reduction in cash balance.



 
Last edited by: dudewheresmycar on 09-09-11 06:57:36
Post ID: 187284 09-09-11 06:26:21
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pratickm
Global Moderator
Member since: Feb 04




Posts: 2831
Location: Toronto


Quote:
Originally posted by dudewheresmycar
But reading BS increase in tangible asset does not tell us the project failed.

Why i ask is because i know a company where a project has failed but has not come out in the market..

So how do u identify such issues with companies.

Have the quarterly financial statements been released yet?
Is the capex reflected on the cash flow statement?
That is the first place to look.

If the statements have been released, what is the explanation by the company for the drop in cash balances, or the increased write off?

-----------------------------------------------------------------
"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."

-- Rhett Butler in "Gone with the Wind"

 
Last edited by: pratickm on 09-09-11 18:59:56
Post ID: 187310 09-09-11 18:59:37
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