How to identify ill advised Capex spending by looking at a company reports
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Posted on: 08-09-11 14:03:47
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..
Quote:It should show on the cash flow statement, usually after Cash from Operations.
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 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.
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"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"
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:It should show on the cash flow statement, usually after Cash from Operations.
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 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.
Quote:Have the quarterly financial statements been released yet?
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.
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?
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"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"
