abc learning interim net profit up 62 percent, page-24

also a finance grad and though I havent looked closely at the figures , I would assume that a license is an asset and so we debit it on the balance sheet, and thus for this debit there must be a credit on the other side of the equation (Assets=Liabilities+Equity); Ill have a look into it and get back to you.

Investing activities on cash-flow statement as well as financing activities are not whats important for a high growth company! The OPERATING cash flow is whats important and we need to ascertain 'where' the revenue is coming from? Obviously the revenue would come from the monies the centres make (fees etc); Take away operating expenses (day to day) and we get what the operating (day to day) cash flow is.

Investing/financing activities will be negative obviously due to all the debt and capital raisings!

****Im only interested in net cash flow from the daily operations of the centres

the investment licenses become an asset to the company like intangibles or goodwill and hence add to the equity of the company - so in accounting terms we're debiting an asset and hence the equity will get re-valued up by some 'credit' entry.

im going to look into it to see if something like 'license revenue' is increased to increase the equity. If thats the case then i may be able to see w buffets concern, but just remember:

the operating cash flow should be more or less similar to the net profit.

In any case, even if they increase revenue by increasing their child-care license assets, it IS IN FACT unrealised revenue which will be realised once the licences are SOLD in the event of a takeover.

Its similar to revenue derived from re-valuing property assets like a tonne of the property trusts and developers do. Companys like FKP or City Pacific etc re-value their proprty assets and so this increases their revenue BUT they DO pay TAX every time they do this. Once the asset is sold - the property - thats when the REVENUE is MATCHED with the CASH you receive for it.

Likewise I assume, with ABS - Once the childcare license is sold the REVENUE is MATCHED with the CASH received.

revenues and expenses are not to be confused with cash-flow cause revenues/expenses can reflect future cash flows and are matched to cash at bank when that flow occurs. In the meantime like accounts receivable - they are assets of future flows and matched accordlingly when the flow occurs.

But I see some of your point re this sitch

I guess its more commonplace for a proprety developer to eventually sell a property asset when it feels the time is right than it is for a childcare operator to sell some of its licenses???

then again, a company like FKP isnt gonna sell its prime retirement properties that they derive most of their revenues from unless its under takeover

Likewise ABS isnt gonna sell the licenses unless they get taken over

FKP will continue to re-value proprty up and make revenues (that increase the equity) from this. Once they eventually sell the property the 'credit' to revenue will be matched with a 'debit' to cash at bank. In the meantime it remains an 'asset' from which the company can derive a future cash flow from.

Ill look into this further....

In any case just look at operating cash flow and see the net operating revenue figure and see if its high enough for the company to claim that its doing OK to maintain operations and pay divvys.

It may be low now, but when the company matures the cash flow should be good enough to maintain operations and pay a divvy.

Dont forget - like property assests, the 'licenses' will be re-valued up I would suspect over time as well.

Ill get back to you, but property companies also cop their fair share for getting their revenue from re-valuations!