cof cof cof !, page-9

Omec
following quote from COF Dec2009 a/cs:

"NTA Backing
Dec 2009
Net tangible asset backing per ordinary security (16.5) cents"

Unless one is looking at a break-up, I don't see the relevance of net assets in the context of earnings/performance. Some companies will have substantial borrowing to fund their activities and others will have equity - very different nta but similar performance except for interest cost.

Looking at COF's balance sheet at 31/12/09, I think I now understand some of the market aprehension about COF:

equity 195
borrowing 204
owed to employees 39
other liab 38
total 476

cash 39
debtors and wip 224
intangibles 213
total 476

that's not a healthy balance sheet: the margin for failure in debtors or wip is very thin; on a nta basis there is a banking term used where liabilities exceed assets. not healthy.

That balance sheet needs a substantial capital injection and/or, if the goodwill is not impaired/reduced by debit against earnings, then we should see a substantial uplift in retained earnings for a number of years to reduce that intangible overhang, yet COF distributes a high % of its earnings, so the weak balance sheet may survive for years!


Nevertheless, I have to acknowledge that their performance year on year has been fine (exception GFC years 2008 and 2009) and the 30/6 update was relatively positive.

The balance sheet liability of debt due to employees is unusual and probably indicates a cash flow problem at that date - not good for confidence when the market becomes aware.