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clock Created with Sketch. 22/06/18
16:38
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Originally posted by Madtrader
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That may be. However, all of CCP, PNC and CLH suffer the same fundamental problem when reporting their results. A large part of what they need to do to determine the carrying value of their PDL books is to determine either fair value (PNC) or amortised cost (the other two). Both of these methods require a crystal ball to estimate the future cash flows that then informs what the balance should be and thus the amount taken as revenue to the income statement. The only known is the purchase price, past collections and that the asset must be worth zero when eventually repaid (in part or full), written off as non-collectible or statute barred. Thus how one gets from the purchase price to zero and match that with the cash collection stream is the name of the game in trying to report earnings (and thus the ability to play with the numbers if one so chose).
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Companies should be minimising their reported profit. It is very good practice, particularly when the future cash-flows from the assets are unpredictable. I like the way PNC does this.
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