Halma - FTSE 100 darling or overpriced lemon with bloated balance statement

[Alaric]

Since in inflationary environments the nominal value of an asset may increase with time.......e.g. in a country with 7% inflation $5m of machine could cost $10m to replace in 10 years time. However, regards the depreciation of the original ($5m) purchase is the future replacement cost (e.g. $10m) ignored in the way that the original assets depreciation is accounted? (I'm assume it is.....)

Back in the 1970s, there was an attempt to develop accounting standards that adjusted for inflation.

https://en.wikipedia.org/wiki/Inflation_accounting

Increasingly over the years that followed, assets are "marked to market". That can mean that a Company owning its own premises can reflect an increased value in its balance sheet.

[TheMotorcycleBoy]

I found a couple of youtube clips describing how money moves between the BS and the P&L

Pizzas - impairment to the oven https://www.youtube.com/watch?v=V0o5Ki_mvBU

Software - amortisation of capitalised dev. https://www.youtube.com/watch?v=T12v8raqWUc

yes, they are from the US but the concepts are the same, and they reinforce my earlier viewpoints. What I think is dubious (and I'm sure that it occurs in many UK firms), is that costs for internal only systems are often treated in a similar way (I think!!). I assume that the accounting standards we have here provide considerable latitude in such instances....

Matt

[dspp]

TMB,

There is a thread running at viewtopic.php?f=87&t=15272 regarding overvaluation of assets that is touching on the same issue.

My general take on it is that you are correct that it is all about putting the 'right' value on the balance sheet. But since that depends on so many other things it is difficult to have one right and true answer. And that is both an opportunity and a risk from an investor's perspective - or from an M&A (and asset strip) perspective.

The acountancy types are always around to tell me that the detail matters, and I am sure one will be along shortly to give further guidance.

regards, dspp

[TheMotorcycleBoy]

But I'd sure love to know!......

Perhaps try the same analysis on a known failure such as Carillion .

A hazard for investors is asset failure. That's where a Company seemingly given a clean bill of health a few months earlier suddenly collapses. It's not just goodwill and intangibles that can become worthless but they invariably seem prime candidates for write-offs. The Company goes into administration, there's nothing of value to sell in a restructure, so shareholders get nothing.

I did want to start a new thread about assets, and depreciation, amortisation, impairment and write-down in the "Company Analysis" board, but seeing as several are posting here I'll write it in this thread.

I had another read of my book "The Signs were there" last night. (IIRC the case study was on NCC https://en.wikipedia.org/wiki/NCC_Group).

The study revealed yet another way that write-downs can appear in the P&L statement. This is manifest as an "Exceptional cost/item", which I think is lodged somewhere in between the sales and the EBIT lines. So this reduction is not put in either the amortisation, depreciation, or impairment columns.

Matt