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Looking at a valuation of Manx Telecom MANX - confusion over impairment

Analysing companies' finances and value from their financial statements using ratios and formulae
TheMotorcycleBoy
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Looking at a valuation of Manx Telecom MANX - confusion over impairment

#178825

Postby TheMotorcycleBoy » November 7th, 2018, 5:20 pm

Hi everyone,

I'm looking at an attempt at doing a DCF and a EPV valuation of MANX, this evening. So for the EPV, some of the ingredients are Amortisation and Depreciation (A&D), but when I look for them on page 42 in the statement of cash flows taking the 2013 report as an example, found here, I see not just A&D, but also an additional entry for "Impairment of PPE".

This is what we see:



So all I want to know is should I, for the purposes of the EPV calculation, handle the Impairment entry in exactly the same way as A&D? Upon reading Note 4. I believe I'd be justified to act as so - but I wondered if anyone else could confirm.

many thanks
Matt

PS does anyone know how I can make my tables look more sane, i.e. not pad the first column with w/s and instead left justify all my columns?

tjh290633
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Re: Looking at a valuation of Manx Telecom MANX - confusion over impairment

#178847

Postby tjh290633 » November 7th, 2018, 7:14 pm

My method with tables is to have the details in a spreadsheet, then just copy into a [pre] format box in the Lemon Fool Financial Software tool, found at http://lemonfoolfinancialsoftware.weebl ... ormat.html

I replace the column separator with three spaces, and put a full stop in any empty cells in the header row.

Numbers are usually right justified and text left justified.

TJH

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Re: Looking at a valuation of Manx Telecom MANX - confusion over impairment

#178898

Postby Gengulphus » November 8th, 2018, 3:10 am

TheMotorcycleBoy wrote:PS does anyone know how I can make my tables look more sane, i.e. not pad the first column with w/s and instead left justify all my columns?

I have posted a reply to this at viewtopic.php?f=21&t=14640, on the Biscuit Bar rather than this board because it's about an aspect of using TLF rather than fundamental analysis. And I'm afraid I know nothing about the EPV technique and so don't have anything to say about the main question, and won't until and unless I take a good look at it - which I'm afraid is unlikely to be anytime soon!

No criticism of TJH's answer, by the way - which one prefers is probably a matter of taste, and might vary between posts. For instance, I generally don't use mine on the Games, Riddles and Puzzles board, because the use of tables is incompatible with what is now the standard way of hiding 'spoilers' there...

Gengulphus

TheMotorcycleBoy
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Re: Looking at a valuation of Manx Telecom MANX - confusion over impairment

#178905

Postby TheMotorcycleBoy » November 8th, 2018, 6:14 am

Thanks for both of your suggestions, regarding the tables, people. Will have a better play with them some time. I've certainly found, for my current exploits in TLF, using "table" instead of "pre" is far easier for quickly pasting across spreadsheet stuff.

When I used "pre" I found I'd take ages inserting space to get the desired appearance. At least with "table" construct I'm now able to get entries aligned much faster, with less fuss. I just need to work on the minutiae of the presentation!

Matt

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Re: Looking at a valuation of Manx Telecom MANX - confusion over impairment

#179534

Postby TheMotorcycleBoy » November 11th, 2018, 7:19 pm

Back to my original post. I decided to read up more about the difference between depreciation and impairment, e.g. here:

https://www.investopedia.com/ask/answer ... irment.asp
https://www.morganintl.com/blog/account ... equipment/

I think I get it. Depreciation is to account for the idealised reduction of value of a fixed asset. e.g a machine is purchased at cost £50k and with straight line depreciation terms will end it's useful in 5 years. Thus for each year the company can apply a depreciation charge of £10k for this item.

Impairment is when the item's real value "recoverable amount" has fallen to a figure less than the "carrying amount" in the company's financial statements. In the above example, I suppose that after only 2 years although the company have assumed -£20k less in value due to orderly depreciation, it could well be that the company made a bad investment buying the thing for £50k in the first place.......and actually is now worth less than the implied £50-20k value it would logically carry on the firms BS after this 2 years usage period.

Comments/critique welcomed.

TheMotorcycleBoy
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Re: Looking at a valuation of Manx Telecom MANX - confusion over impairment

#184373

Postby TheMotorcycleBoy » December 2nd, 2018, 6:11 pm

Amortisation = calculated and orderly reduction of an intangible assets value, an annual "charge"
Depreciation = calculated and orderly reduction of a tangible assets value, an annual "charge"
Impairment = an unpredicated reduction of either tangible/intangible assets value, a.k.a. a "writedown"

Impairment, not to be added back to an EPV valuation, since although an NCC, it represents a prior loss, as distinct from a useful cost contributing toward the business.

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Re: Looking at a valuation of Manx Telecom MANX - confusion over impairment

#184786

Postby Charlottesquare » December 4th, 2018, 10:43 pm

TheMotorcycleBoy wrote:Amortisation = calculated and orderly reduction of an intangible assets value, an annual "charge"
Depreciation = calculated and orderly reduction of a tangible assets value, an annual "charge"
Impairment = an unpredicated reduction of either tangible/intangible assets value, a.k.a. a "writedown"

Impairment, not to be added back to an EPV valuation, since although an NCC, it represents a prior loss, as distinct from a useful cost contributing toward the business.


I prefer to view depreciation as the annual value to the business of having the use of the asset rather than a reflection of the reduced value of the asset. It is somewhat a semantics exercise as the value of use pretty much reflects the reduction in value in most cases, but remember not all assets are carried at cost under IFRS there is scope for a company to revalue their assets. In addition carrying costs include the assets purchase, installation and later provision re decommissioning its carrying cost is on day one a tainted metric re its value as obviously if sold tomorrow and removed it is unlikely the purchaser would cover the installation and decommissioning costs. Accordingly if a "valuation" metric was used every company would buy an asset and day one impair it, they do not because they are valuing it at the cumulative economic benefit they anticipate over its economic life that it gives to the entity not its resale value.

"The depreciation method used should reflect the pattern in which the asset's economic benefits are consumed by the entity [IAS 16.60];"

"An item of property, plant and equipment should initially be recorded at cost. [IAS 16.15] Cost includes all costs necessary to bring the asset to working condition for its intended use. This would include not only its original purchase price but also costs of site preparation, delivery and handling, installation, related professional fees for architects and engineers, and the estimated cost of dismantling and removing the asset and restoring the site (see IAS 37 Provisions, Contingent Liabilities and Contingent Assets). [IAS 16.16-17]"

https://www.iasplus.com/en/standards/ias/ias16


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