BC3/ Underlying Gearing Ratio FY2020
Quote:
Originally Posted by
Snoopy
The underlying debt of the company (debentures and other loan supporting borrowings removed) is the first factor in an attempt to assess the underlying shareholder owned skeleton upon which all the receivables that are loaned ultimately sit.
According to the full year (FY2019) statement of financial position the debt excluding borrowings is:
$22.498m + $7.532m + $10.372m = $40.402m (1)
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To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the 'Investment Properties' (the rump of the problem property portfolio) and the unspecified 'Investments' (held on behalf of policy beneficiaries) from that total:
$4,926.404m - ($3,029.231m +$1,318.819m + $11.132m + $354.928m) = $212.294m
We are then asked to remove the intangible assets from the equation as well:
$212.294m - $72.679m = $139.615m (2)
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Now we have the information needed to calculate the 'underlying company debt' (skeletal picture) net of all Heartland's lending activities [ (1)/(2) ]:
$40.402m/$139.615m= 28.9% < 90%
Result: PASS TEST
The historical picture of this ratio is tabulated below.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
FY2017 |
FY2018 |
FY2019 |
Target |
Underlying Gearing Ratio |
20.2% |
14.7% |
40.5% |
58.4% |
37.4% |
37.6% |
39.4% |
28.9% |
< 90% |
The underlying debt of the company (debentures and other loan supporting borrowings removed) is the first factor in an attempt to assess the underlying shareholder owned skeleton upon which all the receivables that are loaned ultimately sit.
According to the full year (FY2020) statement of financial position the debt excluding borrowings:
$36.262m + $12.303m + $17.012m + $20.456m = $86.033m (1)
-----
To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the 'Investment Properties' (the rump of the problem property portfolio) and the unspecified 'Investments' (held on behalf of policy beneficiaries) from that total:
$5,318.136m - ($3,045.195m +$1,538.685m + $11.132m + $413.340m) = $309.784m
We are then asked to remove the intangible assets from the equation as well:
$309.784m - $72.813m = $236.971m (2)
----
Now we have the information needed to calculate the 'underlying company debt' (skeletal picture) net of all Heartland's lending activities [ (1)/(2) ]:
$86.033m/$236.971m= 36.3% < 90%
Result: PASS TEST
The historical picture of this ratio is tabulated below.
|
FY2016 |
FY2017 |
FY2018 |
FY2019 |
FY2020 |
Target |
Underlying Gearing Ratio |
37.4% |
37.6% |
39.4% |
28.9% |
36.3% |
< 90% |
SNOOPY
BC2/ EBIT to Interest Expense ratio FY2020
Quote:
Originally Posted by
Snoopy
This is an assessment method of looking at the underlying earning power of Heartland Group Holdings, compared to the interest bill they face while making their earnings. Updating for the full year result FY2019:
The EBIT figure is not in the financial statements. So I will use 'interest income' as an indicator for EBIT, once I have taken out the selling and administration costs
EBIT (high estimate) = $334.330m - $85.589m= $248.741m
Interest expense is listed as $136.747m.
So (EBIT)/(Interest Expense)= ($248.741m)/($136.747m)= 1.82 > 1.20
Result: PASS TEST
The historical picture of this ratio is tabulated below. It looks to be getting better and better.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
FY2017 |
FY2018 |
FY2019 |
Target |
EBIT/ Interest Expense |
1.15 |
1.22 |
1.44 |
1.52 |
1.65 |
1.79 |
1.82 |
1.82 |
>1.2 |
This is an assessment method of looking at the underlying earning power of Heartland Group Holdings, compared to the interest bill they face while making their earnings. Updating for the full year result FY2020:
The EBIT figure is not in the financial statements. So I will use 'interest income' as an indicator for EBIT, once I have taken out the selling and administration costs
EBIT (high estimate) = $346.802m - $106.794m= $240.008m
Interest expense is listed as $130.129m.
So (EBIT)/(Interest Expense)= ($240.008m)/($130.129m)= 1.84 > 1.20
Result: PASS TEST
The historical picture of this ratio is tabulated below. It looks to be getting better and better.
|
FY2016 |
FY2017 |
FY2018 |
FY2019 |
FY2020 |
Target |
EBIT/ Interest Expense |
1.65 |
1.79 |
1.82 |
1.82 |
1.84 |
>1.2 |
This is turning into a very solid picture of ever improving interest cost cover over the years,
Working Note
A thought did cross my mind that, with the adoption of IFRS16, I should adjust my calculation this year. IFRS16 has caused the 'operating expenses' that I have used above to decrease. This is because what was last year a straightforward 'tax deductible lease payment' has been removed from the expenses and replaced with:
1/ An extra depreciation charge on an IFRS16 created 'Right to Occupy' asset. (Found under Note 6 to be $2.324m}
2/ An extra interest charge on the 'IFRS16 created', and 'Right to Occupy asset offsetting' 'Capitalised Lease Contract' liability. (I can't find this. Is it subsumed in Note 3, 'Interest Expense', 'Other Borrowings' of $35.888m? )
I feel inclined to add that 'Right to Occupy' Asset depreciation (1/ above) back onto the operating expenses (effectively lowering the EBIT I have estimated) , and make an adjustment -downwards- on the interest expense denominator in my ratio calculation by taking into account 2/. But should I do this? I feel it will take a real accountant to answer that question!
SNOOPY