Ann: Sole gas project update, page-73

Hi Floyd62

Which part are you disagreeing with?
(1) Dividends are paid out of cash flow or
(2) Earnings = Net Income - Dividends (Pref)

To disagree with (1) is to disagree with Statement of Cash Flows.and the Accounting Relations between Earnings & Cash Flows

I'll try to explain ... there is a very important concept called the "Cash Conservation Equation" (aka sources & uses of Funds equation)

C = Cash Flow from Operations
I = Cash Investment (so Capex invested)
Free Cash Flow (FCF) = (C-I) .... one of the many definitions of FCF

d = Net Dividends to Shareholders
F = Net Payments to Debtholders (in all forms)

and the Cash Conservation Equation is then

C - I = d + F

If operations generate more cash than is used in investments, then you have FCF which can be used to pay net interest and buy back bonds (F) or to transact with shareholders by paying a cash dividend or buy back stock. Of course you can keep the cash as well as retained earnings which shows up in Shareholders Equity (which you kind of referred to).


(2) I'm using the term Net Income which has the same meaning as Net Profit. Earnings are not just NP divided by number of shares though. We can simplify it to just that but "earnings" numbers are easily massaged ... and I don't trust that number very often.

Anyway, I get what your saying (I do have a Masters in Applied Finance). I've done and put up what's called a Residual Earnings model on COE over the past couple of years. Residual Earnings have a different perspective to what you see as EPS on stock sites.


What's really at stake though is COE is a rock solid company which (after Sole starts producing at nameplate) will have long term cash generating capability from its twin gas hub strategy (Otway is as much a winner as sole). There will be sufficient cash for the BoD to have a lot of "optionality" with how to apply it to I,F & d.

Really happy holder when Sole at production nameplate. There might be some risk there though that was not previously expected that may be playing games with the share price.