understanding the result, page-3

young-trader

Goodwill is just the difference in value between the amount paid for a business and the net tangible assets of that business. So if you pay $100m for a business that only has cash of $10m and no other assets or liabilities, then you book a goodwill amount of $90 (the difference) in your accounts. You have paid $100m and your assets are $10m of cash and $90m of goodwill. You may do this because the company has good profits even though it only has $10m cash. However, from an accounting perspective, the value of the goodwill has to be regularly reviewed and if the profits of the business you have bought are looking lower than expected when you bought it, basically you have to write down the value. So on its own a goodwill write down is not a big problem.

However, looking at the results:
- stock write down whilst reported as non-recurring may not turn out to be so if due to significant discounting
- appears to be a real culture of forward selling to meet year end targets which is worrying given seem to use extended terms and discounting to achieve
- increased discounting in last quarter (as disclosed) likely to flow on to full year?
- net cash flow of only $19m from operating activities and that is before paying for replacement fixed assets

so fundamentally looks dodgy