Up or Down ??, page-3055

What is the difference between NECand SWM? If NEC's assets earn $261m and SWM's assets earn $126m why is the MC misaligned 7:1 instead of 2:1.

If you think SWM should have a sp of $0.60c then that is a MC of 50% more thancurrently $671m. It still does not make sense as to what the assets of each company are worth. Missing a dividend does not make sense out of these numbers. It really feels much more like the market does not trust SWM's longer term numbers and this is very annoying.

I have read one article by Simply Wall St,Published August 22, 2021 which IMO definitely misinterprets the Earnings of$318m by including significant items ofabout $217m (reversing the covid write down of intangibles):

"Even though Seven West Media Limited (ASX:SWM) postedstrong earnings recently, ... We looked deeper into the numbers and found thatshareholders might be concerned with some underlying weaknesses."

BUT the corresponding graph shows a much healthiercompany than in recent years:

“Zooming In On Seven West Media'sEarnings

…, the key ratio used to measure howwell a company converts reported profits into free cash flow (FCF) is theaccrual ratio (from cashflow). In plain english, this ratio subtracts FCF fromnet profit, and divides that number by the company's average operating assetsover that period. You could think of the accrual ratio from cashflow as the'non-FCF profit ratio'.

Overthe twelve months to June 2021, Seven West Media recorded an accrual ratio of0.78. Ergo, its free cash flow is significantly weaker than its profit.Statistically speaking, that's a real negative for future earnings. In fact, ithad free cash flow of AU$128m in the last year, which was a lot less than itsstatutory profit of AU$318.1m. At this point we should mention that Seven WestMedia did manage to increase its free cash flow in the last twelve monthsHowever, that's not all there is to consider. We cansee that unusual items have impacted its statutory profit, and therefore theaccrual ratio.

TheImpact Of Unusual Items On Profit

The fact that the company had unusual items boosting profit by AU$217m, in the lastyear, probably goes some way to explain why its accrual ratio was soweak. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable.We ran the numbers on most publicly listed companies worldwide, and it's verycommon for unusual items to be once-off in nature. And, after all, that's exactlywhat the accounting terminology implies. We can see that Seven West Media'spositive unusual items were quite significant relative to its profit in theyear to June 2021. As a result, we can surmise that the unusual items aremaking its statutory profit significantly stronger than it would otherwise be.

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What's this all about? IMO Statutory Reporting by SWM (continuingoperations) means some significant items must be included. The above is what the article does not like, but I think it badly mucks up the point of $217m significant items. So the Simply Wall St published report and others like it, will go a long way to why the sp has not moved. These reports IMO, do not seem to be have written by an analyst but rather automated. Why else would you stew over needing a profit to be sustainable, when its obvious that SWM just put back the loss of goodwill after covid ($217m odd).

And ofcourse SWM just focuses on the $126m profit! This is why I am comparing it toNEC’s $261m