PEMS strategy = equity method accounting = only dividends from the holding is included in the calculation of FCFA2S, nothing else. The company needs to find a way to include the real value (should be a % of FCF or just operating income of the minority stake). Otherwise, if the minority stake does not pay dividends, the value is not reflected in FCFA2S at all.
I hear you. In that case it'd be only reflected in the p&l and balance sheet. What you propose could be a good way for valuation purposes. Market needs to figure this out though, Topicus just follows the accounting rules.
FCFA2S is not really GAAP though, so Topicus needs to find a way to include the pro rata FCF of the minority stakes so that the FCFA2S is more accurate, especially if PEMS becomes a more important strategy. For example, maybe do not back out the net income in the cash flow statement (and of course do not include relevant dividends)? It is a tough situation, but to make FCFA2S more accurate, some kind of adjustment needs to be done.
Great article! Thanks
PEMS strategy = equity method accounting = only dividends from the holding is included in the calculation of FCFA2S, nothing else. The company needs to find a way to include the real value (should be a % of FCF or just operating income of the minority stake). Otherwise, if the minority stake does not pay dividends, the value is not reflected in FCFA2S at all.
I hear you. In that case it'd be only reflected in the p&l and balance sheet. What you propose could be a good way for valuation purposes. Market needs to figure this out though, Topicus just follows the accounting rules.
FCFA2S is not really GAAP though, so Topicus needs to find a way to include the pro rata FCF of the minority stakes so that the FCFA2S is more accurate, especially if PEMS becomes a more important strategy. For example, maybe do not back out the net income in the cash flow statement (and of course do not include relevant dividends)? It is a tough situation, but to make FCFA2S more accurate, some kind of adjustment needs to be done.
100% rooting for this if PEMS becomes a thing. 👀
Also, since FCFA2S is the most watched item for the company themselves, they need to make it as accurate as possible.