fundamental analysis

[kingsfall]

hi im still new to fundamental analysis. recently i've been conducting FA on Jadine C&C and ive came to realize the net income they earned, more than 50% goes into "minority interest" a coy that owns more than 50% of C&C. so my question is, when you conduct FA, do you look at the total net income they earned or look at the net income they receive after giving to their minority interest? for me at the start i looked at the total net income, then i realized that the EPS reported doesn't corelate to their total net income, rather their received net income thats why im confused.

 

[Dividends Warrior]

I usually look at retained earnings.

 

[kingsfall]

I usually look at retained earnings.

hokay.... thanks

 

[lzydata]

I think TS is mistaken about the "minority interest" or "non-controlling interests". An income statement consolidates the income of the subsidiaries where the company owns a majority of their shares. The minority interest that is excluded in the second-to-last line is the part of the subsidiary that is not owned by the company.

In JC&C's case, their consolidated accounts include 100% of Astra's results - profits/losses, assets, cash flows etc. - but this is not strictly right because JC&C owns only 50.1% of Astra. Therefore the minority interest subtracted mostly consists of the 49.9% of Astra that is not owned by JC&C. This 49.9% is listed in Indonesia.

So the minority interest doesn't refer to the part of JC&C that is not owned by the public. This is reported in a different section as "substantial shareholders". Incidentally, in the 2012 annual report, Jardine Strategic is reported to own 72.32% of JC&C, and Malaysia's EPF Board 5.88%.

 

[Carnage]

I'm confused by this as well.

Minority interest is the portion that is not owned by the company in question. So you're saying that the numbers reported by JC&C includes the portion owed to them by Astra, is that 100% or the proportion that is owned by JC&C only?

 

[lzydata]

I'm confused by this as well.

Minority interest is the portion that is not owned by the company in question. So you're saying that the numbers reported by JC&C includes the portion owed to them by Astra, is that 100% or the proportion that is owned by JC&C only?

I am confused by your post, haha

All profits/losses, assets/liabilities and cash flows reported in a company's consolidated accounts assume that the company owns 100% of all their subsidiaries. The company just adds everyone's numbers together. However, in reality they don't own 100% of their subsidiaries, so they do not share in 100% of their subsidiaries' profits. Thus, below all the accounting, the company minuses off this "minority interest", the part they do not own and control.

Please have a look at JC&C's 2012 annual report, for the year ending 31 Dec 2012. Reported profit after tax is USD 2,330.2m. Of this, profit attributable to shareholders of the company is USD 987.0m; to non-controlling interests, USD 1,343.2m. On pages 76-77 (note 9, earnings per share), JC&C lays out the calculation to get to USD 987.0m.

I cannot pretend to understand it very well, because I don't have an accounting background, but to put it simply, JC&C's 2012 profit would be USD 2,330.2m if they owned all of Astra, as laid out in their consolidated statement. But they don't, they own only 50.1% of it. So JC&C's actual 2012 profit is about half, USD 987.0m.

This can be verified by looking at Astra's financial statement for the year ending 31 Dec 2012, which JC&C also makes available in their SGX announcements. They report a net income of IDR 19,421b. As the USD-IDR exchange rate was around 9,000-10,000 in the year 2012, this means a net income of around USD 2b. Logically, because JC&C owns half of Astra, and its non-Astra businesses are relatively small, JC&C will share half of Astra's profits i.e. around USD 1b. Not surprisingly, that's what we get in JC&C's statement.

http://infopub.sgx.com/FileOpen/AstraFY2012Results.ashx?App=Announcement&FileID=231575

 

[Mecisteus]

Just look at the net profit attributable to shareholders of the company for the income statement.

Look at the net assets attributable to shareholders of the company for the balance sheets.

 

[Carnage]

I am confused by your post, haha

All profits/losses, assets/liabilities and cash flows reported in a company's consolidated accounts assume that the company owns 100% of all their subsidiaries. The company just adds everyone's numbers together. However, in reality they don't own 100% of their subsidiaries, so they do not share in 100% of their subsidiaries' profits. Thus, below all the accounting, the company minuses off this "minority interest", the part they do not own and control.

Please have a look at JC&C's 2012 annual report, for the year ending 31 Dec 2012. Reported profit after tax is USD 2,330.2m. Of this, profit attributable to shareholders of the company is USD 987.0m; to non-controlling interests, USD 1,343.2m. On pages 76-77 (note 9, earnings per share), JC&C lays out the calculation to get to USD 987.0m.

I cannot pretend to understand it very well, because I don't have an accounting background, but to put it simply, JC&C's 2012 profit would be USD 2,330.2m if they owned all of Astra, as laid out in their consolidated statement. But they don't, they own only 50.1% of it. So JC&C's actual 2012 profit is about half, USD 987.0m.

This can be verified by looking at Astra's financial statement for the year ending 31 Dec 2012, which JC&C also makes available in their SGX announcements. They report a net income of IDR 19,421b. As the USD-IDR exchange rate was around 9,000-10,000 in the year 2012, this means a net income of around USD 2b. Logically, because JC&C owns half of Astra, and its non-Astra businesses are relatively small, JC&C will share half of Astra's profits i.e. around USD 1b. Not surprisingly, that's what we get in JC&C's statement.

http://infopub.sgx.com/FileOpen/AstraFY2012Results.ashx?App=Announcement&FileID=231575

AHHH!!! Yes, that's why it's always LESS minority interest.

Got it, thank you very much!

 

[kingsfall]

So if c&c owns like eg: 20% of astra, then on the income statement, they'll need to subtract majority interest. Am I right?

 

[lzydata]

So if c&c owns like eg: 20% of astra, then on the income statement, they'll need to subtract majority interest. Am I right?

If the company owns more than 50% of another entity, or generally, if the company is able to control the entity, the entity is considered a subsidiary and its accounts will be consolidated, i.e. treated as if it is 100% owned, and then the minority interest minused off.

However, if the company owns less than 50% of another entity, or has significant influence but cannot control the entity, the entity is considered an associate or a joint venture, or sometimes just an "investment" if it is a very small interest. Only the share of the entity that is owned by the parent company is recognised in the company's accounts; there is no consolidation or minusing off.

This is explained in Note 2.2 of JC&C's annual report, page 54. That's why there is an entry for "share of associates' and joint ventures' results after tax" in the profit and loss account, an entry for "interests in associates and joint ventures" in the balance sheet, and so on. I believe other companies will have similar treatment.