Reading Between the Lines of Corporate Financial Reports by Jacek Welc

Reading Between the Lines of Corporate Financial Reports by Jacek Welc

Author:Jacek Welc
Language: eng
Format: epub
ISBN: 9783030610418
Publisher: Springer International Publishing


Source Annual report of Conviviality plc for fiscal year ended May 1, 2016

According to these computations, a distorting impact of the Matthew Clark’s takeover on change in the Conviviality’s working capital, reported in its consolidated operating cash flows, amounted to 30.518 GBP thousand. However, as was shown in Table 6.14, the discrepancy between the change in working capital reported in the company’s balance sheet and cash flow statement amounted to −29.920 GBP thousand [=−31.768 − (−1.848)]. A gap between these two numbers, amounting to 598 GBP thousand [=30.518 − 29.920], was probably attributable to the Conviviality’s other business combinations (much smaller in scale than the takeover of Matthew Clark) closed in the fiscal year ended May 1, 2016.

Table 6.16 presents adjustments of operating cash flows reported in consolidated financial statements of Conviviality plc, for estimated distorting effects of the company’s takeovers of other entities. As expected, the impact of these adjustments on the numbers reported for the fiscal year ended April 26, 2015, is rather small, since the reported operating cash flows, amounting to +9.776 GBP thousand, are increased to 10.527 GBP thousand (i.e. by less than 8%). This is consistent with a small scale of business combinations done by the company in that period. In contrast, the effect and direction of these analytical adjustments on operating cash flows reported for the fiscal year ended May 1, 2016, is evidently stunning. In that period the Conviviality’s reported operating cash flows amounted to +21.828 GBP thousand (much more than in the preceding two fiscal years), while our analytical adjustments turn it into a negative number of −8.092 GBP thousand. The amount of this downward correction (i.e. −29.920 GBP thousand) is based on the gap between changes in working capital reported by the company in its balance sheet and cash flow statement. That gap, in turn, was almost entirely attributable to the takeover of Matthew Clark, which boosted the Conviviality’s consolidated working capital by as much as 30.518 GBP thousand, without being reflected in changes in working capital reported in the company’s consolidated cash flow statement. This proves that reported operating cash flows of businesses which grow by significant acquisitions of other entities may be dramatically distorted (particularly in case of serial acquirers) and should not be relied upon blindly.Table 6.16Adjustments of consolidated operating cash flows reported by Conviviality plc, for estimated impacts of its business combinations on reported changes in working capital



Download



Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.