All GLG News Analyses Filed Under: Financial Forecasting & Analysis

Hedging Sub-Prime Mortgage Markets

October 19, 2007

Analysis by: GLG Expert Contributor

Analysis of:The More Hedges the Better, Right? | online.wsj.com

With the 20th anniversary of the October 19, 1987 "Black-Monday" 22% single-day stock-market drop lessons learned apply much the same today. Since Sept. 18, 2007, the day the Federal Reserve cut interest rates by 50 basis points, a group of big banks have combined to create structured investment vehicles, or SIVs, to try to form a new fund to help avoid potential big losses from a part of the market that remains largely frozen since 2007 summer's debt-market turmoil. As the title of this article implies, more hedging and more sophisticated hedging is not the answer.

CSX Corporation – Underperforming its Class I Peers?

October 18, 2007

Analysis by: GLG Expert Contributor

Analysis of:The Children’s Investment Master Fund Urges CSX to Take Immediate Action to Improve Corporate Governance and Business Performance | home.businesswire.com

A large hedge fund based in London recently made headlines by publicizing a critical letter that it sent to the board of CSX Corporation (CSX).  The letter raised several concerns and called for a broad slate of improved practices and performance at the large Class I rail carrier.  Reading through the letter brought to mind some previous studies of mine where I analyzed certain aspects of the financial performance of the Class I rail carriers.  What I found with CSX is consistent with certain aspects of the critical letter - the company underperformed its peers in terms of earnings quality and ROIC/EVA performance.  

Marketable “Trading” Securities – Watch Out for Material Distortions to Operating Cash Flow

October 16, 2007

Analysis by: GLG Expert Contributor

Analysis of:3/31/07 10-K for Arctic Cat (ACAT) | sec.gov

This post specifically discusses the potential for significant distortions to operating cash flow due to material levels of investments in marketable “trading” securities.  The "Analysis" section below provides some actual public company examples of how operating cash flow can be impacted and gives several recommended steps on how to analyze if a company is engaging in such activities.

A short comment

October 16, 2007

Analysis by: GLG Expert Contributor

Analysis of:Barclays Loses Battle for ABN Amro | www.businessweek.com

Barclays losing ABN wil not be deterimental to its value and short term investor will like the idea anyway due bid premium and possibility of another deal. All in all it is good thing that Barclays lost the battle unless you are an employee of the bank. This might prompt a reorganisation and cost cutting process to recognise lower profitability due to credit crunch. RBS consortium on the other hand had paid a high price and have a low chances of getting the break up right. However as outsiders we will never be able to see the true value addition (or destruction) of this deal.

Korea now seeks to foreign investment in political and economic reasons

October 8, 2007

Analysis by: GLG Expert Contributor

Analysis of:Foreign Firms Asked for Joint Inroads Abroad | www.koreatimes.co.kr

Central and local governments in Korea are seeking foreign investment. The President election in Korea is coming at December 19, 2007. The opposition reader, Lee, Myung- bak now shows over 51% supports in political surveys. The central government and ruling party need to something to attract the people in Korea.The leaders in local governments in Korea were elected in May 31, 2006. The local leaders’ tenure of officeisfour years. The main election pledges of local leaders are to attract foreign investments into local provinces. They need to show something within the remainder their term of office. The central and local governments in Korea will loose their regulations for foreign investment. And they will try to give more incentives such as tax exemptions, free use of lands, transportation services, etc. to foreign investors. They are now in competition to survive or not

Korea now seeks to foreign investment in political and economic reasons

October 8, 2007

Analysis by: GLG Expert Contributor

Analysis of:Foreign Firms Asked for Joint Inroads Abroad | www.koreatimes.co.kr

Central and local governments in Korea are seeking foreign investment. The President election in Korea is coming at December 19, 2007. The opposition reader, Lee, Myung- bak now shows over 51% supports in political surveys. The central government and ruling party need to something to attract the people in Korea.The leaders in local governments in Korea were elected in May 31, 2006. The local leaders’ tenure of officeisfour years. The main election pledges of local leaders are to attract foreign investments into local provinces. They need to show something within the remainder their term of office. The central and local governments in Korea will loose their regulations for foreign investment. And they will try to give more incentives such as tax exemptions, free use of lands, transportation services, etc. to foreign investors. They are now in competition to survive or not

Analyzing Software Development Costs for Signs of Aggressive Accounting

October 4, 2007

Analysis by: GLG Expert Contributor

Analysis of:Capitalization of Software Development Costs - A Survey | mgt.gatech.edu

This post specifically discusses some key issues on the accounting practices companies use for capitalizing and amortizing software development costs. The "Analysis" section below gives investors several tips and techniques on how to analyze software development activities for signs of aggressive accounting.

SFAS 159 – New Standard Can Lead to “Counterintuitive” Impacts on P&L and Comparability Problems

October 1, 2007

Analysis by: GLG Expert Contributor

Analysis of:The Gold at Crunch's End | online.wsj.com

The FASB recently passed a new accounting standard - SFAS 159 - which could improve financial reporting to a certain degree and yet, at the same time, lead to some counterintuitive impacts on the P&L and impair comparability among companies.  Unfortunately, the new standard may provide a new way for some companies to manage earnings – and lead to a negative impact on earnings quality.  Like most accounting rules that have been formally adopted, there is a certain level of “minutia” within the SFAS 159 standard that (in reality) most investors just don’t have the time to fully comprehend.  However, the "Analysis" section below discusses certain aspects of SFAS 159 which are important for analysts and PMs to be aware of going forward.

How should investors measure earnings quality?

September 28, 2007

Analysis by: GLG Expert Contributor

Analysis of:How Many Quarters in a Row Can Earnings Really Grow? | www.nytimes.com

Investors sometimes ask the question - what is a “quick but reasonable” way to efficiently assess the earnings quality of a company? The answer is to perform a “Cash Gap Analysis” – which is a high-level, quantitative test that involves comparing trends in net income relative to trends in operating cash flow (OCF) and free cash flow (FCF) over recent quarters.  The "Analysis" section below gives an overview of how to perform a Cash Gap Analysis and discusses several reasons why this can be a useful test for earnings quality.

Why should investors care about earnings quality?

September 28, 2007

Analysis by: GLG Expert Contributor

Analysis of:How Many Quarters in a Row Can Earnings Really Grow? | www.nytimes.com

A recent study completed by three accounting professors found that hundreds of companies were identified as having compelling evidence of earnings management.  The "Analysis" section of this post discusses several reasons why investors should care about the earnings quality of a company. 

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