I'm new to PM and in doing my first review of the balance sheet, I'm fairly stunned that shareholder equity has been dramatically declining every quarter for the last four quarters. In addition. their debt level is steadily climbing. What are the reasons for these two?
Check out the article on Investopedia.com on share buybacks and how they distort the equity per share.
Also consider that when they did this recent buyback (at about $36/share) in the first quarter the dividend yield versus the cost of the debt.
I guess proof is in the pudding. What was the effect of the share buybacks on equity per share? Specifically, what was equity per share in each of the last five quarters? Did they permanently retire those shares they bought back?
Did they teach you how to type in all caps to show your rage too?? Book smarts can be very damaging in the hands of someone worried too much about the semantics of a post to understand the true meaning.
Good luck to you, you're going to need it.
Free cash flow is net income plus depreciation:
this happens before the balance sheet where shareholders equity is posted.
bonehead i have a masters degree in accounting
Declining equity per share is a byproduct of PM or any companies share repurchase program. If they spend $40 per share for their stock that only has an equity value of $5 per share what happens to the difference of 35?
It's a loss and it lowers their equity value per share.
Well it's not correct that any time a company repurchases shares that they decrease equity per share. If you take your repurchasing program out of free cash flow - and most companies that buy back do that - then you can actually be increasing your sharedholder equity and doing the buyback simultaneously.
It looks like PM has undertaken a deliberate strategy to use debt to do share buybacks that are way in excess of what they can finance through cash flow, and it looks like they have a deliberate strategy to reduce shareholder equity. Why would they do something so completely bizarre? Has the company stated what its intentions are? Is this just some kind of financial engineering to get their shareholder equity down to a point where they can show a good return on equity? They are already there and then some. Why continue the buybacks?
At first glance it looks like they are destroying their balance sheet. What is this management trying to do?
go to CASH FLOW statement and look for OUTFLOWS of CASH! What did PM spend money on and for what is the question which resulted in a DECREASE in CASH or Shareholders Equity.