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BHP Billiton Limited Message Board

  • MINCE38 MINCE38 Feb 4, 2009 1:47 PM Flag

    question: How can cash flow be up 74% but net profit only 50%?

    this just came out today. CAN SOME ONE better at numbers than me explain this. And if the market is going to be soft, why is this stock up so much although its pulled back 4% from its high.

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    • "How can cash flow be up 74% but net profit only 50%?"

      Cash flow (revenue) was up due to high sales and commodity prices, and lower cash expenses.

      Net Income was not up as much because not all expenses are cash expenses. For example when a mine is developed, the development costs are capitalized and written off annually (as expense) over the life of the mine. Similar write-offs (depreciation) apply to capital equipment.

      Study the income statement. The expense item called "depreciation, depletion and amortization"
      are non-cash, previous period cash expenditures being witten off as expense against income in the current period.

      In this H1 report, the Foreign Exchange "losses" (bookkeeping entries) were also non-cash "expneses". These non-cash items all reduce current net income, but do not reduce cash in the bank.

      • 1 Reply to aamarch
      • ahhhh yes, the foreign exchange losses. No guys, dont tell me cash flow means all but earnings do not. You can generate cash flow in ways not capable by earnings and vica cersa. Both are important. Ahhh yes, the foreign exchange. Thats what I missed! Thanks! Fod for thoght...........Enron went broke in part because of dabling in speculation in gas futures. Im not saying this is another enron but I dont lie to see any speculation losses by a co as they are shooting dice with shareholders money. Hedging is a different story be it currency or comodity. All agree?

    • Cash Flow and Earnings are two different things. You need to study financial accounting to understand the difference. Cash is all that matters. Dont worry about earnings. Just judge the investment on how Free Cash Flow Grows YOY and how the Book Value grows and if shares outstanding decline.

      • 1 Reply to medici1248
      • Medici1248,

        On the contrary "Cash is not all that matters".

        Debt levels are equally important.

        Just ask Rio Tinto and see the trouble they have got themselves into.

        Thankfully BHP is cashed up even though their margins are shrinking due largely to the commodities downturn.

        The smartest thing BHP did was to walk away from the bidding for Alcan. RIO paid 35% premium at the time. Imagine what it's worth now and RIO has to service the debt.

        Now, they will be paying for it bigtime given the commodities downturn and Chinalco's stake in Rio Tinto, thereby diluting shareholder value and breaking up the duopoly of BHP and Rio Tinto in the Iron Ore market if the Australian government allows it to go ahead. BHP are lobbying against Chinalco taking a stake with 9% now in cash and another 9% with convertable notes including 2 Chinese members to the board. This would give them a controlling stake in Rio's prime assets.

        Sends a very dangerous signal to the board of BHP and they know it.

        Maybe the bidding war could be back on the agenda before the Chinalco deal goes through.

        Food for thought.

        Cheers markcoinoz

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