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Berkshire Hathaway Inc. Message Board

risk_adverse99 1 post  |  Last Activity: Oct 6, 2015 12:41 AM Member since: Feb 27, 1999
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  • risk_adverse99 by risk_adverse99 Oct 6, 2015 12:41 AM Flag

    This stock has an enterprise value of $2 billion. $1.3 billion in debt.

    Note that even though the earnings per share, as booked, increased over the last 3 years, operating cash flow decreased.

    It was done by holding the 49 and 50% owned JV's using the equity method rather than consolidating them. In 2014 they increased the 'fair value' of their Latin American JV from $5 million to $42 million. This was booked as 'income' .. even though there was no cash involved.

    Whether it was legal or not .. or technically correct or not doesn't matter ... just that those 'earnings' have no economic value.

    Net income was reported at $167 million ... so removing the $37 for the JV gives you $130 million. There could well be another $10 or $20 million of questionable earnings .. but the $37 is enough.

    Then, to produce this income, they needed $2 billion of intangible assets. Most of them are never amortized and are considered permanent for accounting purposes. However, the fashion brands have a much shorter life -- especially the trendier ones. A 5% amortization would eliminate $100 million in earnings. It doesn't matter what the exact number is .. but it is more than zero, and I think $50 is optimistic. Any earnings number that is close to $100 million is a very weak return on a $2 billion investment. They seem to buy a lot of brands, but have trouble maintaining gross income.

    The final point is that the Latin American Joint Venture transaction doesn't make sense. Iconix sold 50% for $6 million and then, 7 years later, bought it back for $42 million.

    I don't know if someone buying for $12 or $15 will make money .. but whatever you think it is. It is worse.

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