BC3: Tier 1 & Tier 2 Lending Covenants 2013
Quote:
Originally Posted by
Snoopy
So without further ado, I will dive into the Dorchester FY2013 financial report and see how they stack up against these 'steer clear of the rocks' statistics.
We are looking here for a certain equity holding to balance a possible temporary mismatch of cashflows. The company needs basic equity capital and disclosed reserves (defined as Tier 1 capital) of > 20% of the loan book.
What is defined as 'the loan book' for Dorchester is something I am still getting to grips with. However, if we think of it as "all liabilities less 'other liabilities'" (a conservative view) we get our target minimum equity figure.
0.2($70.765m - $8.239m)= $12.505m
Since total shareholder equity is $33.190m, Dorchester has no trouble with this test.
=> PASS
SNOOPY
BC2: Liquidity Buffer Ratio FY2013
Quote:
Originally Posted by
Snoopy
So without further ado, I will dive into the Dorchester FY2013 financial report and see how they stack up against these 'steer clear of the rocks' statistics.
We are looking here for a 'liquidity buffer' (including undrawn bank lines) of 10% of the loan book. My interpretation of this hurdle is that it requires us to look at how current liabilities are matched to current assets over a 12 month time horizon. It is akin to a 12 month cashflow 'stress test'.
Looking at note 25b in the annual report on liquidity risk, I see that Financial Assets that are held for availability over the next 12 months total:
$16.979m + $5.774m = $22.753m
Financial liabilities due for payment add up to:
$18.443m + $2.345m = $20.788m
That is a deficit of some $2m. Note 23 has detailed information on the bank facilities, but curiously no information on borrowing limits. Perhaps a longer term holder can advise me what is going on there?
SNOOPY
I really feel that I must intervene at this point
Quote:
Originally Posted by
Snoopy
We are looking here for a certain equity holding to balance a possible temporary mismatch of cashflows. The company needs basic equity capital and disclosed reserves (defined as Tier 1 capital) of > 20% of the loan book.
What is defined as 'the loan book' for Dorchester is something I am still getting to grips with. However, if we think of it as "all liabilities less 'other liabilities'" (a conservative view) we get our target minimum equity figure.
0.2($70.765m - $8.239m)= $12.505m
Since total shareholder equity is $33.190m, Dorchester has no trouble with this test.
=> PASS
SNOOPY
Whilst I do not want to be seen to be hounding Snoopy I would like to clear up a couple of what I see as minor technical errors in this.
1) The loans you are concerned with are Assets of the company (money due to be repaid to the company) and not Liabilities. These are usually risk weighted but in the absence of the weightings to be applied use 100% to be safe (HNZ weighs in near 100%, ANZ is I think nearer 70%) and it comes in around $71m
2) Tier 1 Capital for Dorchester is definitely no more than $3.62m ($33.2m less intangibles less deferred tax).
$3.62m /$71m gives just over 5% which is a fail in anybodies book.
Best Wishes
Paper Tiger
Back from Lunch - Lontong & Es Teh Manis
Just to note that we are talking about a finance company and not a registered bank so Tier 1 etc do not formally apply.
Quote:
Originally Posted by
Snoopy
Ah, OK. I wasn't sure what to do with those intangibles. I thought that they might be included because at the time of creation they were a measure of someones confidence in future profits? But if you don't think they should be there, then I accept your argument PT.
The Reserve Bank & Basel Committees agree with me on this :).
Quote:
Originally Posted by
Snoopy
As for the deferred tax held as an asset, well it is real cash on the books even if eventually it is earmarked for the IRD. I haven't caught up with the full tax position of DPC. But I do know that in FY2013, the main element of their declared profit was a $1.746m 'tax benefit'. So you haven't convinced me yet PT, that while that 'cash' remains on the books it should not be used as a cash asset for ratio calculation purposes. Where in the accounts is there any inkling that DPC will actually have to pay any tax, anytime soon?
Deferred Tax on the Asset side is not cash on the books.
Nor is it money owed and to be paid to the IRD at some point, that would be a Liability.
It is the tax component of losses made by the company in this or prior years. These losses are very confidently expected to be offset against future years profits and thus reduce the actual (cash) tax to be paid in the future.
Note 8 tells you that they decided that $2.2m of tax from losses could be brought on to the books this year. Do not ask where it came from or why because that I do not.
Best Wishes
Paper Tiger