RBD - Restaurant Brands

[winner69]

Using Free cash Flow or h2so4's formula could be seen as a lazy way to calculate 'owners earnings' because it doesn't address the points you raise.

If you improve your working capital position you have generated cash - thats good eh. Even better is business's like RBD can use creditors money as a source of capital (unlike SKL)

To overcome the problems like increases in unpaid tax as at balance date a more convential figure to use is trade working capital - ie inventory + trade debtors + trade creditors. This leaves out things like employee provisions and tax which are amounts where the liability has been incurred but not paid.

Over the course of time these things generally all balance out anyway and don't really impact upon the 'intrinsic value' of the company anyway

[h2so4]

Deferred tax expenses are a non current asset not working capital.

The owner earnings calculation does not reconcile deferred taxes as it recognises that they will eventually have to be paid.

However free cash flow adds in deferred taxes (shown in the statement of cash flow) as though the company never has to pay it.

[winner69]

I don't understand why it it's not a change. Can you please explain what's happened here. I know you don't want me over paying for my shares.

The $17m odd is borrowings ... a source of capital .... not working capital .... thats why I wouldn't include it in owners earnings

[h2so4]

The $17m odd is borrowings ... a source of capital .... not working capital .... thats why I wouldn't include it in owners earnings

OK, I'm still a tad confused.

In 2009 total debt=34m

In 2010 where did the money come from to reduce debt by 16.2m?.......Cash?

[h2so4]

Got it...well I think have?

Debt repayment is after owner earnings and should not be added to cash.

New owner earnings 2010 =24.5m

[Snoopy]

These are receivables and payables that have already been booked to the income statement. You are simply adding or subtracting them to get a truer picture. They will re enter the picture when the money has actually been received or bills paid.

The unpaid payments to suppliers and future tax bill are both payables from where I sit. I still fail to see how not paying your bills improves the long term ability of a business like RBD to generate cashflow. I also fail to see how paying the bills enhances the RBD business in a long term way. To me the issue is irrelevant. The vicissitudes in timing of paying your bills shouldn't affect the long term ability of the underlying RBD business model to generate cash.

And yes I did subtract them to get a truer picture, as a truer picture is exactly what I am after.

SNOOPY

[Snoopy]

These are receivables and payables that have already been booked to the income statement. You are simply adding or subtracting them to get a truer picture. They will re enter the picture when the money has actually been received or bills paid.

You might make the argument that when a business is growing the tax bill always lags behind the increasing profitability. Thinking like that, it would be legitimate to consider the increase in resulting working capital because of deferred tax payments as an extra asset that the company can use. The problem with that appraoch is that it requires the company to keep growing in profitability in one direction with no reversals. This does seem unlikely if you consider RBD from where I sit.

SNOOPY

[h2so4]

The unpaid payments to suppliers and future tax bill are both payables from where I sit. I still fail to see how not paying your bills improves the long term ability of a business like RBD to generate cashflow. I also fail to see how paying the bills enhances the RBD business in a long term way. To me the issue is irrelevant. The vicissitudes in timing of paying your bills shouldn't affect the long term ability of the underlying RBD business model to generate cash.

And yes I did subtract them to get a truer picture, as a truer picture is exactly what I am after.

SNOOPY

Add them back in Snoopy, they have already been recorded as an expense on the income statement.

[h2so4]

You might make the argument that when a business is growing the tax bill always lags behind the increasing profitability. Thinking like that, it would be legitimate to consider the increase in resulting working capital because of deferred tax payments as an extra asset that the company can use. The problem with that appraoch is that it requires the company to keep growing in profitability in one direction with no reversals. This does seem unlikely if you consider RBD from where I sit.

SNOOPy

Well that seems a silly approach. The taxman is still going to come knocking.

I have a feeling that might also be illegal?

[Snoopy]

Add them back in Snoopy, they have already been recorded as an expense on the income statement.

That is exactly my point Sulphur sugar daddy. Supplier expenses and tax bills have already been incurred because of normal business operations. How can you justify counting the resulting cash required to pay these bills on the balance sheet as extra 'owner earnings', when the simple act of paying these bills would immediately wipe out this extra cash?

A significant change between FY2009 and FY2010 is that an extra $3.123m of supplier bills have been withheld over and above all the bills held for payment at the end of the previous year. Yet you are telling us this is extra cash 'owner earned' by the company? I reiterate my point that simply not paying your bills may work for one year, but is not a long term cash generating strategy.

SNOOPY