06-27-2022, 06:51 AM
"And as far as I can tell, it is a $6 billion LOSS. From page 13 of the report: "As a result, we recorded a non-cash, pre-tax impairment charge of $6.2 billion for the nine and three months ended September 30, 2021 to (income) losses from equity investments in Altria's condensed consolidated statements of earnings (losses)"
So.... how exactly does a $6 billion paper LOSS in its ABI investment become POSITIVE cash flow that somehow covers the actual dividend?"
Fenders touched on this but goodwill write-downs don't impact cash flows. This is one of the reasons I pay zero attention to equity-based debt levels but focus on cash flows.
But those write-downs are calculated as a business loss that show up on income statements and in earnings. For folks who have never owned/managed a business let me offer an example.
Let's pretend my personal life is a business with things like a balance sheet and incomes and cash flows (which we actually have, we just don't report it in corporate financials).
Let's say I own a second, potential retirement, home valued at $300k.
Let's say I pay a dividend to my two kids in the form of a $25/wk allowance for each.
The home is condemned - it sits on a toxic waste site and I didn't bother to request an environmental assessment when I bought it (damn radio infomercials!). The value goes to zero.
This is a $300k business loss. I report it on my balance sheets. I also report it on my income statements as a loss and, if such things entered into the taxable world, to the IRS as a loss. During the year this condemnation occurs I report a $220k loss - the $300k vs my $80k salary.
But I still have my job. It's not my primary residence so the $300k write-down doesn't impact my expenses. I still have plenty of cash flows to buy groceries, put gas in the car, etc. And I can issue the weekly $50 allowance/dividend to my kids.
Looking at a company's debt:equity has some value as it's an item considered for credit ratings and the cost to a company of accessing credit. But I look at *debt:ebitda when considering dividend safety. Can the company a) service its debt out of cash flows and b) safely maintain and/or grow the dividend?
*debt:ebitda is the closest readily available metric but what I really want is debt:cash flows so I have to check to be sure things match up on income statements, they usually do.
So.... how exactly does a $6 billion paper LOSS in its ABI investment become POSITIVE cash flow that somehow covers the actual dividend?"
Fenders touched on this but goodwill write-downs don't impact cash flows. This is one of the reasons I pay zero attention to equity-based debt levels but focus on cash flows.
But those write-downs are calculated as a business loss that show up on income statements and in earnings. For folks who have never owned/managed a business let me offer an example.
Let's pretend my personal life is a business with things like a balance sheet and incomes and cash flows (which we actually have, we just don't report it in corporate financials).
Let's say I own a second, potential retirement, home valued at $300k.
Let's say I pay a dividend to my two kids in the form of a $25/wk allowance for each.
The home is condemned - it sits on a toxic waste site and I didn't bother to request an environmental assessment when I bought it (damn radio infomercials!). The value goes to zero.
This is a $300k business loss. I report it on my balance sheets. I also report it on my income statements as a loss and, if such things entered into the taxable world, to the IRS as a loss. During the year this condemnation occurs I report a $220k loss - the $300k vs my $80k salary.
But I still have my job. It's not my primary residence so the $300k write-down doesn't impact my expenses. I still have plenty of cash flows to buy groceries, put gas in the car, etc. And I can issue the weekly $50 allowance/dividend to my kids.
Looking at a company's debt:equity has some value as it's an item considered for credit ratings and the cost to a company of accessing credit. But I look at *debt:ebitda when considering dividend safety. Can the company a) service its debt out of cash flows and b) safely maintain and/or grow the dividend?
*debt:ebitda is the closest readily available metric but what I really want is debt:cash flows so I have to check to be sure things match up on income statements, they usually do.