Balance sheets for dummies

Clayton Cosgrove reckons Mighty River Power’s annual result as evidence the state owned company was in no fit state for sale.

But Dene Mackenzie in the ODT (not online) points out Cosgrove’s made a major error:

The inability of Labour SOE spokesman Clayton Cosgrove to read a balance sheet is a breathtakingly sad indictment of the arguments surrounding whether or not the Government should partly sell down its electricity companies.

Mr Cosgrove, who in a previous life worked for a Perth-based mining company, issued a statement yesterday saying Mighty River Power’s $60 million profits plunge was yet another reason for the Government to stop its uneconomic asset sales programme.

“Mighty River profits have almost halved. That will have a real impact on their share price if the Government rushes ahead with the sale. Listing a struggling company in a market like this is economics for dummies,” the MP said. . .

However he wasn’t reading the announcement properly.

. . . In fact, Might river Power’s operating earnings – what it makes before any interest payments, tax, depreciation, amortisation financial adjustments (the true reflection of a company’s profitability)  – came in at $461.5 million, up 4% on the previous corresponding year.

The company had fair value adjustments of $92.8 million which did take the reported profit down to $68 million, mainly reflecting a significant fall in interest rates in the first half of the financial year.

That resulted in the recognition of an adverse change in the non-cash fair value of financial instruments . .

The company paid  a $120 million dividend  and Cosgrove is correct that the Government would get a lower dividend if it partially floats the company.

He described raising the dividend while profits, in his view fell, as a cynical move to make the company more appealing. Mr Cosgrove warned investors would see through the move.

But investors who stump up with the money to pay down some of New Zealand’s debt and help invest in the future education, health and welfare needs of the nation deserve a return. That is how a capital market works. . .

Cosgrove thinks he’s found economics for dummies but in fact he’s shown he’s in need of a course in balance sheets for dummies.

5 Responses to Balance sheets for dummies

  1. Richard says:

    Ele Thank you for this It needs wide circulation to show how dumb the Labour Party and Cosgrove really are. Another own goal.

  2. macdoctor01 says:

    And this clown wants possession of the treasury benches? God help us all!

  3. ihstewart says:

    Being caught out by Dean is probably better than being caught out by Bill at a guess

  4. Clayton Cosgrove; Labour’s economic powerhouse. Pass me a Tui 😀

  5. Gravedodger says:

    My first thought when I read this before going to the city, what a tool, on reflection all my tools are useful.
    Useful Cosgrove aint.
    A bombastic meathead with short mans syndrome and clearly demonstrating a woeful understanding of basic economics.

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