Implications for News Corp???...

  1. 1,816 Posts.
    Has anyone else read the article in the most recent issue of the Economist re Vivendi (a mojor Europen media player)??

    I was a bit suprised to find that S&P, when giving a company a credit rating, fail to look as the free cash flows of the company.

    Instead, S&P go the easy route, by using the EBITA (earnings before interest, tax, depreciation and amorisation) as a substitute.

    Can you believe this??

    ... and then the article goes on to state how Vivendi manipulate their EBITA figures by fully consolidating the earnings of a subsidiary in which they have less than 30% ownership.

    They include 100% of the profit of such subsidiary in their income statement, even though their share is only 30%.

    Their justification for this? ... they say they have control over the subsidiary, and are thus justified in full consolidating all its income as its own.

    Absolute fraud, imho.

    Under such as scenario, Vivendi could own 51% of subsidiary A, which owns 51% of subsidiary B, which in turn own 51% of subsidiary C... and they'd be entitled to consolidate 100% of Subsidiary C's earnings with their own (because they have control)... even though their economic interest in Subsidiary C would be less than 15% under this scenario.

    S&P are using Vivendi's EBITA figues to calculate their ability to service their mammoth debt.

    I thought debt was serviced through cash flow??!... not by creative accounting.

    To think that a major credit ratings agency could be so lax about measuring the ability of a company in a precarious state to service their debt is in my mind very scary.

    It just goes to shows the level of complacence that grew in financial markets during the bull years

    All prudence and accountability has been thrown out the window...

    I wonder how News Corp account for their subsidiaries??!
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