asking questions. I don't understand how GECC is booking profits from
negative cash flow.
This is the cover page of a 5/5/09 filing doc.
This is from a section of that Doc. Note the decline in this important ratio.
A few weeks later the same document is revised to reflect the 1stQ 09 numbers for GECC.
So
what is the significance of this? This is clearly a covenant ratio. Are
there covenants in existing debt agreements that require that this
ratio is above a certain level? If so, what is that level? How can one
make a 'profit' of $1.5b while this number is less than 1? Sorry for
the dumb questions.
A young and fast growing company may be booking profits from a negative cash flow, a mature company may do so purely by generous intepretation of accounting rules.
My read is they are not covering their nut. What is this ratio used for in these bond agreements? I will look....
What gmak said...
This has nothing to do with cash, and a ratio >0 means earnings are positive.
I beg to differ with the above. But... earnings are an accounting measure of what is left over after ALL accounting expenses are deducted from Revenue. If it is a positive number, then clearly - on an accounting basis - Fixed costs are being covered even if the ratio is below "1", since by definition, earnings have already had fixed costs deducted.
Cash flow does not enter into the equation. To get a good read on cash flow, you need to go to the Statement of Changes in Cash - and beware of games whereby some cash items are shifted from where they should be - to a category where they look better.
Good riddance!
Oh I forgot I paid Obama my tax money to bail out that worthless shit liberal green toxic asset collection agency.
OK let me put this in English.
GECC wants to borrow $1/2 Billion. They are running a business where they can't cover their fixed costs. While income in GAAP terms is a funny thing, even taking into consideration the most generous way to calculate net income using all the estimates that go into it, they still don't make enough to cover the rent.
Imagine you, going to the bank wanting to buy a car. Your income doesn't cover the rent, insurance, utilities, and other things that must be paid. This is even before you get to the variable things such as food or lunch money or beer money. You have no money for food so how can you afford a car?
oops, didn't see that last one at .97. They're screwed. They can't even cover their fixed costs at what is probably the most generous way they can put that number out without running into securities law violations.
Based on whatever they mean by the above definition ... they are probably covering their fixed costs. And either their earnings are falling or their FC are rising, or both. Basically, it means they are making their nut in the most remedial sense, but have nothing to brag about and a lot to work on.