Even if there was a discontinued operation on the most recent year’s income statement, it should not be modeled into the future, correct? Because you can’t really predict that and it’s nonrecurring, right?
Regardless, how would it appear on the SCF? Under proceeds from sale of PP&E?
Thanks.
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I generally leave discontinued operations out as they are just that - discontinued. Also, you don't want to get too granular otherwise you run the risk of losing the forest for the trees. Basically, don't model the small stuff as it's not material and your small errors will compound as you add in layers of differing assumptions. If you do think the discontinued operations will be material over the next several years, then add them as an adjustment after you arrive at your enterprise value.
Modeling company with discontinued ops (Originally Posted: 09/23/2014)
Hi, I am building a model for a retailer that has closed a lot of stores throughout the past 5 years or so.
I am trying to show the income statement figures for the past 8 or 12 individual quarters but I've encountered a slight problem
When a company with discontinued ops posts their new 10-q or 10-k, they seem to recast the financials for the past few quarters to adjust for these (ie. if the company, in 2014, closes stores that were responsible for 1 mil in revenue in 2013, then that 1 mil in revenue is subtracted from revenue and moved over to the discontinued ops section for 2013)
but as I mentioned before, this is only done for the last year's figures. since I am gathering info that is older than just one year, and want all of it on a consistent basis, what should I do?
Should I just go back to each company 10-Q when it was issued, and obtain these numbers even though they include figures from stores that are now discontinued ops? Or is it considered futile to gather information that is older than one year in a case like this? I've looked at the ER reports on this company, but each analyst is using a different method in recasting the past financials
You are probably correct that you won't be able to get all the information you need. Sometimes when a company divests an entire segment, they'll produce a 1-3 years of recast quarterly financials.
Your best data will be from the latest 10Ks and 10Qs that do recast prior periods, but also keep in mind that you may only be able to get some quarters of a particular year re-cast, so your sum of four quarters may not tie out to the annuals in the K.
I would reach out to the company if it was really important to try and get the most accurate historicals.
Obviously getting historical #s right isn't nearly as important as getting the forward projections right, so I wouldn't spend a lot of time on it. I often see notes where they stick an "R" or other annotation at the top to show whether the data shown is recast or as reported.
retained earnings & discontinued ops (Originally Posted: 01/08/2011)
why do you add discontinued ops liab and subtract discontinued ops assets from retained earnings?
If discont liab are a priority over equity, wouldn't they decrease retained earnings? So wouldn't you be subtracting them, and adding the discont assets?
bump. anyone
Is this for a comp set where you are using book equity or what's the purpose? If for comp purposes, you try to normalise the data. Assuming you are calculating ROE (i.e. net income / equity), you would use analyst consensus estimates for the next few year for net income (this obviously reflects only the continuing operations). Therefore, you have to adjust book equity to strip out the impact of the discontinued operations. Basically, you would net out the assets and liabilities and then deduct from equity (deduct net assets and therefore deduct equity as offset). This is the same as deducting assets and adding liabilities from/to equity. Only worth doing if meaningful.
How do you view discontinued operations in reclassified financial statements? (Originally Posted: 11/14/2014)
When spreading historical financials and analyzing a company, do you generally use the historical net sales as reported, or use what is in the most recent filing for those historical periods. For example in the 2013 10k, the 2012, and 2011 net sales shown are different then what was reported in 2012 and 2011 due largely to operations deem to be discontinued in 2013 that then are stripped from the financials shown historically at that time. From analysis perspective I can see why I would want to analyze both ways. But what do you think makes more sense to analyze?
Also, some equity analysts/cap IQ will have some historical years with discontinued operations in net sales, and other years pulling from a later 10K that stripped them - confirming this is not apples to apples at all and very confusing right?
...what no one wants to discuss the annoying parts of being in banking?
I'd want to see what that operation actually did and why it was sold/separated. Obviously don't want to project sales #'s going forward for a piece of business that doesn't exist, but if the division success/failure was largely due to mgt or some other factor, I'd want to see if that factor is being reallocated to the remaining business. In that case, it may make sense to look at the breakdown of divisions and their trends. Your precious MD will want things his own way, tho, Im sure
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