Foercaster and others
"But I really think that the share price of US$ 29 is slightly too high, you see, earnings of US$ 3.50 times P/E of 8 is only US$ 28."
P/E of 8? I question this. Consider the cost of capital (which should reflect a multitude of risk factors), current commodity prices (do you really believe these prices are here to stay?), production declines and future capital requirements. No, with all due respect, I believe this is neither a reasonable multiple (and correspondingly - discount rate) nor an appropriate methodology to value the Company, not at all. It is a "rule of thumb" that is not appropriate in this instance - for example, it does not even consider the significant debt levels.
As for the "ceiling test" - the ceiling test is an attempt to ensure the future recoverable cash flow from the assets is not less than the value the assets are carried on the books. If the book value of the assets exceed the future estimated cash flows, the assets are written down to the estimated value of the future cash flows - the "ceiling". There are differences between Canadian and SEC computations. With all due respect to regulatory abiding Canadian companies (it is not their fault), the Canadian method of computation lacks financial logic and consistency across companies. (The intent is there, the method of execution is suspect.) This is not a slight against Canadians, not at all, it is just that the regulatory body (the accountants) have done little (if any) studies in this area to support their methodology, and it shows. The SEC method does have its flaws also, but in my opinion, is the superior method of the two. Perhaps the Canadian Accounting body will someday address this issue and come up with an even better method.
All the above meant with the best of intentions for people I respect.
FoxyLoxy |
