It's nice that you've made some cash, but to me money is secondary to a cleaner, healthier environment. If you really want a glimpse of the future maybe you should check the GLE message board again. Or you could wait a couple of weeks for their solid oxide fuel cell plant's grand opening.
If you want an indication of where bldp is going perhaps this following report will help out. Thanks to all investors in the fuel cell industry for making the corporate world aware of the upside GLE. I wish no ill will to anyone who wants to invest in technologies that clean the 'air we breathe', it's just that smart money has evolved beyond bldp and gone to the next level which is Global Thermoelectric.
... "Fueling investors' fire"
canbus.com
Ballard's bottom line looks rosy. But appearances-and onetime gains on financial reports-can be deceiving
Many New Economy companies are engaged in creative activities, leading to significant advances in telecommunications, information access, pharmaceuticals, alternative power and numerous other fields. But how far does this creativity extend? Virtually every week we see some upstart using ever more interesting and innovative financial reporting methods. Is this New Economy accounting a necessity given these companies' creative development activities? Or is this just old-fashioned cosmetics to cover up shortfalls in financial performance? Given enough plastic surgery by the accountants, a company might look completely different than it did just two years ago–with little or no change to the fundamental business.
Sorting a company's non-repetitive from continuing activities is crucial to investors. Stock value multiples (such as 10 times EBITDA, or earnings before interest, taxes, depreciation and amortization) should be applied only to the annually recurring operations, and not to infrequent business transactions.
Investors must learn to separate figures on an income statement-or risk the consequence of losing their investment.
Ballard Power Systems Inc. (TSE: BLD) follows Canadian GAAP (generally accepted accounting principles), but its third quarter report for 2000 should be read very carefully. On the surface, the Burnaby, BC-based fuel cell company shows a three-month "Net loss" of $5.7 million (1) and a nine-month loss of $39.1 million. Given that Ballard is a development company, the losses are not surprising. But let’s take a closer look. "Investment income" (2) is more than $13 million for three months and $32 million for nine months. Ballard is clearly not an investment company. The $13 million and $32 million in additional income arise because Ballard temporarily has cash and short-term investments, primarily from having sold shares during the year. So, you shouldn't apply a value multiple to the $32 million, less applicable income tax. The investment income will likely erode quite quickly over time as Ballard continues to eat through its cash reserves while posting losses from operations.
Next, notice the two items "Gain on issuance of shares by subsidiary" (3) and "License received on issuance of shares" (4). By netting the two numbers, we get an $18-million gain that is not repetitive. So again, a value multiple should not be applied to the $18 million. The same types of onetime gains allowed Ballard to report positive net income in both 1997 and 1998. Two years ago, Ballard was still struggling for widespread capital market recognition. Did a misinterpretation of the recursive potential of Ballard's 1997 and 1998 net income lead to a sustained climb in the company's share price over those two years?
On a larger scale, we might wonder whether Ballard's cost of obtaining new capital dropped due to the company's rosy looking bottom line. Contributing to Ballard's current non-recurring gains is its $812-million cash and short-term investments hoard. Was financing secured on the belief that Ballard might throw off future recurring "profits" similar to its 1997 and 1998 performances? The company is now back to reporting large losses. Is this because Ballard won't likely need to return to the capital market anytime soon? It would be unfortunate if some retail investors misgauged Ballard's potential to report recurring net income.
If investors can't rely on the bottom line, where should they look? "Revenues" (5) and "Cost of revenues" (6) are interesting because to generate revenue of $21.9 million for nine months it cost Ballard $27.1 million–for a direct business loss of more than $5 million. What’s worse, much of that $5-million loss occurred in the company's most recent third quarter. And this loss is before considering such annual expenses as general and administrative, marketing, and research and development.
Ballard may well become a very successful company someday. But so far the figures don't look great when we strip away the non-repetitive items and notice the negative gross margin. Interest earned on your bank account balance or a gain on the sale of a condominium is hardly the same as earnings from employment.
Al Rosen is a forensic accountant and chairman of Veritas Investment Research Corp. in Toronto.
alrosen@veritascorp.com |
