The Globe and Mail reports in its Friday, Sept. 15, edition that the assumption that current
assets can be liquidated at
book value is flawed. The Globe's guest columnist Robert Tattersall writes that it would be better to discount assets to a level that
would give comfort to a lender. The Globe considers Essential
Energy Services (53 cents). It trades at less than half of its
book value per share because the
sector is out of favour and there is
a pending lawsuit alleging patent
infringement that is not included
in the liabilities. Net-net working
capital per share is only 12 cents,
so the stock would not excite Benjamin Graham, but the collateral-value
calculation presents a different
picture: As of June 30, 2017, cash
on the balance sheet was $1.1-million,
accounts receivable were
$24.4-million, inventory was
$30.8-million and net fixed assets were $139.6-million. Total liabilities, excluding
any legal costs, were $46.3-million. Deduct total liabilities
of $46.3-million to leave a net
collateral value of $128.1-million.
With 142 million shares outstanding,
net collateral value per share
is 90 cents. This is below the book
value of $1.14, but well in excess of
the market price.
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