Hi Fifth Person,
I was reading the 2017 Annual Report computing the Financial ratios on Sunpower Group Ltd using the IQ Financial template provided and have some questions below
1. For Total Debts, we should just add up the Borrowing items under Current Liabilities and Non Current Liabilities. Should “Convertible Bonds” under Non Current Liabilities be added in the calculation of Total Debt?
2. Number of Shares (Share Capital): Noticed that there is a item “Effect of dilutive potential ordinary shares from
share options and convertible bonds” of about 307 million units. Should these 307 million potential shares be added to the compute the total number of ordinary shares?
3.Extraordinary items: There is a item “Fair value changes on Convertible Bonds”. Is this considered one time extraordinary item that needs to be deducted??
4.For Capital Expenditure, do we only include expense on Property, Plant and equipment? Do we need to include items like “Intangible Assets”, “Land Use Rights” and Depreciation and Amortization expense??
- Yes, convertible bonds are debt too so have to include them in.
- If you want to be conservative you can include the potential dilutive shares.
- Yes it is a one time item.
- You can just use property plant and equipment for capex.
On a side note, you may want to find out why the company keep issuing convertible bonds. I looked at their financial, they seem to do that quite often and if they maintain it. It will be quite dilutive to shareholder investing in it.
I also happen to be watching this stock. From what I understand, the company keeps issuing convertible bonds because they need to assess to capital to grow its GI business. This new business, though sounds lucrative, needs huge capital investment upfront. Sunpower intends to ramp this new business rapidly to capitalise on its first mover advantage. Fortunately the convertible bonds are issued to DCP (DCP is a leading private equity firm focused on Greater China) and CDH (CDH is one of the leading private equity companies that focuses on growth capital and middle market buyout investments in Greater China). Whether it has a bright future, a lot will depend on their project implementation and execution. I think its more of a concept play now since China is focusing a lot of pollution controls and environmental issues.
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