Comment, question or quotation of the day

24-05-2022 : Walmart and the inflation.

We know that inflation inflates working capital, thus increasing variations in working capital, which in turn reduce the free cash flow generated by companies and has a negative effect on the cash position of companies with positive working capital.

Conversely, one might have thought that the rise in inflation in the United States, which reached 8.3% in April, would be favourable to the finances of groups with negative working capital. The quarterly results published by Walmart show that this is not the case.

In the first quarter of 2022, the major US retailer recorded an operating cash flow of -$3.8bn, compared with +$2.9bn in the equivalent quarter of 2021. The main reason for this is the 8.4% jump in inventories to $4.7bn, while sales were down from the previous quarter (which includes Christmas) by 7.4%. This jump in inventories is explained by changes in consumption by Americans faced with inflation, who are buying cheaper products at the expense of more expensive ones (television sets, furniture, etc.) that are remaining on the shelves longer than expected. 

And this unexpected news caused Walmart's share price to fall by 20% in one week.

In an inflationary context, "all things being equal" is rarely good reasoning.

18-03-2022 : One of the biggest value destruction in recent history

"The acquisition of Monsanto was and remains a good idea," said Bayer CEO Werner Baumann three years ago when the June 2018 acquisition of Monsanto for $63bn was already being criticised. If Bayer had duplicated the performance of the DAX index, its market capitalisation and the €13bn of equity raised to acquire Monsanto would be worth €120bn today, compared to a market capitalisation of less than half that at €55bn. This has not prevented his remuneration from rising each year since his appointment in 2016 to €5.7m in 2021 (excluding pension entitlements of €2.1m) compared to €3m in 2017. Do Bayer shareholders have eyes and votes?

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The Letter

Number 142 of March 2022

News : How the greening of the economy is changing corporate finance (part 2)

Statistics : Yield curves

Research : The difficult but necessary distinction between recurring and non-recurring income

Q&A : In assessing the solvency of a listed company, is it better to reason in terms of the ratio of net bank and financial debts to shareholders' equity, with shareholders' equity taken as book value or market value?

COMMENTS : Comments posted on Facebook