Accounting for Dummies: Lessons from the forest industry

The suggestion in the title is that accountants are smarter than the average. Most aren’t.

Accounting is essentially about debits and credits, plusses and minuses to use the generic terms. Not exactly rocket science. But much of what is presented in financial statements confuses rather than promotes understanding, deliberately so at times, unfortunately not an uncommon occurrence amongst professions.

The following is an attempt to outline the lessons, 17 in total, from the financial statements of Great Southern, Timbercorp, Forest Enterprises (FEA), Gunns and Forestry Tasmania (FT), by presenting a common sense interpretation of some of the more significant features, and perhaps provide the new Minister with an accounting analysis of the current forest industry, lest he thinks it is in suitable shape to provide a springboard for the future.

Nothing has changed

A prognosis of a terminal condition is always considered to be a true test for those involved.

Gunns’ undertook a strategic review following its half yearly report in Feb 2010 and report to the market in April. If the recent ASX announcement is in fact the interim report, then maybe Gunns’ woes are worse than expected.

Gunns through the looking glass

Readers of financial statements of failed and failing companies over the last few years can be forgiven for concluding that some were prepared with the assistance of the same additives that Lewis Carroll allegedly used to clear his writer’s block.

The forest sector is no exception.

Great Southern and Timbercorp have spun off course, FEA is currently in a lengthy pit stop, refuelling and searching for additional sponsors, and now Gunns is showing signs of distress.

The strategic review into the restructure of Gunns is due to issue an interim report by the end of April.

The rationale for the demerger proposal is to unlock the value that the market is currently failing to recognise. Why is the market mispricing Gunns’ shares? Has the market got it that wrong? What is contained in the financials that gives the current Board reason for such optimism?

State of change

Interesting stuff, Peter. (article below, and The Randwick inclusive power-sharing arrangement, HERE)

Changes are afoot. But are we failing to see the wood for the trees?

The comment by Arthur Sinodinos, that “the health network proposal is the harbinger of the federation inexorably dissolving into a quasi regional model along British lines”, is a particularly relevant and timely reminder that the major decisions in the next few years are not about building 4 lane highways or pursuing puerile populist policies like royalties for regions, but in helping chart the administrative structure for the medium term future.