Gates became the richest man in the world (for a while; he’s been overtaken) by owning shares in a publically trading company whose shares substantially increased in value for several years.
The value of an equity investment can be reflected in the market value of the shares and/or the amount of dividends paid on those shares. A good investment can have high growth in share value but pay no dividends, or a static or low growth share value but pay good dividends, or provide an acceptable combinatinon of those forms of return.
CityWest paid good dividends from 2006 to 2009, but since then has not paid dividends other than $500,000 in 2012 (apparently; that has not been confirmed). It is not expected to pay dividends for at least “two or three years”, according to the Mayor. The shares are not publically trading, so the market value is uncertain; although a 40% decline in the value of the City’s total investment between 2006 and 2011 does not bode well.
For a lender, the value of an investment is measured by the amount of interest paid on the loan, a record of repaying principal through agreed periodic payments, or the likelihood of the remaining principal being repaid at the end of the term. CityWest pays no interest, has only made one principal repayment (in 2011), and $20 million in debt was forgiven because from an audit perspective there was no realistic prospect that it would ever be repaid.
Whichever way you slice it or dice it, CityWest has not been a good investment, either from an equity investor or a lender perspective, for a few years.
[quote=“Dex”]
Are you really judging the performance of a company from a Consolidated Statement of Financial Position, a simple balance sheet ?[/quote]
From the Consolidated Statements and the other components of the financial statements. That is what the statements are for. And that’s why municipal governments are legally required to audit and disclose their financial statements, so that the public is properly informed, among other things, about any investment activities by the elected council involving public funds.
If you don’t want to rely on financial statements, how do you base your decisions about whether elected officials are managing public funds properly?
[quote=“Dex”]
My intention was to be simplistic and not get into accounting principles with my example. My speculation as to the publicly stated reasons may or may not be in error but the result of the $20 million forgiveness is that Citywest was able to form partnerships and grow its business and further expand to other markets. It is very unlikely this would have been possible otherwise, don’t you agree?[/quote]
I have no basis for agreeing with that. There may have been more activity and market expansion, but that is not evidence that the value of the business grew. Again, the numbers go the other way. After the $20 million loan forgiveness the value of the City’s investment further declined, from $31,401,399 in 2008 to $28,036,763 in 2011.
[quote=“Dex”]
Citywest has expanded its operation laying a fibre optic backbone from Prince Rupert to Prince George (450 miles 722 kilometers). It has grown from a telephone company in 2005 to what is today Citywest GoC, expanding in other markets such as Kitimat, Terrace/Thornhill, Houston, Smithers/Telkwa, Stewart, and Hazelton. Upgraded its cable networks in local markets. Improved services such as 24/7 hour call support, Video on demand, more HD channels,fast unlimited internet. I am starting to sound like a Citywest salesman so I will stop here, but it would be disingenuous to say Citywest hasn’t seen significant growth and a future market potential.
One thing I am impressed with though, is your ability to judge the performance of a company from a simple balance sheet.[/quote]
Again, activity does not necessarily translate into ‘significant growth’ in the value of an investment and ‘future market potential’. There can be ‘a race to the bottom’ where businesses dig themselves into deeper holes.
We will have to see what happens. Public sector accounting rules require that the City’s 2012 audited financial statement (which should be provided in a few weeks) show the bare bones of CityWest’s financial performance.
For the present, things are not looking good. In 2006 the expectation was that CityWest would pay $2,000,000 a year in dividends. That expectation was revised to $1,000,000 a year. This year the council is disappointed that the City will not be receiving a $500,000 dividend, and no one can say when dividends will be paid again. In the absence of a dividend (or loan repayment) this year the council is having to consider tax increases, service cutbacks and staff layoffs. Where’s the good news story in that?
As for the balance sheet and the other parts of a financial statement, they’re not “simple” documents, but they are legally required to better ensure transparency, because without that information all that we are getting may be just a bunch of talk.