Monday April 14, 2014
This analyst examines the way owner Eddie Lampert strips the cash out of a company before spinning it off from Sears Holdings. Please read the article to see the track record.
Remember the definition of accounting
Recognize a transaction
Record the event - journal and ledger
Summarize the entries - Trial Balance, Adjusted Trial Balance
Report - Financial Statements Bal Sheet, Inc Statement, Cash Flow
Explain and interpret the results
With more rules than ever that last requirement is more difficult than ever. This is why SHLD makes a great example. Lampert was originally hailed a a great hedge fund manager. Today he holds sway over a dwindling empire, and the columnist suggests its demise is inevitable.
The article specifically discusses the demise of former well respected on line rtailer Lands' End LE.
Here is the trading in LE so far from spin off.
Each bar represents one day of trading. A you can see, the warning signal flashed on day one as the stock dropped from 35 to just over 28. Stripped of cash, Lampert is robbing the spin offs to keep business afloat at money losing SHLD.
And that is the correct explanation of what a good accounting analyst would tell potentiaal investors.
Accounting - sooner or later it is all about the money.
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