Dollars and Jens
Friday, May 28, 2004
Weird Financial Statements
For my internship, I'm populating a spreadsheet with financial data on a company which seems to have written a put option on its own stock. Of course, considering how many calls they've been writing on their stock, it probably balances out. These call options are disclosed in the footnotes, natch, not on the income statement itself -- for one recent quarter, they would have eaten 90% of income.

I'm also somewhat concerned that they don't have a line for income taxes. They have operations. They have (a very little) income from operations. Even if they don't have to pay cash taxes -- and this company does have plenty of accumulated deficits -- shouldn't there be a line for deferred taxes?

All this leads me to wonder whether I'm wasting my time on this spreadsheet. If a company isn't worth buying at any price, there's no point in working out a detailed model, is there?

UPDATE: My mistake -- they didn't write a put option, they sort of bought a put option, but they're required to exercise some of it (so it's part put, part future). The exercise price is based on the market value at time of exercise, and is at a discount to the market price. Maybe it's the only way they could raise capital.

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