Originally Posted by
gordonfvckingramsay
Agree, but a lot of write downs are done so by choice as a tax offset strategy.
there weren’t a lot of write downs. And they are usually done for one of two reasons. The first being there is a legal requirement to do so if the book value of an asset exceeds its market value. Which is what happened with Qantas and it’s aircraft.
the other reason is usually where a new ceo takes over and uses management discretion to drag out all the skeletons and also deliberately be more cautious than required so that things can be unwound in subsequent years to boost profit in those years and hence bonuses tied to profit and share price to get bonus shares tied to the share price.
examples are for a bank, bad loan provisions. New ceo says they think there is not enough provided so add a few hundred million. Or more. Insurance companies it is the amount put away for future claims, again you can move several hundred million based on management discretion. There are other tricks. But watch next time a new ceo takes over a bank, insurance company etc. the results for that year will always be terrible, a lot worse than the previous years. The results will then miraculously recover in the next and subsequent years.
The same thing happens in major downturns like the GFC and perhaps now, but there are other tricks ...
on a side note regarding Qantas, we all know that the previous years profits have been significantly created because of the low oil price of around $40US a barrel. Take a look at the price now. Just over $63 and climbing. Hmmmm.