Friday, October 31, 2008

Its all in the Notes: Other Assets

Aecon (TSE:ARE) is a Canadian based company that is involved in the construction of infrastructure. They are involved in pubic road construction, commercial construction, engineering, materials fabrication, and cable installation. In addition, they also operate tolls roads.

Aecon's stock price has come down substantially from its Dec 2007 high of $23.05/sh to its current price of around $7.20/sh. Due to the rather severe price drop, I decided to review Aecon's most recent financial statements. In the last quarterly report, there is an item for "other assets" with a value of $33.95 million. Disclosure for the elements comprising other assets was further described in Aecon's Dec 2007 annual report.

One of our motto's is that its prudent to thoroughly review the financial notes when reviewing a company's financial statements. In this case, the notes revealed that among other items, goodwill of $12.45 million was included as part of other assets. Goodwill represents a large part (around 37%) of the other assets category. While other assets was only 3.5% of the entire asset base ($33.95 million/$964.93 million) its important to know what is included there when valuing a company. As we have written about, goodwill is something we view skeptically when valuing a company.

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