“Comment, question or quotation of the day”

24-09-2018 : The Vernimmen.com Newsletter of September

Why has the average return on a large portfolio of Chinese shares been so poor since the early 2000s (3.7%)? The answer is in the Vernimmen.com Newsletter issue of September available on the vernimmen.com website if you have not received it as one of its subscriber. Poor profitability of listed Chinese groups (35 % of them do not earn their cost of capital) is one answer. Also an article about SPACs in Europe versus the USA.   Have a nice day.

21-09-2018 : Question from a reader

For multi-year projects such as hydroelectric dams, is the project's IRR to be calculated from the year of beginning of construction or when the dam starts to produce electricity, considering capitalization of the capex up to the year of initial production?  An IRR is computed by definition by considering all relevant cash flows as they occur, not capitalizing some at a certain rate. This method would not lead to an IRR as defined and would raise the problem of the capitalization rate. If you would take the cost of the debt that was used to finance the building, you would forget the cost of equity that was used as, at least implicitly, in obtaining the loans. If you would take the cost of capital, this is already better. But what you would get as a solution to your equation would not be an IRR but a Jack-of-all-trade rate, average between the true IRR that you will not know and the cost of capital.  For more details, see chapter 17 of the Vernimmen.


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The Vernimmen.com Letter

Number 115 of September 2018

News : Financial analysis of listed Chinese groups

Statistics : SPACs

Research : The crucial role of personal relationships in loan agreements

Q&A : 2 financial problems