Director | Exposing Creative Accounting, Bucephalus Research Partnership

Robert Medd

Director | Exposing Creative Accounting

Exposing Creative Accounting

Bucephalus Research Partnership

Bucephalus Research Partnership Limited. Exposing Creative Accounting.

At the Bucephalus Research Partnership (BRP) we analyse financial statements using our accountant's practical experience and our own quantitative algorithms for corporate governance, accounting risk and peer performance.

Our thematic research refines our unique algorithms while our single stock research focuses on examples where we discover a significant gap between published accounts and business reality.

​Bucephalus Research Partnership:
- Is an independent fee-based research service
- Does not take proprietary positions, long or short
- Does not solicit business or fees from the corporates we review

Forensic Accounting

<p>BAE makes complicated, innovative cool stuff for the military. Contract wins, the sole supplier status in the UK and the move away from up-front contracts has improved revenue and profit visibility. However, since 2012, the balance sheet has deteriorated. Current assets have risen from GBP2.9 to GBP6bn despite flat revenue whereas payables have been flat. However, credit risk is limited because the receivables are largely UK/US/Saudi government backed. Dividends have risen, despite the pension deficit and declining cashflow. Possibly because BAE’s compensation incentivises accounting profits, simple leverage and returns to shareholders, glossing over real cashflow and other liabilities. The deficit contributions mean that cash dividend cover is tight, but as long as pension returns are steady and the UK government remains compliant, there is no need for a cut. Steady but dull. </p>

BAE makes complicated, innovative cool stuff for the military. Contract wins, the sole supplier status in the UK and the move away from up-front contracts has improved revenue and profit visibility. However, since 2012, the balance sheet has deteriorated. Current assets have risen from GBP2.9 to GBP6bn despite flat revenue whereas payables have been flat. However, credit risk is limited because the receivables are largely UK/US/Saudi government backed. Dividends have risen, despite the pension deficit and declining cashflow. Possibly because BAE’s compensation incentivises accounting profits, simple leverage and returns to shareholders, glossing over real cashflow and other liabilities. The deficit contributions mean that cash dividend cover is tight, but as long as pension returns are steady and the UK government remains compliant, there is no need for a cut. Steady but dull. 

BAE Systems (BA/ LN): Downside Protection, but Little Excitement

BAE Systems PLC

BAE Systems (BA/ LN): Downside Protection, but Little Excitement