It was another great day in Carlsbad California. A perfect day for finance. UTC acquired Goodrich which is a long term BLI client. Now that UTC is in the picture we have been able to continue the same program with UTC. We did case studies as a follow-up to the initial 2 and half day Financial Intelligence training. This class is more discussion and follow-up.
One interesting topic is the Goodrich acquisition. UTC paid around $18 billion for Goodrich and now their balance sheet is loaded with Goodwill on the assets side and long-term debt on the liability side. The added goodwill and long-term debt made it so that UTC has negative tangible net worth on its balance sheet. Tangible net worth is calculated by taking Assets less all intangible assets (usually goodwill and other intangibles) and other intangible assets (usually patents, trademarks, and software) and subtracting the total liabilities.
This metric measures the amount of physical assets compared to total debt. When the number is negative investors start to get nervous. UTC is a strong company with a lot of cash flow so it’s not too big a concern. As the newly merged organization is profitable and generates cash, it will increase equity with the profit and pay down the debt with cash. It won’t be too long before the tangible net worth is positive. Understanding the balance sheet issue UTC has post acquisition helped this management group understand why the UTC executives are pushing so hard for more profit and free cash flow.
It was fun to be in Carlsbad. I have a daughter serving a mission for my church just a few miles up the road in Laguna Beach Orange County. No time to visit Jessica but I’ll bet it was as great a day for missionary work as it was for finance. BYU plays Utah this weekend…go Cougars!