Banco do Brasil adjusted net income: believe it or not!

In the release of its results for 2011, Banco do Brasil publishes the recurring net income, that is the net income adjusted by one-off items, such as Additional Allowance for Loan Losses, Contingent Liabilities, Reversal of Labor Liabilities...

So far so good. But as they say, the devil is in the details. In this case, it's in the notes to the financial statements: adjustments of actuarial assets/liabilities.

So if we exclude this "earnings" under Other Operating Income, real adjusted net income would be:

BRL Millions	2010	2011	Avrg
Account Net Income	11.703	12.126	11.915
(-) One-Off Items	1.039	375	707
Recurring Net Income Published	10.664	11.751	11.208
(-) Adjustment of actuarial assets/liabilities	4.299	2.981	3.640
Real Recurring Net Income	6.365	8.770	7.568

How to Create Money

If you thought Magnesita cash flow was a deception, take a look at Julio Simoes Logistica (JSLG3):

• They add back residual costs associated with the sales of fixed assets, "which do not represent operational cash disbursements, as they represent merely an accounting adjustment to book value at the time of  sale." 

So far so good. The problem is that if they have sold an asset below book value then they are receiving less than they had paid. It could not be a cash consumption now, but it was a cash consumption, when they bought it. If you don't account for this now, when should you do it?

EBITDA x CFO

After reading this post I was wondering by how much EBITDA overestimate cash generated by companies operations (CFO). 

In order to get an answer for that I took the 10 greatest non-financial companies listed on Bovespa and compared EBITDA with CFO reported.

And here goes my conclusions/notes:

Magnesita's 3Q11 Cash from Operations = deception

Take a look at this shit: Release 3Q11

They start the release with this big achievement:

MAGNESITA REGISTRA FLUXO DE CAIXA OPERACIONAL DE
R$ 461 MILHÕES, RECORDE NO ACUMULADO DO ANO, E LUCRO
LÍQUIDO 12% SUPERIOR AO DO 2T11

Let's see the 2011 acumulated Cash Flow Statement at page 21.

It starts with net earnings and add some adjustments, as usual.
Then things start to get interesting:

1) They added 63.116 of judicial litigation received - that's ok for a cash flow statement, but doesn't justify all the cheers about the CFO, because it's NONRECURRENT.
2) They added more 48.883 of asset sales - shouldn't this be cash from investiments? This is obviously NONRECURRENT and probably NONOPERATIONAL
3) They added 119.321 of the increase in accounts payable (Fornecedores e empreiteiros). This is also NONRECURRENT.

Subtracting all those NONRECURRENTS the CFO would be only 229,68 millions. It's just a 50% difference from the headline!
I looked for any comments about the CFO but they just cheered about their great accomplishment.