Cigarbutt Posted April 24, 2017 Share Posted April 24, 2017 I look more and more at this component when assessing investment opportunities, esp. in the large cap category. Typically this comes as one of the adjustments after the main analysis. This is potentially a big issue going forward. Some talk about a crisis but the most likely scenarios imply "adjustments". When you look at the financial statements footnotes, one at least has to appreciate that optimistic assumptions are usually the norm now. When you play with these assumptions, because of the long term nature of the largely off-balance sheet obligations, the financial impact can be very real. For some large corporations, the pension assets are comparable to the firm's equity. Even reasonable adjustments to assumptions can offset 1 or 2 years of earnings for the firm. Perhaps not the end of the world, but if you use some kind of cash flow discount model or even an adjusted type of P/E measure, some kind of adjustment has to be made. For those interested in this issue, two links: 1- http://www.apapr.ro/images/BIBLIOTECA/reformageneralitati/2016%20citi.pdf Sorry, long document by Citi but well researched and balanced. 2- http://www.mauldineconomics.com/frontlinethoughts/angst-in-america-part-5-the-crisis-we-cant-muddle-through Mr Mauldin is a story teller and often attracts attention with a doom and gloom type of approach and the text focuses on public pensions but I find he stresses important principles that may need to be applied to both the public and private sectors. Link to comment Share on other sites More sharing options...
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