What does this even mean? RL Commercial REIT's net income was 8,860,005% higher than in 2020
Thanks to Pesoses for asking about this hilarious-looking result. The answer depends on two different quirks that, when put together, produced this weird outcome. The first quirk is the timing of the annual report.
It measures RL Commercial REIT's [RCR 7.94 4.75%] performance in 2021, the year it conducted its IPO in September after having a metric butt-load of assets injected into it, against 2020, the year where it was basically just an empty legal entity.
So, in 2020, RCR is shown to have lost around P19 million, which could easily be just a collection of professional fees incurred in preparation for RCR’s name change, authorized capital stock increase, asset injection, and eventual IPO.
In 2021, after the operating assets had been injected and RCR was now earning the income from those assets, RCR is shown to have made P1,679 million in net income. It’s like comparing the earning potential of a toddler against that of a fully-employed adult at the top of their field.
The second quirk is with the math used to compare those two results, and it’s something that we’ve seen a lot of since the onset of COVID; the numbers get stupid when we compare small numbers to huge numbers or negative numbers to positive numbers.
Like, when a company has consistent yearly net income of P125 million, but shuts down in 2020 because of COVID and only earns P1 million, and then next year resumes operations and earns P95 million. Comparing the two periods, we’d say that the company’s net income increased 9,400%.
If the company had made P3 million in 2020 instead, the increase would have been “only” 3,066%. Yeah, 9,400 is a much bigger number than 3,066, but both the P1 million and P3 million are rounding errors compared to the 2021 income.
In these situations, the percentage increase is a useless comparison tool.
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That’s really what we have happening here: RCR was essentially non-operational in 2020, then “came to life” in 2021 when it was injected with billions in operating assets.
Anything that happened before 2021 is useless as a comparison, as evidenced by the ridiculous 8.8 million-percent increase in net income.
Percentage increase works best comparing periods of similar circumstance, and it gets less useful as the differences increase between the two periods.
We’ve seen a lot of these “video game numbers” posted by companies coming back from the COVID armageddon numbers in 2020, and I look forward to the time, hopefully in the near future, when these results are just a natural consequence of some timing issue, like with RCR, and not due to some global pandemic!
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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