Accretive acquisition

Strategy is a company that holds bitcoin in its reserves. BTC stands for bitcoin; model amounts are in US dollars (USD) unless explicitly stated in bitcoin. When a company announces an accretive purchase, do not immediately read that as a bargain. Strategy uses the term for the effect on a specifically defined bitcoin KPI, a supporting indicator for its strategy. That does not automatically mean higher earnings, cash flow, meaning actual movements of money, or intrinsic value. Intrinsic value estimates the economic worth of a business; it is not simply a dashboard figure. A purchase can increase BTC per share while reducing EPS, earnings per share. Before assessing the claim, establish the measure, how shares are counted, the period and the comparison being used. [1]

IAS and IFRS name international accounting standards. In the following example, earnings belong to common shareholders and EPS expresses dollar earnings per common share. Our full-year example begins with earnings of 100 USD and 100 common shares outstanding: EPS is 1. The company buys a business earning 20 for a price of 400, paying with 10 new shares priced at 40. With no other costs or merger savings, EPS becomes 120/110 = 1.0909, about +9.09%. The earnings inputs are after tax, and the combination is assumed to apply throughout the year. Combining earnings and issued shares improves the ratio without proving the acquired business was worth its price. IAS 33, the accounting standard for earnings per share, uses time-weighted share counts. A purchase partway through a real year therefore needs adjustment before comparison with this full-year model. [2]

SEC is the US Securities and Exchange Commission. Combining businesses can cost money, for example to move their systems. Add integration costs of 15 and extra depreciation or amortisation of 5 to the previous example, both after tax. Reported EPS is then 100/110 = 0.9091. Excluding both items restores adjusted EPS to 120/110. These are different results from the same deal. Non-GAAP describes measures adjusted from US GAAP accounting rules; we need to see what was removed and why. SEC staff caution that an explained adjustment can still mislead. A cost remains real even if a presentation calls it one-off. Depreciation and amortisation spread the accounting cost of an asset over the periods it is used. They can reduce earnings without a cash payment at that same moment. [3]

Instead, fund the same price of 400 USD with debt. At 5%, annual interest is 20: earnings of 100+20−20 leave EPS at 1 across 100 shares. At 8%, interest is 32 and EPS falls to 0.88. This alternative model deliberately omits taxes and other costs to isolate financing. The principal, the borrowed amount, still needs repayment as well as interest. Using existing cash has a cost too: the company gives up money for other needs and any return from putting it elsewhere. That forgone return belongs in the assessment even without appearing on the purchase invoice. [4]

In our next model, the company holds 100 BTC and has 100000 common shares outstanding. It acquires 30 BTC for 20000 new shares, so 130/120000 = 0.00108333 BTC per share, about +8.33%. Including another 10000 shares from assumed conversion, the exchange of another security for shares, gives 130/130000 = 0.001. The ratio then shows no improvement over the starting point. Distinguish actual shares from assumed diluted counts incorporating possible additional shares. IAS 33 also uses time-weighted counts for EPS, whereas a corporate bitcoin ratio may be a snapshot on a particular day. Similar-looking figures need not have the same basis. This model assumes the right to issue shares on conversion arose with the purchase, so those potential shares did not exist at the starting point. [2]

If the company in the previous model spends 1 BTC on costs, its ratio falls to 129/130000. That is a change of about −0.77% from the starting 0.001. Now suppose it also takes on senior debt, a claim ahead of common shareholders, equivalent to 30 BTC at the same valuation. Deducting that leaves only 99 BTC. This is our simplified model, not the definition of the company’s Net BPS (net Bitcoin Per Share) or an estimate of liquidation payments. Net BPS is a particular corporate ratio after specified deductions and with its own assumptions. Gross bitcoin growth alone therefore does not tell us what remains for common shareholders after other claims. This converts the value of the debt into bitcoin; it does not mean those bitcoins are automatically paid to shareholders. [1]

For this simplified calculation, identifiable assets and liabilities are measured at their acquisition-date fair values: values reflecting an orderly market transaction. A company might buy a whole business for 400 USD when its identifiable net assets, recognisable assets less liabilities, are worth 250. In this simplified IFRS 3 example, the difference of 150 is recorded as goodwill. That accounting figure captures part of the purchase price; it does not prove the deal created another 150 of value. What was acquired and how it subsequently performs matter. Buying BTC alone is not automatically a business combination, an acquisition of a business under this standard. Understand why an accounting item arose before treating it as evidence of a successful purchase. [5]

In SEC EDGAR, the public US regulatory filings database, look for the agreement, financing and pro forma assumptions. Pro forma recalculates figures as though the transaction had occurred under specified conditions; it is not an achieved result. Compare it with later reports. The first year may include only part of the acquired business’s operations as well as integration costs, whereas a steady annual scenario assumes full operation. Planned combined savings, called synergies, still need to materialise. Compare the same period and share definition against development without the purchase, not just last year. This separates an improved calculation from an improved business. [6]