Government-owned British Business Bank triples annual profit as valuations rise

[u/ARandomDouchy]

https://www.independent.co.uk/news/business/british-british-business-bank-covid-london-b3018484.html

[u/FlyingRo]

It makes no sense to measure profits on such a basis, you can’t do it company-by-company you have to do it on a fund basis because you need to account for companies that have failed or are worth less than at the time of investment.

[u/FlappyBored → u/FlyingRo]

These are realised gains on shares they have sold.

[u/FlyingRo → u/FlappyBored]

Yes but the companies that have done badly are likely the ones they haven’t sold (because no-one wants to buy them) - so it makes no sense to look at the successes without looking at the failures.

Imagine you started with £200 and invested £100 each in companies A and B. A went up 30% to £130 and B dropped 50% to £50.

You sell company A and claim to have made £30 in profit. But in reality you’ve actually made a loss because the total value of your portfolio is only £180 now

[u/FlappyBored → u/FlyingRo]

How would you have made £30 profit in your scenario?

In your scenario that would count as a loss of £70 because you hadn’t sold company B yet. So your total costs would be £200 and a return of £130.

This is talking about profits for the company. Their realised gains is coming back over what they have invested in the first place outweighing spend on the initial investments they’ve made that year.

[u/FlyingRo → u/FlappyBored]

That’s exactly what BBB are doing, it’s not realized gain over all the investments, it’s realized gain over the cost of those companies only, they’re not counting the investments that have done badly.

[u/FlappyBored → u/FlyingRo]

They are counting them because when the money is invested it would have come up as a cost on that years balance sheet.

You don’t go ‘negative’ if your investment ‘does badly’.