Investments in Equity Securities. This is how they would be reported when Gamestop starts making such investments. Examples from Berkshire Hathaway's latest 10-Q.
This post is mainly Due Diligence on the topics mentioned in its title, but because it has less than 2,000 words it is flagged as Possible DD to comply with the rules of this sub. I will present information directly taken from SEC filings. Any speculation will be explicitly identified as such.
In my last post (linked here) I proved via due diligence that Gamestop has not yet started (up to May 04 2024) to invest in equity securities. They are only investing in cash equivalents and marketable securities (which exclude equity securities). You should read it if not done yet.
As I know you won't click just to keep reading this, I provide a copy of the TLDR; here:
TLDR;
cash equivalents have a maturity date of 90 days or less.
marketable securities have a maturity date of more than 90 days but less than one year.
marketable securities cannot include equity securities (= shares of other companies), as shares do not mature.
the Balance Sheet proves that there was no investment in equity securities so far, as there is no entry there under assets where such type of investment would fit.
the company is being ultra-conservative and investing mainly in cash equivalents, with a smaller part in marketable securities.
the Credit Agreement from November 2021 does not prevent the company from buying equity securities, specially if financed by proceeds from ATM Offerings.
the old Investment Policy was preventing it, but since December 05 2023 the new Investment Policy allows for investment in equity securities.
However, the company has decided so far not to do it.
Now that the company got additional proceeds from the 2 most recent ATMs, we shall see in the next 10-Q if it has started to make use of the new Investment Policy or not.
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We will only know if they started to invest in equity securities after May 04 2024 or not when we see the next 10-Q in a few days from now.
Meanwhile I did some research on the Accounting Practices to deal with Equity Securities (and Debt Securities). This is the scope of this post.
This is an extract from this source here:
This is the most important part:
"Equity investments are required to be presented as a separate line item on the balance sheet (or disclosed in the notes to the financial statements as to which line item includes equity investments)."
Gamestop's Balance Sheet still does not include such line:
In order to see how it should be for the case of a company investing in equity securities, why not having a look into the SEC reports of the flagship company for this? I am talking about BERKSHIRE HATHAWAY INC.
The screenshots below are all from its latest 10-Q (linked here) for the period ended June 30 2024:
There you have that line present in their Balance Sheet.
There are also entries related to equity securities in many other parts of their 10-Q, other statements like Consolidated Statements of Cash Flows, Consolidated Statements of Comprehensive Income, etc. I copy some of them below:
There are much more. You can click in the link above and see for yourself.
The main point here is that none of such disclosures on equity securities have been present so far in Gamestop's 10-Qs and 10-Ks, although their new Investment Policy allows them to invest in Equity Securities since is was put in place in December 05 2023.
This above is another proof that Gamestop has not bought equity securities so far, at least up to May 04 2024, the end period of their latest 10-Q.
Will we see something different in the next 10-Q? Maybe, we all hope so, specially after the company got the proceeds from the 2 latest ATM Offerings.
If that would be the case then we should see something similar to the screenshots above for Berkshire Hathaway.