Analysing Ten Network is much tougher than it might first appear. Here we step through a couple of the issues.

As value investors, we attempt to consider every stock from a business perspective. When doing so, we often find it helpful to look at the 'big' numbers. A quick check of the company's cash flow compared to its enterprise value (EV), for example, can help in getting a feel for the company and a quick clue as to its valuation. But there are problems to look out for with this approach and Ten Network Holdings is a case in point. Taking the figures straight from the 2005 annual report, your back-of-the-envelope calculations might look like those in Table 1.

In comparing the company's EV to its free cash flow (FCF), we've added bank interest back to the latter. And, on these rough figures, Ten looks mouth-wateringly cheap. But, as is often the case, a little knowledge can be a dangerous thing.

The listed company 'Ten Network' has only a 43% economic interest in 'The Ten Group', which is the private company that actually owns the underlying business. So, even if you purchased every single one of Ten Network's shares, you'd only end up with a 43% stake in the underlying business (The Ten Group). But, importantly for accounting purposes, when it comes to voting rights, Ten Network currently holds an 84.4% interest. As a result, under prevailing accounting rules it's deemed to have control of The Ten Group and is therefore compelled to consolidate its accounts.

While that sounds a little frightening, in practice it just means that Ten Network reports The Ten Group's entire financial statements as if they were its own.

This creates an issue for shareholders in the listed company (Ten Network). When their annual report arrives, they're seeing the complete financial results for the whole underlying business, yet their company has only a 43% interest in those results.

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