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Financials This a difficult section — don't be discouraged. You might want to skim it at first and return to the more challenging articles later. |
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Accounting Rules |
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Consistency and objectivity are the goals | ||||
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Historical, accrual accounting is the result | ||||
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Some shortcomings in a World According to GAAP | ||||
Company Reports |
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The Annual Report records a company's results during the preceding year | ||||
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The 10-K provides more details on products and competition | ||||
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The 10-Q reviews quarterly results | ||||
Reading an Annual Report |
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Begin (at the end) with the accountants' report | ||||
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The letter to shareholders highlights the priorities of senior management | ||||
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Management's Discussion and Analysis reviews actual performance | ||||
Income Statement |
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The income statement (or statement of operations) is included in the company reports | ||||
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Revenues, costs, and profits are reviewed | ||||
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Details, beyond the numbers, are available in Management's Discussion | ||||
Balance Sheet |
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The balance sheet is a "picture in time" | ||||
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Assets | ||||
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Liabilities | ||||
Financial Ratios |
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Profit Margins | ||||
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Interest Coverage | ||||
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Operating Working Capital | ||||
Cash Flow |
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Gross Cash Flow minus... | ||||
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Capital Expenditures & Working Capital equal... | ||||
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Free Cash Flow | ||||
Capital Expenditures |
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Capital expenditures (Cap ex) fall into two categories | ||||
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There is a difference between necessary and discretionary cap ex | ||||
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This is not an exact science | ||||
Currency Markets Introduction |
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Currency affects corporate profits | ||||
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Currency affects the trade between countries | ||||
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The value of a dollar is based on what it can buy | ||||
Advanced |
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How interest rates affect currencies | ||||
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How purchasing power affects currencies | ||||
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How the real world affects currencies | ||||
Acquisitions Part I |
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Acquisitions are an integral component of business strategy | ||||
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A pooling-of-interests occurs when the buyout is paid in stock | ||||
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A purchase occurs when cash is paid | ||||
Part II |
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Goodwill amortization should be ignored | ||||
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In-process R&D should, as well | ||||
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The SEC and the FASB — the new cavalry? | ||||
Company Options Part I |
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Company options are not ordinary stock options | ||||
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Company options are designed to motivate | ||||
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These options are more expensive than shareholders realize | ||||
Part II |
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The benefits of company options are overstated | ||||
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The true costs of these options are understated | ||||
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The costs vary widely from company to company | ||||
Part III |
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Valuing options begins with the footnotes to the annual report | ||||
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Multiply the number of options granted times the value of each option | ||||
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Compare this total cost to the company's total profit | ||||
Suggestion: Go to Proxy |
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