The objective of the 10-K and other SEC-required forms is to provide shareholders and prospective shareholders with accurate, relevant, and timely information about the financial and operating performance of the company. The 10-K is just one of many forms a company that is publicly traded in the U.S.
A 10-Q is a report of a company's performance that must be submitted quarterly by all public companies to the Securities and Exchange Commission (SEC) A 10-Q contains similar information as a 10-K, but is not as comprehensive.A 10-Q must be submitted at the end of the first 3 quarters of a company's fiscal year, while a 10-K is submitted at the end of the 4th quarter.
The Form 13-F must be filed by institutional investors who exercise discretion over at least $100 million in investments. Data reported on this form include the names of investment managers, the names and class of securities they manage, the CUSIP number, the number of shares owned, and the total market value of each security.
Abandonment value refers to the value of a project or investment were it to be liquidated presently. Also called liquidation value, the abandonment value of a project or investment is the immediate value in cash that would be generated from liquidating a project or selling an investment. A given project's abandonment value can be an important consideration for a company.
An abatement cost refers to the cost associated with the voluntary or compulsory removal of an undesirable result of a production process. In many instances, companies produce goods or services that directly or indirectly result in a byproduct that may be medically or environmentally dangerous.
The Accelerated Cost Recovery System (ACRS) is a depreciation method that assigns assets periods of cost recovery based on specific IRS criteria.Since 1986, the Modified Accelerated Cost Recovery System (MACRS) has been far more prevalent.
Accelerated depreciation is a depreciation method whereby an asset loses book value at a faster rate than the traditional straight-line method.Generally, this method allows greater deductions in the earlier years of an asset and is used to minimize taxable income.
An accountant is trained to compile, inspect, interpret, and/or report financial statements and tax returns that comply with governmental and regulatory authority requirements. Accountants often work in a company's accounting department, at an auditing firm, or in a private practice.
An accountant's opinion is a concise written statement by a certified accountant concerning the accuracy of a company's financial records. An accountant's opinion is the first document in a company's financial report.
One can define accounting as the process of systematic recording, measuring, and communicating information about financial transactions.It’s a system that provides quantitative information about a business or a person’s financial position. An even simpler definition of accounting is that it’s the process of tracking assets, liabilities, expenses, revenue, and equity.
Accounting conventions are standards, customs or guidelines regarding the application of accounting rules. There are four widely recognized accounting conventions that guide accountants:1. Be conservative.
Accounting earnings, or net income, represent the amount of money gained or lost after all costs, depreciation, interest , taxes and expenses have been deducted from a company's total sales. A simple formula for calculating accounting earnings is: Accounting Earnings = Revenue - Cost of Goods Sold (COGS) - General & Administrative Expenses - Depreciation - Interest Expense + Internet Income - Taxes - Preferred Dividends Let's assume that Company XYZ delivered the following financial results last year: Revenue $1,000,000 Cost of Goods Sold $500,000 General Expenses $300,000 Depreciation $100,000 Interest Expense $5,000 Interest Income $1,000 Taxes $10,000 Preferred Dividends $10,000 Using the formula and the example information above, we can calculate Company XYZ's accounting earnings as follows: $1,000,000 -$500,000-$300,000-$100,000-$5,000+$1,000-$10,000-$10,000 = $76,000 In general, negative or low earnings might suggest a myriad of problems, ranging from insufficient gross profit margins to inadequacies in customer or expense management to unfavorable accounting methods.
An accounting error is an error in the process of systematically recording, measuring and communicating information about financial transactions. Mary is an accountant at Company XYZ.
An accounting period is the time interval reflected by the data in a financial statement. Firms prepare financial statements for publication and tax reporting based on an accounting period.
Accounting research bulletins (ARBs) are publications from the Accounting Principles Board of the American Institute of Chartered Public Accountants. ARBs recommend accounting procedures.
The accounts payable turnover ratio is a company's purchases made on credit as a percentage of average accounts payable.The formula for accounts payable turnover ratio is: Accounts Payable Turnover = Net Credit Purchases/Average Accounts Payable Let's assume Company XYZ buys $10 million of widget parts this year.
Accounts receivable (AR) are the amounts owed by customers for goods or services purchased on credit.The money owed to the company is called “accounts receivable” and is tracked as an account in the general ledger, and then reported as a line on the balance sheet. Look for accounts receivable on the company’s balance sheet under the current assets category.
Accounts receivable aging is a report showing the various amounts customers owe a company and the length of time the amounts have been outstanding. Here is sample of an aging report: Notice that the report shows how much each customer owes in total ("Amount Receivable"), how much is owed for the current month, and how late any other previous months' payments are.
Accounts uncollectible, also called allowance for doubtful accounts (ADA), is a reduction in a company's accounts receivable.Accounts uncollectible equals the amount of those receivables that the company's management does not expect to actually collect. Let's assume Company XYZ sells $1 million of goods to 10 different customers. Accordingly, Company XYZ increases its revenue account by $1 million and increases its accounts receivable account by $1 million (we are assuming the customers have 60 days to pay).
To be accretive is to increase earnings per share. This term is most often used in the context of acquisitions.
Accrual accounting is an accounting method whereby revenue and expenses are recorded in the periods in which they are incurred. Accrual accounting is the opposite of cash accounting, which recognizes economic events only when cash is exchanged.
Accruals are records of revenue and expenses in the periods in which they are incurred.They are a key component of the accrual method of accounting.
To accrue is to record revenue and expenses in the periods in which they are incurred.Accruals, the result of accruing, are key components of the accrual method of accounting.
An accrued expense refers to any expense incurred and reported during an accounting period, but for which payment has not yet been made. There are certain expenses which a company may incur over the course of an accounting period (usually a quarter), but which may not actually be paid until a later time.
Accrued interest refers to interest that builds up on a company's outstanding payables and receivables. This interest has been accounted for, but not yet transacted.
Accrued market discount refers to the steady increase in value of a discounted bond from the time of purchase until maturity. The accrued market discount is a discount bond's increase in value resulting from the approach of its maturity date rather than a drop in interest rates.
Accumulated depreciation is the sum total of the depreciation recorded for certain assets. Let's assume Company XYZ bought a MegaWidget for $100,000 three years ago.
Accumulated earnings is the sum of a company's profits, after dividend payments, since the company's inception.It can also be called retained earnings, earned surplus, or retained capital.
The accumulated earnings tax is a charge levied on a company's retained earnings.Also called the accumulated profits tax, it is applied when tax authorities determine the cash on hand to be an excessively high amount.
Activity based management (ABM) is an administrative method which examines how a company incurs costs from the standpoint of its activities rather than its final products. Companies have ordinarily managed costs from the perspective of the labor and capital which go into their final products.
Adjusted basis refers to the increase or decrease in an asset's value due to depreciation or capital enhancements. From the time an asset is acquired until the time it is sold, an asset experiences a number of events which affect its value.
Adjusted present value (APV) refers to the net present value (NPV) or investment adjusted for the interest and tax advantages of leveraging debt provided that equity is the only source of financing. A company may finance a project or investment using shareholders' equity alone (i.e., without leveraged, or borrowed, cash flows).
An adverse opinion refers to the conclusion by an auditor that a company's financial statements inaccurately characterize the company's financial standing. An adverse opinion is an internal or independent auditor's official written statement of no-confidence in a company's financial statements insofar as it reflects the company's true financial status and adherence to generally accepted accounting principles (GAAP) and disclosure of information.
After-tax operating income (ATOI) is a company's operating income after taxes.ATOI is very similar to net operating profit after tax (NOPAT) The formula for ATOI is: ATOI = Gross Revenue - Operating Expenses - Depreciation - Taxes Let's assume Company XYZ reported the following information for the fiscal year: Using the formula and the information above, we can calculate that Company XYZ's ATOI was: $1,000,000 - $500,000 - $300,000 - $100,000 - $10,000 = $90,000 ATOI is a non-GAAP measure, meaning that what is included and excluded differs by company and industry.
After-tax profit margin is the percentage of revenue remaining after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue. The formula for after-tax profit margin is: (Total Revenue – Total Expenses)/Total Revenue = Net Profit/Total Revenue = After-Tax Profit Margin By dividing net profit by total revenue, we can see what percentage of revenue made it all the way to the bottom line, which is good for investors. Let's look at a hypothetical income statement for Company XYZ: Using the formula and the information above, we can calculate that Company XYZ's after-tax profit margin was $30,000/$100,000 = 30% After-tax profit margin is one of the most closely followed numbers in finance.Shareholders look at after-tax profit margin closely because it shows how good a company is at converting revenue into profits available for shareholders. One of the most important concepts to understand is that net profit is not a measure of how much cash a company earned during a given period.
Aggressive accounting refers to an accounting department's deliberate and purposeful tampering with its company's financials in order to outwardly characterize its revenues as higher than they truly are. The practice of aggressive accounting seeks to report a company's revenues as higher than they truly are in order to increase the market value of company stock by presenting attractive figures to current and prospective investors.
An allowance for doubtful accounts (ADA) is a reduction in a company's accounts receivable.The ADA equals the amount of those receivables that the company's management does not expect to actually collect.
The Altman Z-Score (named after Edward Altman, the New York University professor who devised it) is a statistical tool used to measure the likelihood that a company will go bankrupt.Though Altman devised the Z-Score in the 1960s, the notion of trying to predict which companies would fail was far from new at that time.
Amortization calculates how loans (like fixed-rate mortgages) are allocated towards principal and interest payments over the loan term. It may also refer to an accounting method that expenses the cost of an intangible asset over time on a company’s financial statements. Note: Amortization in accounting is covered below.
An analyst gathers and interprets data about securities, companies, corporate strategies, economies or financial markets.Analysts are sometimes called financial analysts, securities analysts, equity analysts or investment analysts (although there is a distinction among these titles).
An annual report is an audited corporate document that details the business activity and financial status of a publicly-held company over the previous year. The Securities and Exchange Commission (SEC) requires all public companies to distribute an annual report to shareholders at the end of each fiscal year.Each report contains the three main financial statements -- the Income Statement, Cash Flow Statement and Balance Sheet -- as well as a host of other company-related data.
An asset is an economic resource that can be owned by an individual, company, or country.Assets are expected to provide future economic benefits like: Increased value for a company or country Increased net worth for an individual Assets accomplish this by providing cash flow, reducing expenses, and/or increasing sales.
In the tax world, an audit refers to the review of a taxpayer's tax return for accuracy. In the accounting world, an audit is the examination and verification of a company's financial statements and records, and in the United States, examination for their compliance with Generally Accepted Accounting Principles (GAAP).
An audit trail refers to the complete record of events that occurred in the execution of a transaction. When a transaction is executed (e.g.
An auditor's report is a statement included in a company's annual financial report that certifies the validity of a company's financial statements according to an outside auditor. By law, companies in the U.S.
A back charge is an unpaid bill attributable to a prior period. For example, let's say that Company XYZ sells $1,000 worth of auto parts to Store ABC every month.
An accounting method whereby the costs associated with producing a good or service are recorded only after the good or service is actually produced, completed or sold. For example, let's assume that Company XYZ manufactures widgets.
Bad debt expense is the portion of accounts receivable that became uncollectable during a given period. Let's assume that Company XYZ sells $1,000,000 worth of goods to 10 different customers.
Bad debt reserve, also called an allowance for doubtful accounts (ADA), is a reduction in a company's accounts receivable.The bad debt reserve is the amount of receivables that the company does not expect to actually collect.
Beginning inventory refers to the value of goods that a company has for its use or sale at the start of an inventory accounting period. Say Company XYZ produces 5,000 units during the course of a year and sells 2,000 units.
When referring to assets, the term book value means the original cost of an asset minus accumulated depreciation.What Is the Book Value of a Company?
The bottom line represents the number of sales dollars remaining after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue. The bottom line is also referred to as net income, net profit, or net earnings.The formula for the bottom line is as follows:Total Revenue -Total Expenses = Net Income The bottom line is found on the last line of the income statement, which is why it's called the bottom line. Let's look at a hypothetical income statement for Company XYZ:Income Statement for Company XYZ, Inc.for the year ended December 31, 2008Total Revenue $100,000Cost of Goods Sold ($ 20,000)Gross Profit $ 80,000Operating Expenses Salaries $10,000 Rent $10,000 Utilities $ 5,000 Depreciation $ 5,000Total Operating Expenses ($ 30,000)Interest Expense ($ 10,000)Taxes ($ 10,000)Bottom Line $ 30,000By using the formula we can see that the bottom line = $100,000 - $20,000 - $30,000, - $10,000 - $10,000 = $30,000 The bottom line is one of the most closely followed numbers in finance, and it plays a large role in ratio analysis and financial statement analysis.
Break even analysis is a calculation of the quantity sold which generates enough revenues to equal expenses.In securities trading, it is the point at which gains are equal to losses. In other words, break-even analysis examines and calculates the margin of safety that’s based on a company’s revenue – as well as related costs of running the organization.
CAGR stands for compound annual growth rate.A widely-used measure of growth, CAGR is used to evaluate anything that can fluctuate in value (such as assets and investments).
A calendar year is the period between January 1 and December 31. If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December 31, then Company XYZ's fiscal year is said to be on a calendar year basis.
For firms, a capital asset is an asset that has a useful life longer than one year and is not intended for sale during the normal course of business.For individuals, capital asset typically refers to anything the individual owns for personal or investment purposes.
Capital expenditures, or capex, is money used to purchase, upgrade, improve, or extend the life of long-term assets.Long-term assets are typically property, infrastructure, or equipment with a useful life of more than one year.
In the business world, capitalization has two meanings.The first meaning, also called market capitalization, refers to the value of a company's outstanding shares.
Capitalizing refers to the accounting practice of characterizing the costs of an asset purchase as a long-term asset on the balance sheet instead of an expense on the income statement. Companies capitalize the cost of asset purchases in order to spread out the cost of the assets over many reporting periods.This way, net income is not affected disproportionately in the reporting period in which the asset was purchased. Rather than being listed as one large expense in one reporting period, a capitalized asset cost will be expensed via depreciation over many reporting periods.
Under cash accounting, a business records revenue and expenses in the period in which they are actually received or paid, rather than in the period in which they are incurred. Let's assume Company XYZ sold 1,000 widgets in December for $1,000 each and that its customers usually take 60 days to pay for their widgets.
Cash and cash equivalents (CCE) are company assets in cash form or in a form that can be easily converted to cash. The balance sheet shows the amount of cash and cash equivalents at a given point in time, and the cash flow statement explains the change in cash and cash equivalents over time.
Cash budget is a review or projection of cash inflows and outflows.It can be used as a tool for analyzing the revenues and costs of a company or individual.
Cash flow is simply the cash expected to be generated by an investment, asset or business. As an investor, you buy a dividend-paying stock.You purchase the stock for $10 and the company pays you a $0.50 dividend each year.
Cash flow after taxes (CFAT) is a measure of a company's ability to generate positive cash flow after deducting taxes. The general formula for CFAT is: CFAT = Net Income + Depreciation + Amortization Sometimes analysts also add back other non-cash items and proceeds from debt or equity issuance.
The section of the cash flow statement titled Cash Flow from Financing Activities accounts for inflows and outflows of cash resulting from debt issuance and financing, the issuance of any new stock, dividend payments, and any repurchase of existing stock. The cash flow from financing activities section expresses the total net cash flow from the total of any of the financing activities described above.
Cash from investing activities is a section of the cash flow statement that provides information regarding a company's purchases or sales of capital assets. A statement of cash flows typically breaks out a company's cash sources and uses for the period into three categories: cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities. Cash flow from investing activities primarily reflect the company's purchases or sales of capital assets (that is, assets that appear on the balance sheet and have a useful life of more than one year).
Cash flow from operating activities measures the cash-generating abilities of a company's core operations (rather than its ability to raise capital or buy assets). Put another way, cash flow from operations is the amount of money a company brings in from their day-to-day business operations (e.g.selling goods, making products).
Cash flow per share represents the portion of a company's cash flow allocated to each share of common stock. Cash flow per share can be calculated by dividing cash flow earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term.
A cash flow statement (also referred to as the statement of cash flows) is a document that reports the inflows and outflows of cash within a business.It is one of three main financial statements that businesses use alongside the balance sheet and income statement. The simplest definition of a cash flow statement is that it’s a financial statement which measures the cash generated and used by a company within a given period.
The certified public accountant (CPA) designation is a professional designation granted by the American Institute of Certified Public Accountants (AICPA).It is given to individuals who pass the Uniform CPA Examination and meet additional education, experience, and state licensing requirements that allow them to provide accounting services to the public.
A common-size balance sheet is a balance sheet in which each line item is expressed as a percentage of assets. For example, let's assume that Company XYZ's balance sheet looks like this: The right-most column on this balance sheet, which shows each line item as a percentage of assets, is a common-size balance sheet.
A common-size financial statement is an income statement or balance sheet in which each line items are expressed as a percentage of sales or assets, respectively. For example, let's assume that Company XYZ's income statement looks like this: The right side of the income statement, which shows each expense as a percentage of sales, is a common-size income statement.
A common-size income statement is an income statement in which each line item is expressed as a percentage of sales. For example, let's assume that Company XYZ’s income statement looks like this: The right side of the income statement, which shows each expense as a percentage of sales, is a common-size income statement.
In the accounting world, to consolidate means to combine the financial statements of a company and all of its subsidiaries, divisions or suborganizations. Let's assume Company XYZ is a holding company that owns four other companies: Company A, Company B, Company C and Company D.
Consolidated financial statements are the combined financial statements of a company and all of its subsidiaries, divisions, or suborganizations. Let's assume Company XYZ is a holding company that owns four other companies: Company A, Company B, Company C, and Company D.
Contribution margin is a measure of profit per unit; it is used to tell a business how profitable each of their products is by calculating how much each product can contribute to revenues.The contribution is the difference between the market price of the product and its variable cost, where variable cost is the production cost excluding the company’s own fixed costs of operating the business. Variable costs are the material and labor costs of making the product.
Core earnings are the net income a company generates from the principle products and services it provides. The concept of core earnings was developed by Standard & Poor's (S&P) in order to measure the income a company generates from its daily operations.
Cost of capital can best be described as the ability to cover both asset and liability expenditures while generating a profit. A simpler cost of capital definition: Companies can use this rate of return to decide whether to move forward with a project.Investors can use this economic principle to determine the risk of investing in a company. Cost of capital is the return (%) expected by investors who provide capital for a business.
Cost of goods sold (COGS) is an accounting term to describe the direct expenses related to producing a good or service.COGS is listed on the income statement.
Cost per unit is a measure of a company's cost to build or create one unit of product. For example, let's assume it costs Company XYZ $10,000 to purchase 5,000 widgets that it will resell in its retail outlets.
Current assets (sometimes called current accounts) are any company assets that can be converted into cash within one fiscal year.There are multiple ways these assets can be converted, including sale, consumption, utilization, and exhaustion through standard operations. Assets fall into two categories on balance sheets: current assets and noncurrent assets. Current assets are short-term, liquid assets that are expected to be converted to cash within one fiscal year.
Days sales of inventory is a ratio of inventory to sales.The formula is: Days Sales of Inventory = (Inventory/Cost of Sales) x 365 For example, let's say that XYZ Company had $15 million cost of sales for the year and $50,000 in inventory today.
Days sales outstanding (DSO) is the ratio of receivables to the daily average of credit sales. The formula for daily sales oustanding is: DSO = Receivables / (Net Annual Sales on Credit / 360) If a company does not sell on credit (that is, the customer must pay immediately), then total sales is used in the denominator.
Days working capital is the ratio of working capital to sales.The formula is: Days Working Capital = (Average Working Capital x 365)/Annual Sales Working capital is money available to a company for day-to-day operations.
Debt load is the total amount of debt that a company has on its balance sheet.All publicly traded companies must file financial statements, including balance sheets, every quarter.
Deferred revenue is money that a company receives in advance for products and services.This means that these products and services will, at a later date, be delivered or performed.
Deferred tax liability (DTL) is a balance sheet line item that accounts for the temporary difference between taxes that will come due in the future and taxes paid today. Because of accrual accounting rules, a company may be able to defer taxes on some of its income.This "unrealized" tax debt is put into an account on the balance sheet called deferred tax liability. You can find DTL on the balance sheet or on a fund's statement of assets and liabilities.
A depletion allowance is a tax deduction allowed in order to compensate for the depletion or "using up" of natural resource deposits such as oil, natural gas, iron, timber etc. The allowance is a form of cost recovery for capital investment which, unlike income, is not taxable. There are two basic forms of depletion allowance, cost depletion and percentage depletion. Under the cost method, the original investment is recouped by deducting a portion of the capital investment each year from gross income over the estimated life of the resource deposit. Cost depletion can be illustrated in this way: An oil company invests $15 million in a property with an estimated oil reserve life of 15 years. The company deducts approximately $1,000,000 ($15 million/15 years) from taxable earnings each year until the initial investment is recouped in tax benefits.
Depreciated cost is the cost of an asset minus its accumulated depreciation.Another term for this concept is net book value.
Depreciation is an accounting method that measures the reduction in an asset’s value over the course of its useful life.It also represents how much of an asset’s value is depleted due to usage, wear and tear, or obsolescence.
Diluted earnings per share is a measure of profit.The formula for diluted earnings per share is: Fully Diluted Earnings Per Share = (Net Income - Preferred Stock Dividends) / (Common Shares Outstanding + Unexercised Employee Stock Options + Convertible Preferred Shares + Convertible Debt + Warrants) Let's assume Company XYZ had $10,000,000 of net income this year.
Earned surplus is the sum of a company's profits, after dividend payments, since the company's inception.It can also be called retained earnings, retained capital, or accumulated earnings.
Earnings are the corporate profits of a company over a specific time period after taxes and other expenses have been paid. The net (after-tax) earnings of a company are calculated by deducting such factors as operating expenses, cost of sales, taxes, and the like.
An earnings announcement is a public statement of a company's profits, usually on a quarterly basis. For example, let's say Company XYZ is a public company.
Earnings before interest after taxes (EBIAT) is a measure of a company's operating performance.EBIAT is a measure of how profitable a company would be if it paid taxes on its operating profit without the benefit of the tax shelter that is created by using debt.
Earnings before interest and depreciation (EBID) are a post-tax measure of a company's operating performance. The formula for EBID is: EBID = EBIT + Depreciation - Taxes EBID can be easily derived from the company's income statement.
Earnings Before Interest and Taxes (EBIT) measures the profitability of a company without taking into account its cost of capital or tax implications. EBIT is calculated using information provided on a company’s income statement.
Earnings before interest, tax, depreciation, and amortization (EBITDA) is a measure of a company's operating performance.EBITDA is used to evaluate a company's performance without factoring in financing/accounting decisions or tax environments.
Earnings before tax (EBT) measures a company's operating and non-operating profits before taxes are considered.It is the same as profit before taxes.
The earnings multiplier, also called the price-to-earnings ratio (P/E), is a valuation method used to compare a company’s current share price to its per-share earnings. The market value per share is the current trading price for one share in a company, a relatively straightforward definition.
The term earnings per share (EPS) represents the portion of a company's earnings, net of taxes and preferred stock dividends, that is allocated to each share of common stock.The figure can be calculated simply by dividing net income earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term.
Earnings before Interest, Depreciation, and Amortization (EBIDA) is a post-tax measure of a company's operating performance. The formula for EBIDA is: EBIDA = EBIT + Depreciation + Amortization - Taxes EBIDA can easily be derived using the company's income statement.
Earnings before interest, tax and depreciation (EBITD) is a pre-tax measure of a company's operating performance.Essentially, it's a way to evaluate a company's performance without having to factor in many financing decisions, accounting decisions, or tax differences.
EBITDA margin is a measurement of a company's EBITDA (its earnings before interest, taxes, depreciation, and amortization) as a percentage of its total revenue. The formula for EBITDA margin is: EBITDA Margin = EBITDA / Total Revenue A widely-used financial ratio, EBITDA margin provides investors with a better understanding of how much cash profit a company brought into its business in a given time period relative to its total revenue.
Earnings before interest, taxes, depreciation, amortization and exceptional items (EBITDAE) are a measure of a company's operating performance. The formula for EBITDAE is: EBITDAE = EBIT + Depreciation + Amortization + Exceptional Items Essentially, the EBITDAE provides a way to evaluate a company's performance without having to factor in financing decisions, accounting decisions, unusual events, or tax environments.
Earnings before interest, taxes, depreciation, amortization, and special losses (EBITDAL) is a measure of a company's operating performance.Essentially, it's a way to evaluate a company's performance without having to factor in financing decisions, accounting decisions, unusual events or tax environments.
EBITDAR - Earnings Before Interest, Tax, Depreciation, Amortization, and Restructuring or Rent Costs
EBITDAR, which stands for earnings before interest, tax, depreciation, and either restructuring or rent costs (depending on what you're measuring) measures a company's profitability without taking into account its capital structure, tax rate, or primary non-cash items such as depreciation or amortization.It also backs out restructuring or rent costs, so that a company or analyst can approximate the cash available before either of these costs are paid for.
A variation of EBITDA, EBITDAX is a measure used by natural resource exploration companies to reflect ongoing or core profitability.The acronym stands for earnings before interest, taxes, depreciation, amortization and exploration expense.
Economic profit is a measure of performance that compares net operating profit to total cost of capital Economic profit is also referred to as economic value added (EVA), which is a trademarked concept originally devised by Stern Stewart & Co.The formula for economic profit is: Economic Profit = Net Operating Profit After Tax - (Capital Invested x WACC) As shown in the formula, there are three components necessary to solve economic profit: net operating profit after tax (NOPAT), invested capital, and the weighted average cost of capital (WACC). The net operating profit after tax (NOPAT) can be found on the corporation's income statement, or calculated if preferred.
Economic value added (EVA) is an internal management performance measure that compares net operating profit to total cost of capital.Stern Stewart & Co.
The EDGAR Public Dissemination Service (PDS) System is an electronic system that receives SEC filings. Keane Federal Systems operates the EDGAR Public Dissemination Service (PDS) System.
EDGAR, the Electronic Data Gathering, Analysis and Retrieval system, is an automated system of submission used by public companies required to file forms with the U.S.Securities and Exchange Commission (SEC) In 1984, EDGAR was created by the SEC to improve the quality and speed of information available to investors and corporations.
Ending inventory is the book value of inventory at the end of a financial or accounting reporting period. Ending inventory equals the beginning inventory balance plus the cost of any inventory purchases minus the cost of any inventory sold and shrinkage.
Enterprise multiple is a financial indicator used to determine the value of a company.It is equal to a company’s enterprise value divided by its EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).
Enterprise value represents the entire economic value of a company.More specifically, it is a measure of the theoretical takeover price that an investor would have to pay in order to acquire a particular firm.
Enterprise value to cash flow from operations (EV/CFO) is the ratio of the entire economic value of a company to the cash it produces.The formula for EV/CFO is: EV/CFO = (Market Capitalization + Total Debt – Cash)/Cash from Operations Some analysts adjust the debt portion of the formula to include preferred stock; they may also adjust the cash portion of the formula to include current accounts receivable and liquid inventory.
An exceptional item is an unusually large and uncommon transaction charge that must be disclosed on the balance sheet in accordance with GAAP. Let's assume Company ABC is experiencing poor business.
An extraordinary item is an accounting term used to describe expenses that are infrequent, unusual and significant in size. Let's assume that Company XYZ, an American company, operates a chain of beach resorts in the Florida Keys, and the resorts are hit by a blizzard.
The Financial Accounting Standards Board (FASB) is an independent non-profit body responsible for the institution and interpretation of Generally Accepted Accounting Principles (GAAP). FASB was formed in 1973 and serves as the arm of the SEC responsible for governing the accounting standards for U.S.
A financial analyst gathers and interprets data about securities, companies, corporate strategies, economies, or financial markets.Financial analysts are sometimes called securities analysts, equity analysts, or investment analysts (although there is a distinction among these titles).
Financial engineering is the quantitative, technical development of financial strategies and products. Financial engineers design, create and implement new financial instruments, models and processes to solve problems in finance and take advantage of new financial opportunities.
First in, first out (FIFO) is an accounting method for inventory valuation that assumes that goods are sold or used in the same chronological order in which they are acquired. The accounting method of first in, first out (FIFO) assumes that merchandise purchased first is sold first.
Fiscal quarters are consecutive, three-month periods within a company’s fiscal year (also referred to as a financial year).Fiscal quarters are used by publicly-traded companies to schedule the release of financial reports and the payment of stock dividends.
A fiscal year is an accounting period of 365(6) days that does not necessarily correspond to the calendar year beginning on January 1st.The fiscal year is the established period of time when an organization's annual financial records commence and conclude.
A fixed asset is anything that has commercial or exchange value, generates revenue, has a life longer than one year and has a physical form. Let’s assume XYZ Company intends to purchase an office building for $10 million.
Fixed costs are independent expenses that companies must pay, regardless of what their business does.Because they cover expenses that help keep the business up and running, they are sometimes referred to as overhead costs. Fixed costs do not change when goods or services produced or sold by a company move up or down.
Forensic accounting is a form of investigative accounting which examines financial records in order to find evidence for a lawsuit or criminal prosecution. Forensic Accounting is sometimes referred to as forensic auditing.
Forensic auditing examines individual or company financial records as an investigative measure that attempts to derive evidence suitable for use in litigation. Forensic auditing can sometimes be referred to as forensic accounting.
Forward earnings are the profits a company (or companies) expect to generate during a future period of time. Companies and/or analysts calculate forward earnings using a variety of techniques that generally involve a review of past earnings performance and market conditions as well as a prognostication about the future direction of the economy and/or stock market. Forward earnings are used to calculate the forward price-to-earnings ratio (P/E), an oft-cited metric in stock valuation.
The forward price-to-earnings ratio (forward P/E) is a valuation method used to compare a company’s current share price to its expected per-share earnings. The market value per share is the current trading price for one share in a company, a relatively straightforward definition.
Free cash flow (FCF) is a measure of how much cash a business generates after accounting for capital expenditures such as buildings or equipment.This cash can be used for expansion, dividends, reducing debt, or other purposes. The formula to calculate free cash flow is: FCF = Operating Cash Flow - Capital Expenditures The data needed to calculate a company's free cash flow is usually on its cash flow statement under Operating Activities.
Free cash flow to the firm (FCFF) is the cash available to pay investors after a company pays its costs of doing business, invests in short-term assets like inventory, and invests in long-term assets like property, plants and equipment.The firm's investors include both bondholders and stockholders.
A full-service broker executes trades for clients, but also provides research, advice, retirement planning and tax assistance. There are two general categories of brokers: discount and full-service. In contrast to a discount broker, who only executes trades for customers, a full-service broker also provides service and expertise in wealth management services -- such as tax assistance, retirement planning and investment advice.
With a fully depreciated asset, the accumulated depreciation equals the original cost of the asset. Let's assume Company XYZ bought a MegaWidget for $100,000 10 years ago.
Fundamental analysis attempts to understand and predict the intrinsic value of stocks based on an in-depth analysis of various economic, financial, qualitative, and quantitative factors. Fundamental analysis observes numerous elements that affect stock prices such as sales, price to earnings (P/E) ratio, profits, earnings per share (EPS), as well as macroeconomic and industry specific factors.
Funds from Operations (FFO) is a measure of cash generated by a real estate investment trust (REIT).It is important to note that FFO is not the same as Cash from Operations, which is a key component of the indirect-method cash flow statement.
Funds from operations per share (FFOPS) is a measure of cash generated by a real estate investment trust (REIT).It is important to note that FFOPS is not the same as Cash from Operations Per Share, which is a key component of the indirect-method cash flow statement.
Future value (FV) refers to a method of calculating how much the present value (PV) of an asset or cash will be worth at a specific time in the future. One dollar put into a savings account today might be worth more than one dollar a year from now.
Generally Accepted Accounting Principles (GAAP) is a framework of accounting standards, rules and procedures defined by the professional accounting industry, which has been adopted by nearly all publicly traded U.S.companies.
Going concern refers to the assumption that a company has the resources to continue operating in the foreseeable future.A bankrupt company or a company near bankruptcy is the opposite of a going concern.
Also known as work in process (WIP), goods in process are the component of a company's inventory that is partially completed. Goods in process = (operating inventory goods in process + raw materials used during the period + direct labor during the period + factory overhead for period) - ending inventory The value of that partially completed inventory is recorded as goods in process on the asset side of the balance sheet.For example, let's assume Company XYZ manufactures widgets.
Goodwill is the excess of purchase price over the fair market value of a company's identifiable assets and liabilities. Goodwill is created when one company acquires another for a price higher than the fair market value of its assets; for example, if Company A buys Company B for more than the fair value of Company B's assets and debts, the amount left over is listed on Company A's balance sheet as goodwill.The account for goodwill is located in the assets section of a company’s balance sheet.
Generally, a goodwill impairment occurs when a company A) pays more than book value for a set of assets (the difference is the goodwill), and B) must later adjust the book value of that goodwill. Goodwill is an asset, but it does not amortize or depreciate like other assets.
Gross margin is a required income statement entry that reflects total revenue minus cost of goods sold (COGS). Gross margin is a company's profit before operating expenses, interest payments and taxes.Gross margin is also known as gross profit.
Gross profit – also referred to as gross income or sales profit – is the total sales of a company minus the total cost of goods (COGS) sold.Gross profit margin is an important indicator of a company’s profitability.
A hard asset is a physical, or tangible, asset.It is the opposite of an intangible asset.
A hard inquiry is a lender's investigation of an applicant's credit history for the purpose of approving or declining a loan or extension of credit. A hard inquiry helps a bank or credit card company assess the risk that an applicant will default on his or her repayment obligations.
Headline earnings are a measurement of a company's earnings based solely on operational and capital investment activities.It specifically excludes any income that may relate to staff reductions, sales of assets, or accounting write-downs.
Hedge accounting is a portfolio accounting method that combines the values of both a security and its offsetting hedge instrument. If investors purchase a security that comprises a high level of risk, they may accompany the purchase with an opposing item (usually a derivative, such as an option or future contract) referred to as a hedge.
Held-to-maturity securities refer to debt securities which an investor holds until maturity. When investors purchase debt securities such as bonds, they have two choices: to hold the security until maturity or to sell it at a premium following a relative decline in interest rates.
A hurdle rate is an investor's minimum rate of required return on an investment. Let's assume Company XYZ is deciding whether to purchase a piece of factory equipment for $300,000.
Income from operations is income that is generated by the normal operations of a business. Income from operations is also referred to as operating income or operating earnings.
An income statement is a financial statement detailing a company’s revenue, expenses, gains, and losses for a specific period of time that is submitted to the Securities and Exchange Commission (SEC).At the most basic level, it shows profit and loss.
An intangible asset is an asset that lacks a physical substance. For example, goodwill, patents, trademarks and copyrights are intangible assets.None of these assets can be physically touched, but they can still have value. The line item for intangible assets is found on the balance sheet.
An interest rate swap is a financial contract between two parties (such as companies or investors) that want to exchange interest rates.These could be interest rates they’re paying on loans or rates they’re receiving on investments. It's important to note that loans and investments aren’t traded or altered: The parties only exchange the interest rates they pay on their loans or receive from their investments.
Internal rate of return (IRR) is the discount rate that makes the net present value of all cash flows (both positive and negative) equal to zero for a specific project or investment. What Is Internal Rate of Return Used for?The internal rate of return is used to evaluate projects or investments.
Anyone who has ever worked in retail has heard the term inventory.For businesses, inventory is not only how stores keep customers happy, but it’s also how they keep supply chains moving (and ensure that supply is available to meet demand). Beyond the borders of a brick-and-mortar store, what is inventory?
Inventory management is the process of ensuring that a company always has the products it needs on hand and that it keeps costs as low as possible. Inventories are company assets that are intended for use in the production of goods or services made for sale, are currently in the production process, or are finished products held for sale in the ordinary course of business.
An inventory reserve is an accounting entry that reflects a reduction in the market value of a company's inventory. For example, let's say that Company XYZ bought 1,000,000 widgets for $4 each.
The inventory turnover ratio measures the rate at which a company purchases and resells products to customers.There are two formulas for inventory turnover: Sales OR Cost of Goods Sold Inventory Average Inventory The first formula is considered to be more common.
Last fiscal year (LFY) refers to a company's most recent completed fiscal year. A fiscal year is a company's 12-month accounting cycle.
Last twelve months (LTM), also known as trailing twelve months (TTM), is the 12-month interval occurring before a given point in time. For example, an analyst who is issuing a report on October 15, 2012 will report last twelve months (LTW) earnings as those from October 1, 2011 to September 30, 2012. Analysts and policymakers frequently use the last twelve months to gauge economic performance and to analyze data from the past year.It is important not to confuse the last twelve months with the last fiscal year (LFY), which covers the organization's most recently-completed fiscal year.
Last-in, first-out (LIFO) describes a method for accounting for inventories.Under this system, the last unit added to an inventory is the first to be recorded as sold.
Liquidation value refers to the value of a project or investment if it were to be sold or abandoned immediately. Also called abandonment value, the liquidation value of a project or investment is the immediate value in cash that would be generated from liquidating a project or selling an investment. A project's liquidation value can be an important consideration for a company's capital budget.
The term margin has two main definitions.The first refers to the ratio of profit to revenue.
Mark-to-management is an accounting practice that prices an asset based on what management estimates its potential value to be under normal market conditions.It is the opposite of mark-to-market.
Mark-to-market (MTM) is an accounting method that records the value of an asset according to its current market price. For example, the stocks you hold in your brokerage account are marked-to-market every day.
Mark-to-market losses are losses in an asset's value caused solely by a decline in market price. Mark-to-market losses appear when an asset is priced according to a mark-to-market (MTM) accounting method.
Mark-to-model is an accounting method where asset prices are assigned using the results of a financial model. The mark-to-model pricing method puts a value on assets based on the outcome of a financial model.
Market Value Added is the difference between the capital contributed to the company by bondholders and shareholders and the final market value of the product. The formula used to find market value added is: Market Value Added = Market Value - Capital Invested Increasing MVA or increasing shareholder wealth is the primary goal of any business and the reason for its existence. For example, if bondholders and shareholders have contributed $1,000,000 to form Company XYZ and during its existence since inception and it is currently listed on the stock exchange with a stock market value of $2,000,000, it can be said that the MVA of the company is $1,000,000.
Market value of equity is the total market value of all of a company's outstanding shares. A company's market value of equity -- also known as market capitalization -- is the current market price of a company's stock multiplied by the number of all outstanding shares in the market.
Marketable securities are financial instruments that can be sold or converted into cash (at reasonable value) within one year.They are highly liquid investments that are generally issued by businesses to raise funds for operating expenses or expansion.
A merger (or buyout) refers to two companies willingly joining together to create a single entity.The two companies are typically the same size, and through a merger strategy, there is one “survival company.” This means that only one company continues to exist after a merger is completed.
In the finance world, the mosaic theory refers to a research approach whereby the analyst arrives at a conclusion by piecing together bits of publicly available information. For example, let's assume that John Doe is an analyst at Company XYZ.
Negative amortization occurs when the principal balance on a loan (usually a mortgage) increases because the borrower's payments don't cover the total amount of interest that has accrued. For example, let's assume that John wants to borrow $100,000 from Bank XYZ to buy a house.
Negative amortizing loans are loans in which the loan's principal balance increases even though the borrower is making payments on the loan. For example, let's assume that John wants to borrow $100,000 from Bank XYZ to buy a house.
A negative assurance is an auditor's written statement that an audit did not uncover any signs of fraud or violations of accounting rules. For example, let's assume that Company XYZ hires an auditor to audit its financial statements and internal controls for the year 2010.
Negative equity occurs when liabilities exceed the value of assets. For example, let's assume that Company XYZ has $20 million of total assets and $40 million of total liabilities.
Negative goodwill, also called a bargain-purchase amount, occurs when a company buys an asset for less than its fair market value.Negative goodwill is the opposite of goodwill.
Net Advantage to Leasing (NAL) refers to the money a company or individual saves from leasing an asset rather than buying it. Under a lease agreement, the user (the lessee) agrees to make periodic payments to the owner (the lessor) in exchange for the use of the asset.
Net assets are what a company owns outright, minus what it owes.Put another way, net assets equal the company assets (economic resources) minus liabilities (what is owed to someone else).
Net book value is the net value of an asset carried on its balance sheet. Net book value results from the accounting technique of depreciating or amortizing the value of an asset: a company gradually “uses up” or expenses the cost of a fixed asset over the asset’s useful life.It’s one of several ways to derive a valuation for the asset but it may not equal the market price of the fixed asset. Net book value is an important metric to indicate a minimum/floor value of a company’s assets.
Net cash flow is the difference between a company’s cash inflows and outflows within a given time period.A company has a positive cash flow when it has excess cash after paying for all operating costs and debt payments.
The net current asset value per share (NCAVPS) equals a company's current assets divided by its number of shares outstanding. The formula for NCAVPS is: NCAVPS = (Current Assets - Current Liabilities) / Shares Outstanding A current asset is cash or an asset that can be converted to cash within one year.
Net debt is a company's total debt less cash on hand. The formula for net debt is: Net Debt = Short-Term Debt + Long-Term Debt - Cash and Cash Equivalents For example, let's assume that Company XYZ has $10,000,000 in short-term debt, $4,000,000 in long-term debt, and $1,000,000 in cash and cash equivalents.
Net earnings represent the amount of sales revenue left over after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue. Net earnings are also referred to as the bottom line, net profit, or net income.The formula for net earnings is as follows:Total Revenue -Total Expenses = Net Earnings Net earnings are found on the last line of the income statement, which is why it's often referred to as the bottom line. Let's look at a hypothetical income statement for Company XYZ:By using the formula we can see that Net Earnings = $100,000 - $20,000 - $30,000, - $10,000 - $10,000 = $30,000 Net earnings are one of the most closely followed numbers in finance, and it plays a large role in ratio analysis and financial statement analysis.
For businesses, net income indicates how well a company is managing its profit (both earnings and expenses).For individuals, this number is defined more loosely: it can refer to your gross income net of expenses, or your take-home pay. Net Income for Businesses Net income for a business represents the income remaining after subtracting the following from a company's total revenue: All operating expenses Cost of Goods Sold Interest Taxes Preferred stock dividends (but not common stock dividends) Net income for a business is found on the income statement. This number is examined by shareholders, prospective investors, and potential lenders to help determine if the company is solvent and able to pay additional debts.
Net income after taxes (NIAT) is the number of sales dollars remaining after all operating expenses, interest, depreciation, taxes and preferred stock dividends have been deducted from a firm's total revenue. Net income after taxes is also referred to as the bottom line, profit or net earnings.The formula for NIAT is as follows: Total Revenue -Total Expenses = Net Income After Taxes Net income after taxes is found on the last line of the income statement, which is why it's often referred to as the bottom line. Let's look at a hypothetical income statement for Company XYZ: Income Statement for Company XYZ, Inc.for the year ended December 31, 2008 Total Revenue $100,000 Cost of Goods Sold ($ 20,000)Gross Profit $ 80,000 Operating Expenses Salaries $10,000 Rent $10,000 Utilities $ 5,000 Depreciation $ 5,000Total Operating Expenses ($ 30,000) Interest Expense ($ 10,000) Taxes ($ 10,000) NIAT $ 30,000 By using the formula we can see that NIAT = $100,000 - $20,000 - $30,000, - $10,000 - $10,000 = $30,000 Net income after tax is one of the most closely followed numbers in finance, and it plays a large role in ratio analysis and financial statement analysis.
Net interest cost (NIC) is a way to compute the average annual interest expense for a bond issue. The formula for net interest cost is: Net Interest Cost = (Total Interest Payments + Discount - Premium) / Number of Bond-Year Dollars The "number of bond-year dollars" equals the sum of the product of each year's maturity value and the number of years to its maturity.For example, let's assume Company XYZ wants to calculate the NIC on its most recent bond issue.
Net interest income is the difference between interest received from assets and interest paid on liabilities. The formula for net interest income is: Net Interest Income = Interest Received - Interest Paid Let's assume XYZ Bank earns $1,000,000 for the month on its mortgage loans, commercial loans, and personal loans.It also pays $975,000 in interest to its depositors for their CDs, checking accounts, and savings vehicles.
Net investment is the measure of a company's investment in capital assets, such as the property, plants, software and equipment that it uses for operations. The formula for net investment is: Net Investment = Capital Expenditures – Depreciation (non-cash) In order to calculate the net investment of a company, you must first know the amount of capital expenditures and non-cash depreciation they have.
Net investment income is what an investment company receives in capital gains, dividends and interest payments, less administrative fees. The formula for net investment income is: Net Investment Income = Capital Gains + Dividends + Interest Income - Administrative Fees For example, let's assume Fund ABC is reporting its performance results for the year.It has invested in a portfolio of growth stocks, income stocks and corporate bonds.
A company reports a net loss when its expenses exceed revenues during a specific period of time.A net loss is the opposite of net income or net profit, which is when a organization's revenue is greater than its expenses.
Net margin is the percentage of revenue remaining after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue. The formula to calculate net margin is: (Total Revenue – Total Expenses)/Total Revenue = Net Profit/Total Revenue = Net Margin By dividing net profit by total revenue, we can see what percentage of revenue made it all the way to the bottom line, which is good for investors.
A net operating loss (NOL) is a negative profit for tax purposes.It usually occurs when a company's tax deductions exceed its taxable income, making the company unprofitable.
One key indicator of a business success is net operating profit after tax (NOPAT).Considered an “apples-to-apples” measure, NOPAT helps investors determine how well one company is performing versus another in the same industry, regardless of how much debt they use to buy and control assets. Although it may appear to be an arbitrary measurement, every investor searching for a long-term opportunity should look at net operating profit after tax. This comprehensive financial definition has compiled everything you want to know about NOPAT – and how it can help you become a smarter investor. Simply put, net operating profit after tax measures a company’s financial performance without considering the tax savings of debt, since it looks at operating profits exclusive of interest.
Net operating profit less adjusted taxes (NOPLAT) is a measure of profit that includes the costs and tax benefits of debt financing.put another way, NOPLAT is earnings before interest and taxes (EBIT) adjusted for the impact of taxes.
Net Present Value of Growth Opportunities (NPVGO) is the simply the present value of additional cash flows associated with an acquisition, net of the purchase price of the acquisition.Essentially, the concept adds the present value of assets in place to the present value of the company's growth prospects.
Also referred to as the bottom line, net income, and net earnings, net profit is easily summarized as the amount of money a company has after all expenses are paid.You can think of net profit like your paycheck: It’s the money left after all taxes and benefits are subtracted. Found on the last line of the income statement, net profit impacts the “take-home” profit of a company. This financial element is used to calculate net profit margin and is, therefore, a useful value metric for a company.
Net profit margin is a metric that indicates how well a company can transform its revenues into profits.Net profit margin is the percent of revenue remaining after all operating expenses, interest, taxes, and preferred stock dividends have been deducted from a company's gross or total revenue.
Net receivables refers to the net amount of money remaining after deducting the provision for bad debt.It is primarily used in businesses that sell on credit.
A non-cash item is an entry on an income statement or cash flow statement correlating to expenses that are essentially just accounting entries rather than actual movements of cash. Depreciation and amortization are the two most common examples of noncash items.
A non-financial asset has a value based on its tangible characteristics and properties. A company's balance sheet includes several types of assets and liabilities.
A non-operating asset is an asset that generates income, but is unrelated to the core operations of the company. Also called a redundant asset, a non-operating asset usually generates some form of revenue or return for the owning company, but play no role in the company's operations.
Obsolete inventory is inventory that is essentially useless and/or unsellable. For example, consider Company XYZ, a cheese manufacturer.
Off balance sheet refers to items that are effectively assets or liabilities of a company but do not appear on the company's balance sheet. For example, let's assume that Company XYZ has a $4,000,000 line of credit with Bank ABC.
Off-balance-sheet financing is an accounting method whereby companies record certain assets or liabilities in a way that keeps them from appearing on the balance sheet. For example, let's assume that Company XYZ has a $4,000,000 line of credit with Bank ABC.
Operating cash flow (OCF) is a measure of the cash generated or used by a company in a given period solely related to core operations.OCF is not the same as net income, which includes transactions that did not involve actual transfers of money (depreciation is a common example of a noncash expense that is part of net income but not OCF).
Operating cash flow demand (OCFD) is the present value of the minimum amount of cash a capital investment must generate over its life in order to meet the investor's minimum required return. Let's assume that Company XYZ wants to purchase a widget machine.
Operating cash flow margin is cash from operating activities as a percentage of sales in a given period. Operating cash flow margin is generally calculated using the following formula: Operating Cash Flow Margin = Cash Flow from Operating Activities / Sales The operating cash flow margin is not the same as net income margin, which includes transactions that did not involve actual transfers of money (depreciation is common example of a noncash expense that is included in net income calculations but not in operating cash flow).The operating cash flow margin is also not the same as EBITDA or free cash flow.
Operating earnings is a measure of profitability that tells investors how much of revenue will eventually become profit for a company.The formula for calculating operating earnings is: Operating Earnings = revenue - cost of goods sold, labor and other day-to-day expenses incurred in the normal course of business It is important to understand what expenses are included and excluded when calculating operating earnings.
An operating expense is a day-to-day expense incurred in the normal course of business.These expenses appear on the income statement.
Operating income is the amount of revenue left after subtracting operating expenses and cost of goods sold (COGS).Operating income is a measure of profitability directly related to a company’s operations. Operating income is sometimes referred to as Earnings Before Interest and Taxes (EBIT).
Operating income before depreciation and amortization (OIBDA) is a measure of the income generated or used by a company in a given period exclusive of the company's capital spending decisions and its tax structure. It is important to note that OIBDA is not the same as EBITDA.
Operating margin is a financial metric used to measure the profitability of a business.The operating margin shows what percentage of revenue is left over after paying for costs of goods sold and operating expenses (but before interest and taxes are deducted).
Also called earnings before interest and taxes (EBIT), operating profit calculates the profits earned from a company’s core business after subtracting the cost of goods sold (COGS), operating costs, and any depreciation expenses. The balance after deducting these costs and expenses from the company’s operating revenue is the money left in the business that can be used for expansion, investment, and growth. Investors compare the operating profits of companies in similar industries in order to assess their financial health and growth potential.
Operating revenue is the sales associated with a company's core, day-to-day operations. Let's assume that Company XYZ sells $1,000,000 of widgets -- its main business -- this year.
Opportunity cost is the return on an investment/opportunity you missed out on, compared to the return on the investment that you chose.To determine what was lost (or gained), opportunity cost may be calculated as a number or a ratio.
Ordinary income is not a capital gain, dividend or other income subject to special taxation. In the United States, ordinary income is taxed progressively, meaning that there are a series of brackets in which income is taxed.
A pass-through entity (also known as flow-through entity) is a business structure in which business income is treated as personal income of the owners.It is used to avoid double taxation, when business income is subject to corporate tax and then to the owner’s personal income.
Pass-through income is sent from a pass-through entity to its owners.The income is not taxed at the corporate level -- it is only taxed at the individual owners' level.
Per share basis is a carefully scrutinized metric that is often used as a barometer to gauge a company's profitability per unit of shareholder ownership.In many cases, cash flow per share is one of the most important measures.
Pre-tax operating income is a company's operating income before taxes.The formula for pre-tax operating income is: Pre-Tax Operating Income = Gross Revenue - Operating Expenses – Depreciation Let's assume Company XYZ reported the following information for the fiscal year: Using the formula and the information above, we can calculate that Company XYZ's pre-tax operating income was: $1,000,000 - $500,000 - $300,000 - $100,000 = $100,000 Pre-tax operating income is a measure of a company's operating efficiency because it only takes into account expenses that are directly related to ongoing business operations.
Present value (PV) measures the current value of an amount of money – or a stream of cash flows – that is expected in the future.This value will differ from the cash flows’ nominal value, since time itself affects value.
Profit and loss (P&L) statements are one of the three financial statements used to assess a company’s performance and financial position.The two others are the balance sheet and the cash flow statement.
Profit before tax measures a company's operating and non-operating profits before taxes are considered.It is the same as earnings before taxes.
A profit warning is a public communication from a company that its earnings will fall below expectations. Profit warnings are part of the large, fluid world of earnings guidance, whereby the management of publicly traded companies issue estimates about what they expect earnings to be for the coming quarter.
A qualified opinion is a cautionary written notice from an auditor stating that a company has not complied with generally accepted accounting principles (GAAP). There are two main reasons an auditor may write a qualified opinion on a company's audit report: 1.) Deviations from GAAP: The audited company did not accurately follow the GAAP accounting principles on one or more items in their financial report.2.) Limitation of scope: Not all financial statement information was available to the auditor.
A quarterly report is a set of financial statements issued by a company every three months.Public companies in the United States file this report via the Securities and Exchange Commission (SEC) Form 10-Q.
Quick assets are assets that can be converted to cash quickly.Typically, they include cash, accounts receivable, marketable securities, and sometimes (not usually) inventory.
The receivables turnover ratio is a company's sales made on credit as a percentage of average accounts receivable.The formula for receivables turnover ratio is: Receivables Turnover = Net Credit Sales/Average Accounts Receivable For example, let's assume that Company XYZ sells $10,000,000 of widget parts this year.
Recurring revenue is revenue that a company has reasonable assurance will occur at regular intervals in the future. Let's assume Company XYZ sells a widget-cleaning service.
A redundant asset is an asset that generates income, but is not linked to the fundamental operations of the company. Also known as a non-operating asset, a redundant asset usually generates some type of revenue or return for the owning company, but does not play a part in the company's operations.
Retained capital is the sum of a company's profits, after dividend payments, since the company's inception.It can also be called retained earnings, earned surplus, or accumulated earnings.
Retained earnings are the sum of a company's profits, after dividend payments, since the company's inception.They are also called earned surplus, retained capital, or accumulated earnings.
Return on assets (ROA) is a financial ratio that can help analyze the profitability of a company.ROA measures the amount of profit a company generates as a percentage relative to its total assets. Put another way, ROA answers the question of how much money is made (net income) from what a company owns (assets).
Return on capital (ROC) is a ratio that measures how well a company turns capital (e.g.debt, equity) into profits.
Return on equity (ROE) is a measurement of how effectively a business uses equity – or the money contributed by its stockholders and cumulative retained profits – to produce income.In other words, ROE indicates a company’s ability to turn equity capital into net profit. You may also hear ROE referred to as “return on net assets.” A high ROE suggests that a company’s management team is more efficient when it comes to utilizing investment financing to grow their business (and is more likely to provide better returns to investors).
ROI (or return on investment) measures the gain/loss generated by an investment in relation to its initial cost.ROI allows the reader to gauge the efficiency and profitability of an investment and is often used to influence financial decisions, compare a company’s profitability, and analyze investments.
Return on net assets is a metric which measures a company's financial performance with regard to fixed assets combined with working capital. Return on net assets (RONA) is calculated by dividing a company's net income in a given period by the total value of both its fixed assets and its working capital.
Revenue per employee measures the average revenue generated by each employee of a company. Revenue per employee is calculated by dividing a firm's revenue by its total number of workers (Revenue/Number of Employees).Let's take a closer look some sample figures from Company XYZ: 2005 Revenue: $50,000,000 Employees: 312 By plugging the information provided above into the above formula, we can calculate the firm's revenue per employee as follows: $50,000,000/312 = $160,256.41 Therefore, every employee at Company XYZ contributed approximately $160,256 in revenue for 2005.
The rolling EPS is a variation of the earnings per share (EPS) metric which measures a company's profitability. The rolling EPS is measured on the basis of a year and is calculated by adding a company's EPS from the two previous quarters to the projected EPS for the two upcoming quarters.
A rounding error is a mistake made when rounding a number up or down. For example, most math books teach students to round numbers 5 through 9 up.
Same-store sales measures the increase in revenue over a particular period for the same set of stores in each period. For example, let's assume that Company XYZ is a restaurant company that has 45 restaurants.
Scrap value, also called salvage value, is the value of an asset after it has come to the end of its useful life. Let's assume you buy a car for $20,000.
SEC Form 10-Q is a quarterly performance report that public companies must submit to the SEC. The 10-Q is just one of many forms a company that is publicly traded in the U.S.
A securities analyst gathers and interprets data about securities, companies, corporate strategies, economies or financial markets.Securities analysts are sometimes called financial analysts, equity analysts or investment analysts (although there is a distinction among these titles).
Shareholders equity is a measure of how much of a company's net assets belong to the shareholders. Shareholders equity is found on the balance sheet.
Simple interest is a basic formula for calculating how much interest to apply to a principal balance. Simple Interest Formula: Simple Interest = Interest Rate x Principal Balance For example, let's assume that John Doe puts $1,000 in his savings account.The bank pays 3% per year in interest.
The statement of income is one of the three primary financial statements used to assess a company’s performance and financial position at the end of an accounting period (the two others being the balance sheet and the cash flow statement).Specifically, it summarizes a company's revenues and expenses over the entire reporting period.
The statement of operations is one of the three primary financial statements used to assess a company’s performance and financial position (the two others being the balance sheet and the cash flow statement).The statement of operations summarizes a company's revenues and expenses over the entire reporting period.
Tangible book value per share (TBVPS) equals a company's net tangible assets divided by its number of shares outstanding.A tangible asset is anything that has commercial or exchange value and has a physical form.
Tangible common equity (TCE) is the common equity listed on the balance sheet minus preferred stock and intangible assets. The formula for tangible common equity is: Tangible Common Equity = Common Equity - Preferred Stock - Intangible Assets Let's say Company XYZ has $40,000,000 of total assets and $25,000,000 of total liabilities.It has no preferred stock, but it does have a $3,000,000 line item for goodwill and $2,000,000 worth of trademarks. First, we can calculate common equity by subtracting liabilities from assets: $40,000,000 - $25,000,000 = $15,000,000. Then we can use the formula above to calculate Company XYZ's tangible common equity: TCE = $15,000,000 - $0 - $5,000,000 = $10,000,000. Goodwill is an accounting construct with no marketable value and trademarks cannot be easily separated from the company and sold piecemeal, so these two intangible assets are subtracted from common equity to calculate tangible common equity. Few intangible assets have liquidation value.
Tax accounting focuses on the preparation, analysis and presentation of tax returns and tax payments. For example, Company XYZ might use one accounting method for calculating depreciation when it reports financial results to investors, but tax laws may require it to use a different method for tax accounting purposes.
Tax expense is the amount of tax owed in a given period.It appears on the income statement.
The times interest earned, also known as interest coverage ratio, is a measure of how well a company can meet its interest-payment obligations. The formula for times interest earned is: Earnings Before Interest and Taxes/ Interest Expense Here is some information about Company XYZ: Net Income $350,000 Interest Expense ($400,000) Taxes ($50,000) Using the formula and the information above, we can calculate that XYZ’s times interest earned is: This means that XYZ Company is able to meet its interest payments two times over.
The Tobin's Q ratio is a measure of firm assets in relation to a firm's market value.The formula for Tobin's Q is: Tobin's Q = Total Market Value of Firm / Total Asset Value of Firm For example, let's say Company XYZ has $40 million of assets, 10 million shares outstanding and a current share price of $3.
Trailing twelve months (TTM), sometimes referred to as last twelve months (LTM), is the 12-month interval of a company's financial performance that occurs before a designated point in time. TTM is a helpful statistic for reporting, comparing, and contrasting financial figures.For example, an analyst issuing a report on October 15, 2019 will report trailing twelve months (TTM) earnings as those from October 1, 2018 to September 30, 2019.
A turnaround occurs when a company takes successful steps to correct a period of deteriorating financial performance. To turn a business' financial results around, companies often obtain special financing for revitalization projects or hire managers with a proven track record of improving the financial results at struggling companies.
A useful life is the number of years in which an asset can reliably produce benefits. Let's assume you buy a car for $20,000.
A Venn diagram is an illustration of common characteristics. Named after John Venn, a Venn diagram is often little more than two or more overlapping circles (you can use other shapes, too).
Voodoo accounting refers to any accounting practices that artificially inflate the profits reported on a company's financial statements. Voodoo accounting comprises a wide range of unethical and unprofessional methods for making a company's profits appear larger than they really are.
Wage expense is the total compensation a company pays its employees during a particular accounting period. The compensation a company pays its employees is treated as an expense on its income statement.
In investing terms, WACC shows the average rate that companies pay to finance their overall operations.WACC is calculated by incorporating equity investments from the sale of stock, as well as any operational debt they incur (with respect to the firm’s enterprise value). WACC shows how much a company must earn on its existing assets to satisfy the interests of both its investors and debtors.
Window dressing is a term that describes the act of making a company's performance, particularly its financial statements, look attractive. Let's assume Company XYZ wants to look attractive to potential acquirers.
Working capital is money that’s available to a company for its day-to-day operations.Simply put, working capital indicates a company's operating liquidity and efficiency. A company's working capital reflects a host of company activities, including cash, inventory, accounts receivable, accounts payable, and the portion of debt due within one year (as well as any other short-term accounts). This can extend to inventory management, debt management, revenue collection, and payments to suppliers.
A write-down is the accounting term used to describe a reduction in the book value of an asset due to economic or fundamental changes in the asset.A write-down is the opposite of a write-up.