Kindle Notes & Highlights
CURRENT ASSETS
Current= cash received or due within 1 year
commercial paper (i.e., short-term obligations issued by corporations.)
On a balance sheet, a company values its fixed assets at original cost less accumulated depreciation.
ACRS
A tax preference item for AMT
(Accelerated Cost Recovery System) or modified ACRS. Accelerated depreciation has the effect of increasing depreciation expense and decreasing reported profits in the early years, and increasing profits and decreasing depreciation in the later years.
Depreciation As Expense Depreciation is an expense, even though it is considered a "non-cash" expense.
DEPLETION This is a process of amortizing (i.e., reducing) the value of depletable assets, such as oil, coal in mines, and other exhaustible natural resources. Every year a corporation states that these assets are worth less. Why? Because over time the company uses them up. However, one can never deplete or depreciate land.
CURRENT LIABILITIES These are the amounts owed by a corporation that will come due within one year. The most common current liabilities are:
LONG TERM LIABILITIES These are debts which will come due after one year.
Par Value This is an arbitrary dollar amount assigned to a stock by a corporation when it issues new stock.
Preferred Stock
equity security,
Paid In Surplus This account represents the excess amount taken in by a company upon the issuance of new stock over and above par value.
This account is part of the net worth of a company. It is also called “capital surplus.”
Retained Earnings This account is also called “earned surplus.” It represents total profits retained by the company after paying taxes and a...
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INCOME STATEMENT Also called a “Profit and Loss” Statement. It summarizes the company’s revenues and expenses for a given period. This fiscal period can be any twelve-month period, as designated by the company. The Income Statement shows income and expenses for the year, and shows if there was a profit or a loss.
Depreciation is also an expense that is a part of operating expenses.
Net Income This is the difference between revenues and expenses, after paying taxes, but before paying dividends. A company pays dividends out of its net income.
dividends depend on the positive vote of the board of directors of the company.
Retained Earnings This is the amount of net income retained by a company after all dividends have been paid....
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Earnings Available To Common (EAC) These earnings are available to common shareholders as a return on their investment. To compute EAC, subtract the amount of preferred dividends paid to shareholders from Net Income.
Qualified Opinion Imagine that an auditor, Mr. Simpson, finds problems with a single facet of the XYZ Corp.'s accounting,
"In our opinion, other than the company's treatment of deferred taxes, (for which we could not locate supporting evidence), the statements give a fair and accurate trea...
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Unqualified Opinion Imagine that, Mr. Jones, an auditor, finds no problems or discrepancies, and that ABC Co.'s treatment of financial stateme...
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"unqualified" o...
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Adverse Opinion Imagine that Ms. Williams, an auditor, finds that GHI Corp. appears to have made material misstateme...
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"In our opinion, because of the reasons discussed above, GHI Corp's financial statements do not give a fair and accurate descript...
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PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD The PCAOB
"The Public Company Accounting Oversight Board is a nonprofit corporation established by Congress to protect investors and the public interest by promoting informative, accurate, and independent audit reports and to oversee the audits of public companies and broker-dealers."
Cash Method of Accounting
Sole proprietorships only, event happens when you make or receive payment
Accrual Method of Accounting
Everything but individuals
CASH ...
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BS, Income statement plus cash flow stmt give whole picture
A simplified formula is, “net income plus non-cash expenses.” A more precise formula is EBITDA, meaning, earnings before interest, t...
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Working Capital Every company must be able to cover or pay its current bills and current liabilities. Working capital shows the excess of current assets over current liabilities. The formula is “current assets minus current liabilities.”
“current assets divided by current liabilities.”
Look for a minimum current ratio of two to one (2 to 1). Quick Assets These assets are current assets less inventories and ot...
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To obtain quick assets, subtract inventories from...
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Quick Ratio or Acid Test This formula is similar to current ratio but goes further. Subtract inventories, prepaid expenses, and other assets doubtful of collection, from current assets before dividing by current liabilities. Inventories could be illiquid in some cases. The formula is “(current assets minus inventories and assets doubtful of collection) divided by current liabilities.” Or “QUICK ASSETS divided by current liabilities.” Look for a minimum quick ratio of one to one (1 to 1). Another name for the quick ratio is the “acid test.”
(To obtain current liabilities, take total liabilities less long-term liabilities—this
CORPORATE SEC FILINGS The following reports must be filed by companies having assets more than $10 million and a
class of equity securities held by at least 2,000 persons, or by 500 persons who are not accredited investors, regardless of whether the stock is publicly traded.
Form 8 K Whenever a company experiences unusual problems, suffers significant losses, declares bankruptcy, or engages in any other event that has material importance to investors, it must report such event to the SEC on Form 8- K.
Form 10 Q This is a quarterly report submitted to the SEC, detailing a company’s operations and financial position. Quarterly fi...
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Form ...
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Annual, audited
Form 10-K is the annual report. It is more detailed than the quarterly 10-Q. Form 10-K must include audited financial statements, salaries, and other compensation of top officers and directors. A company must...
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NET PRESENT VALUE (NPV) This is a way of viewing the value of an investment by reducing its future value down to today’s present value.
In the latter case, choose the investment that shows the highest net present value,
should choose whichever investment returns the higher positive NPV.
Lease Or Purchase
Whichever presents the lower present value cost should dictate the choic...
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