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