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Category: Level I Financial Reporting and Analysis
CFO – Indirect Method
There are two methods to arrive at a company’s cash flow from operations (CFO): the direct method and the indirect method. Companies that file their financial statements with the SEC are required to use the indirect method to present CFO, covered here. The direct method is covered in a companion article. The idea of the…
CFO – Direct Method
There are two methods to arrive at a company’s cash flow from operations (CFO): the direct method and the indirect method. Companies that file their financial statements with the SEC are required to use the indirect method to present CFO, covered in a companion article. Because the direct method is not required by the SEC…
Leases: General
A lease is a contract that lets one party use an asset owned by another party, in exchange for periodic payments. The owner of the asset is the lessor; the user of the asset is the lessee. For the purposes of financial reporting, leases are divided into two categories, based on the economic substance of…
Investments in Financial Assets
When one company buys securities (stock or bonds) issued by another company, the accounting treatment for those investments depends on the amount of influence/control that the investing company has over the issuing company. When the investor has no influence (generally assumed when the investment represents less than 20% ownership), then the investment is treated as…
Leases III: Effect on Financial Statements and Ratios
A lease is a contract that lets one party use an asset owned by another party, in exchange for periodic payments. The owner of the asset is the lessor; the user of the asset is the lessee. For the purposes of financial reporting, leases are divided into two categories, based on the economic substance of…
Leases II: Calculations
A lease is a contract that lets one party use an asset owned by another party, in exchange for periodic payments. The owner of the asset is the lessor; the user of the asset is the lessee. For the purposes of financial reporting, leases are divided into two categories, based on the economic substance of…
Leases I: Criteria for Classification
A lease is a contract that lets one party use an asset owned by another party, in exchange for periodic payments. The owner of the asset is the lessor; the user of the asset is the lessee. For the purposes of financial reporting, leases are divided into two categories, based on the economic substance of…
Cash Conversion Cycle
The definition of the cash conversion cycle (CCC) is easiest to remember if you draw a timeline of events surrounding inventory and sales. There are four events of interest: The day that you purchase the inventory; we’ll assume that you buy it on credit – creating accounts payable – and pay for it at a…
Earnings per Share (EPS)
Calculating earnings per share (EPS) is relatively straightforward: calculate earnings (available to common shareholders), then divide it by the weighted-average number of shares of common stock outstanding (WACSO). However, there are possibly two EPS calculations that you need to show on an income statement: basic EPS and fully diluted EPS: Basic EPS uses the existing…
Weighted Average Common Shares Outstanding (WACSO)
One key to computing earnings per share (EPS) is computing the number of shares of common stock to use in the denominator; we call this number the weighted average common shares outstanding (WACSO). There are two ways to calculate WACSO; I’ll cover both. There are several transactions than can change the number of shares of…