Income Statement, Balance Sheet, Cash Flow Statement
inventory
the term for the goods available for sale and raw materials used to produce goods available for sale. This represents one of the most important assets of a business because the turnover of this represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders. This is the array of finished goods or goods used in production held by a company. This is classified as a current asset on a company's balance sheet, and it serves as a buffer between manufacturing and order fulfillment. When one of these items is sold, its carrying cost transfers to the cost of goods sold (COGS) category on the income statement.
cost of revenue
the total cost of manufacturing and delivering a product or service to consumers. This information is found in a company's income statement and is designed to represent the direct costs associated with the goods and services the company provides. The service industry often favors using this metric because it is a more comprehensive account of the various costs associated with selling a good or service.
other current liabilities
Depending on the company and its industry, you will see many kinds of items listed under this line item. Usually, you can find explanations of these these somewhere in the company's annual report or Form 10-K; they also may be detailed in the footnotes to the financial statements. Financial statements can be very complicated. If every asset and liability account were listed by line item, the balance sheet could balloon to multiple pages, which would be less useful to readers. So some companies aggregate their balance sheet accounts for the sake of simplicity; citing this on one line as a catch-all for liabilities coming due within the next-12 months that do not fit neatly into any other descriptive line item. Therefore, accounts that require more transparency often get their own line item, and those that are not essential to a firm's core operations may be grouped together as "other."
assets
Resources with economic value that an individual, corporation or country owns or controls with the expectation that it will provide a future benefit. These are reported on a company's balance sheet and are bought or created to increase a firm's value or benefit the firm's operations. These can be thought of as something that, in the future, can: - generate cash flow - reduce expenses or - improve sales Regardless of whether it's manufacturing equipment or a patent.
basic eps
The amount of a company's earnings allocable to each share of its common stock. It is a useful measure of performance for companies with simplified capital structures. If a business only has common stock in its capital structure, the company presents only its basic earnings per share for income from continuing operations and net income. This information is reported on its income statement.
non-current assets
These are a company's long-term investments for which the full value will not be realized within the accounting year. Examples of these include: - investments in other companies - intellectual property (e.g. patents) - property, plant and equipment. These are also referred to as long-term assets. These are capitalized rather than expensed, meaning that the company allocates the cost of the asset over the number of years for which the asset will be in use instead of allocating the entire cost to the accounting year in which the asset was purchased. Depending on the type of asset, it may be depreciated, amortized, or depleted.
intangible assets
These are assets that are not physical in nature. Some examples include: - Goodwill - brand recognition - intellectual property, such as patents, trademarks, and copyright. These exist in opposition to tangible assets, which include land, vehicles, equipment, and inventory. *Additionally, financial assets such as stocks and bonds, which derive their value from contractual claims, are considered tangible assets.
capital expenditure
These are funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, an industrial plant, technology, or equipment. This is often used to undertake new projects or investments by the firm. Making these on fixed assets can include everything from repairing a roof to building, to purchasing a piece of equipment, to building a brand new factory. This type of financial outlay is also made by companies to maintain or increase the scope of their operations. CapEx is any type of expense that a company capitalizes, or shows on its balance sheet as an investment, rather than on its income statement as an expenditure.
other financing activities
These are non-traditional financing activities that require further investigation. These include: - financing activities from discontinued operations when separated from other activities - dividends paid to minority shareholders and dividends paid by subsidiaries - foreign exchange adjustments - changes in minority interests. For utilities, it includes issue/repurchase costs and discounts and premiums on reacquisition of debt.
liabilities
These are obligations to, or something that you owe somebody else. They are defined as a company's legal financial debts or obligations that arise during the course of business operations. They can be limited or unlimited . These are settled over time through the transfer of economic benefits including money, goods, or services. Recorded on the right side of the balance sheet, these include loans: - accounts payable - mortgages - deferred revenues - earned premiums - unearned premiums - accrued expenses. Even marriages can change your liability. In general, this is an obligation between one party and another not yet completed or paid for. In the world of accounting, a financial liability is also an obligation but is more defined by previous business transactions, events, sales, exchange of assets or services, or anything that would provide economic benefit at a later date. These are usually considered short term (expected to be concluded in 12 months or less) or long term (12 months or greater).
property, plant and equipment
These are physical or tangible assets that are long-term assets that typically have a life of more than one year. Examples of these include: - vehicles like trucks - office furniture - machinery - buildings - undeveloped land These assets are also called fixed assets, which are long-term physical assets. Industries that are considered capital intensive have a significant amount of fixed assets, such as oil companies, auto manufacturers, and steel companies.
stockholder's equity
These are the remaining amount of assets available to shareholders after all liabilities have been paid. It is calculated either as a firm's total assets less its total liabilities or alternatively as the sum of share capital and retained earnings less treasury shares. This might include - common stock - paid-in capital - retained earnings - treasury stock.
other long term assets
These include long-term assets not included into the investments, fixed, or intangible assets categories. Those other assets may be that part of prepaid expenses that will start expiring more than a year after the balance sheet date, or the cash surrender value of life insurance on company officers, etc.
cash and cash equivalents
These refer to the line item on the balance sheet that reports the value of a company's assets that are cash or can be converted into cash immediately. Cash equivalents include bank accounts and marketable securities, which are debt securities with maturities of less than 90 days. However, oftentimes cash equivalents do not include equity or stock holdings because they can fluctuate in value. Examples of cash equivalents include commercial paper, Treasury bills, and short-term government bonds with a maturity date of three months or less. Marketable securities and money market holdings are considered cash equivalents because they are liquid and not subject to material fluctuations in value.
current assets
These represent all of the assets of a company that are expected to be conveniently sold, consumed, utilized or exhausted through the standard business operations, which can lead to their conversion to a cash value over the next one year period. Since this is a standard item appearing in the balance sheet, the time horizon represents one year from the date shown in the heading of the company's balance sheet. These include: - cash - cash equivalents - accounts receivable - stock inventory - marketable securities - pre-paid liabilities - other liquid assets In a few jurisdictions, the term is also known as current accounts
other current assets
This a category of things of value that a company owns, benefits from, or uses to generate income that can be converted into cash within one business cycle. They are referred to as "other" because they are uncommon or insignificant, unlike typical current asset items such as cash, securities, accounts receivable, inventory, and prepaid expenses. Examples include: - Advances paid to employees or suppliers - A piece of property that is being readied for sale - Restricted cash or investments - Cash surrender value of life insurance policies
taxes payable
This is a type of account in the current liabilities section of a company's balance sheet. It is compiled of taxes due to the government within one year. The calculation of this is according to the prevailing tax law in the company's home country. This is shown as a current liability because the debt will be resolved within the next year. However, any portion of this not scheduled for payment within the next 12 months is classified as a long-term liability. This is one component necessary for calculating an organization's deferred tax liability. A deferred tax liability arises when reporting a difference between a company's income tax liability and income tax expense. The difference may be due to the timing of when the actual income tax is due.
other income/expenses
This is income or expenses derived from activities unrelated to the main focus of a business. For example, a manufacturer of washing machines earns rental income from sub-leasing unused office space to a third party; this rental income would be classified as this term on the company's income statement. Other types of income that are commonly classified as other income are: - interest income - gains on the sale of assets - gains from foreign exchange transactions. The exact type of transaction characterized as this term will vary by business.
cash
This is legal tender - currency or coins - that can be used to exchange goods, debt, or services. Sometimes it also includes the value of assets that can be easily converted into this immediately, as reported by a company. This is also known as money, in physical form. This, in a corporate setting, usually includes bank accounts and marketable securities, such as government bonds and banker's acceptances. Although it typically refers to money in hand, the term can also be used to indicate money in banking accounts, checks, or any other form of currency that is easily accessible and can be quickly turned into physical money.
other working capital
This is one of the major ways that net income and operating cash flow can differ. A company is investing in assets or becoming less efficient when the change in working capital is negative, and depleting assets or becoming more efficient when the change in working capital is positive.
Selling General and Administrative
This is reported on the income statement as the sum of all direct and indirect selling expenses and all general and administrative expenses (G&A) of a company. This includes all the costs not directly tied to making a product or performing a service. That is, this includes the costs to sell and deliver products and services and the costs to manage the company. This is not assigned to manufacturing costs as it deals with all the other factors that come with creating a product. This includes the salaries of various department staff such as: - accounting - IT - marketing - human resources - etc. It also includes commissions, advertising, and any promotional materials. In addition, rent, utilities, and supplies that are not part of manufacturing are included in This.
debt repayment
This is the act of paying back money previously borrowed from a lender. Typically, the return of funds happens through periodic payments which include both principal and interest. Loans can usually also be fully paid in a lump sum at any time, though some contracts may include an early repayment fee.
income tax expense
This is the amount of expense that a business recognizes in an accounting period for the government tax related to its taxable profit. The amount of this recognized is unlikely to exactly match the standard income tax percentage that is applied to business income, since there are a number of differences between the reportable amount of income under the GAAP or IFRS frameworks and the reportable amount of income allowed under the applicable government tax code. For example, many companies use straight-line depreciation to calculate the depreciation reported in their financial statements, but employ accelerated depreciation to derive their taxable profit; the result is a taxable income figure that is lower than the reported income figure. Some corporations put so much effort into delaying or avoiding taxes that their income tax expense is nearly zero, despite reporting large profits. The calculation of this can be so complicated that this task is outsourced to a tax expert. If so, a company usually records this as an approximate on a monthly basis that is based on a historical percentage, which is adjusted on a quarterly or longer basis by the tax expert.
retained earnings
This is the amount of net income left over for the business after it has paid out dividends to its shareholders. A business generates earnings that can be positive (profits) or negative (losses). Positive profits give a lot of room to the business owner(s) or the company management to utilize the surplus money earned. Often this profit is paid out to shareholders, but it can also be re-invested back into the company for growth purposes. The money not paid to shareholders counts as this.
interest expense
This is the cost incurred by an entity for borrowed funds. This is a non-operating expense shown on the income statement. It represents interest payable on any borrowings: - bonds - loans - convertible debt - lines of credit. It is essentially calculated as the interest rate times the outstanding principal amount of the debt. This term represents interest accrued during the period covered by the financial statements, and not the amount of interest paid over that period. While this expense is tax-deductible for companies, in an individual's case, it depends on his or her jurisdiction and also on the loan's purpose.
accumulated depreciation
This is the cumulative depreciation of an asset up to a single point in its life. This is a contra asset account, meaning its natural balance is a credit that reduces the overall asset value. The matching principle under generally accepted accounting principles (GAAP) dictates that expenses must be matched to the same accounting period in which the related revenue is generated. Through depreciation, a business will expense a portion of a capital asset's value over each year of its useful life. This means that each year a capitalized asset is put to use and generates revenue, the cost associated with using up the asset is recorded. This is the total amount an asset has been depreciated up until a single point. Each period, the depreciation expense recorded in that period is added to the beginning accumulated depreciation balance. An asset's carrying value on the balance sheet is the difference between its historical cost and ___. At the end of an asset's useful life, its carrying value on the balance sheet will match its salvage value.
change in working capital
This is the difference in the working capital from the current year and the previous year. Working capital is a firm's current asset minus current liability.
income from continuing operations
This is the net income category found in the income statement that accounts for a company's regular, daily business activities, referring to the tasks required to make a product or service and deliver it to a customer. To succeed over the long term, a business must consistently generate earnings from operations, and a multi-step income statement reports income from continuing operations separately from non-operating income.
net income available to common shareholders
This is the profit a company has left over at the end of an accounting period after covering all expenses and paying dividends to preferred stockholders. Common shareholders pay close attention to this figure and to a company's earnings per share, or EPS, because these numbers represent their cut of the profits. When your small business generates strong earnings available for common stockholders and EPS, you potentially increase the value of your company's common stock. This equals net income minus preferred dividends. Net income, or profit, equals total revenue minus total expenses. Although preferred stockholders receive dividends before common stockholders, they do not share in the rest of the profits; only common stockholders do.
diluted eps
This is the profit per share of common stock outstanding, assuming that all convertible securities were converted to common stock. The reason for stating this is so that investors can determine how the earnings per share attributable to them could be reduced if a variety of convertible instruments were to be converted to stock. Thus, this measurement presents the worst case for earnings per share. Earnings per share information only needs to be reported by publicly-held businesses.
operating expenses
expenses a business incurs through its normal business operations. Often abbreviated as OPEX, these include: - rent - equipment - inventory costs - marketing - payroll - insurance - step costs - funds allocated for research and development. One of the typical responsibilities that management must contend with is determining how to reduce these without significantly affecting a firm's ability to compete with its competitors.
accrued liabilities
expenses that a business has incurred but has not yet paid. A company can accrue liabilities for any number of obligations, and the accruals can be recorded as either short-term or long-term liabilities on a company's balance sheet. Payroll taxes, including Social Security, Medicare, and federal unemployment taxes are liabilities that can be accrued periodically in preparation for payment before the taxes are due.
revenue
the income generated from normal business operations and includes discounts and deductions for returned merchandise. It is the top line or gross income figure from which costs are subtracted to determine net income. It is also known as sales on the income statement.
reported EPS
the number derived from generally accepted accounting principles (GAAP). This is the number that is reported in SEC filings. A company's reported earnings can even be distorted by GAAP. For example, a one-time gain from the sale of machinery or a subsidiary could be considered as operating income under GAAP, causing EPS for the quarter to spike. Similarly, a company could classify a big lump of normal operating expenses as an "unusual charge," which excludes it from the calculation and artificially boosts EPS. Investors need to read the footnotes to see what factors are being included in those supposedly normal earnings.
gross profit
the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services. This will appear on a company's income statement and can be calculated by subtracting the cost of goods sold (COGS) from revenue (sales). These figures can be found on a company's income statement.
beta
This coefficient is a measure of the volatility, or systematic risk, of an individual stock in comparison to the unsystematic risk of the entire market. In statistical terms, this represents the slope of the line through a regression of data points from an individual stock's returns against those of the market. This describes the activity of a security's returns responding to swings in the market. A security's ___ is calculated by dividing the product of the covariance of the security's returns and the market's returns by the variance of the market's returns over a specified period. This calculation is used to help investors understand whether a stock moves in the same direction as the rest of the market, and how volatile or risky it is compared to the market. For this to provide any insight, the "market" used as a benchmark should be related to the stock. For example, calculating a bond ETF's ___ by using the S&P 500 as the benchmark isn't helpful because bonds and stocks are too dissimilar.
accumulated other comprehensive income
This includes unrealized gains and losses reported in the equity section of the balance sheet that are netted below-retained earnings. This can consist of: - gains and losses on certain types of investments - pension plans -hedging transactions. It is excluded from net income because the gains and losses have not yet been realized. Investors reviewing a company's balance sheet can use the OCI account as a barometer for upcoming threats or windfalls to net income.
other long-term liabilities
This is a balance sheet item that lumps together obligations not due within 12 months. They are part of total liabilities, and the components of "other" long-term liabilities are deemed by the company to be not important enough to warrant identification of each amount individually on the balance sheet. These might include items such as: - pension liabilities - capital leases - deferred credits - customers deposits - deferred tax liabilities. Some companies disclose the composition of these liabilities in their notes to the financial statements if they believe they are material. In many cases, it is just a matter of format presentation preference whether to itemize these material liabilities on the balance sheet or aggregate them under this line item and break the entry down in the notes. However, not all companies will provide additional details in the notes. If the amount of this line item as a percentage of total liabilities as displayed on the balance sheet is high enough to merit investigation and there is no associated note, the analyst could call the Investor Relations contact to ask questions.
current liabilities
This is a company's short-term financial obligations that are due within one year or within a normal operating cycle. An operating cycle, also referred to as the cash conversion cycle, is the time it takes a company to purchase inventory and convert it to cash from sales. An example of this is money owed to suppliers in the form of accounts payable. These are typically settled using current assets, which are assets that are used up within one year. Current assets include cash or accounts receivables, which is money owed by customers for sales. The ratio of current assets to this is an important one in determining a company's ongoing ability to pay its debts as they are due.
deferred income taxes
This is a liability recorded on a balance sheet resulting from a difference in income recognition between tax laws and the company's accounting methods. For this reason, the company's payable income tax may not equate to the total tax expense reported. The total tax expense for a specific fiscal year may be different than the tax liability owed to the IRS as the company is postponing payment based on accounting rule differences.
EBITDA
This is a measure of a company's overall financial performance and is used as an alternative to simple earnings or net income in some circumstances. This, however, can be misleading because it strips out the cost of capital investments like property, plant, and equipment. This metric also excludes expenses associated with debt by adding back interest expense and taxes to earnings. Nonetheless, it is a more precise measure of corporate performance since it is able to show earnings before the influence of accounting and financial deductions.
operating cash flow
This is a measure of the amount of cash generated by a company's normal business operations. This indicates whether a company can generate sufficient positive cash flow to maintain and grow its operations, otherwise it may require external financing for capital expansion. This represents the cash impact of a company's net income (NI) from its primary business activities. This, also referred to as cash flow from operating activities, is the first section presented on the cash flow statement.
weighted average shares outstanding
This is a number of shares of the Company after incorporating changes in the shares during the year. The number of shares of a Company can vary during the year due to various reasons like: - buyback of shares - new issue of shares - share dividend - stock split - conversion of warrants - etc. Thus, while calculating Earnings per Share the Company needs to find this. Thus, the calculation of this incorporates all such scenarios of changes in the weighted average number of shares to give fair Earnings per share value.
common stock
This is a security that represents ownership in a corporation. Holders of these exercise control by electing a board of directors and voting on corporate policy. The holders of this are at the bottom of the priority ladder in terms of ownership structure; in the event of liquidation, the shareholders of these have rights to a company's assets only after bondholders, preferred shareholders and other debtholders are paid in full.
deferred tax liabilities
This is a tax that is assessed or is due for the current period but has not yet been paid. The deferral comes from the difference in timing between when the tax is accrued and when the tax is paid. This records the fact that the company will, in the future, pay more income tax because of a transaction that took place during the current period, such as an installment sale receivable. Because U.S. tax laws and accounting rules differ, a company's earnings before taxes on the income statement can be greater than its taxable income on a tax return, giving rise to this on the company's balance sheet. This represents a future tax payment a company is expected to make to appropriate tax authorities in the future, and it is calculated as the company's anticipated tax rate times the difference between its taxable income and accounting earnings before taxes.
stock based compensation
This is a way corporations use stock options to reward employees. Employees with stock options need to know whether their stock is vested and will retain its full value even if they are no longer employed with that company. Because tax consequences depend on the fair market value (FMV) of the stock, if the stock is subject to tax withholding, the tax must be paid in cash, even if the employee was paid by equity compensation. This is often used by startups, since they typically do not have the cash on hand for paying employees competitive rates. Executives and staff may share in the company's growth and profits that way. However, many laws and compliance issues must be adhered to, such as: - fiduciary duty, - tax treatment and deductibility - registration issues - expense charges. When vesting, companies let employees purchase a predetermined number of shares at a set price. Companies may vest on a specific date or on a monthly, quarterly or annual schedule. The timing may be set according to company-wide or individual performance targets being met, or both time and performance criteria. Vesting periods are often three to four years, typically beginning after the first anniversary of the date an employee became eligible for this. After being vested, the employee may exercise his stock-purchasing option any time before the expiration date.
deferred revenues
This is also known as unearned revenue. It refers to advance payments a company receives for products or services that are to be delivered or performed in the future. The company that receives the prepayment records the amount as this, a liability, on its balance sheet. This a liability because it reflects revenue that has not been earned and represents products or services that are owed to a customer. As the product or service is delivered over time, it is recognized proportionally as revenue on the income statement.
accounts payable
This is an account within the general ledger that represents a company's obligation to pay off a short-term debt to its creditors or suppliers. Another common usage of this refers to the business department or division that is responsible for making payments owed by the company to suppliers and other creditors. These are debts that must be paid off within a given period to avoid default. At the corporate level, this refers to short-term debt payments due to suppliers. The payable is essentially a short-term IOU from one business to another business or entity. The other party would record the transaction as an increase to its accounts receivable in the same amount.
operating income
This is an accounting figure that measures the amount of profit realized from a business's operations, after deducting operating expenses such as wages, depreciation, and cost of goods sold (COGS). This takes a company's gross income, which is equivalent to total revenue minus COGS, and subtracts all operating expenses.
Forward dividend and yield
This is an estimation of a year's dividend expressed as a percentage of the current stock price. The year's projected dividend is measured by taking a stock's most recent actual dividend payment and annualizing it. This is calculated by dividing a year's worth of future dividend payments by a stock's current share price. For example, if a company pays a Q1 dividend of 25 cents, and you assume the company's dividend will be consistent, the firm will be expected to pay $1.00 in dividends over the course of the year. If the stock price is $10, the ___ is 10%.
goodwill
This is an intangible asset associated with the purchase of one company by another. Specifically, this is recorded in a situation in which the purchase price is higher than the sum of the fair value of all identifiable tangible and intangible assets purchased in the acquisition and the liabilities assumed in the process. Some examples of this include the value of: - a company's brand name - solid customer base - good customer relations - good employee relations - any patents or proprietary technology The process for calculating this is fairly straightforward in principle but can be quite complex in practice. To determine this, take the purchase price of a company and subtract the fair market value of identifiable assets and liabilities.
EPS
This is calculated as a company's profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company's profitability. It is common for a company to report ___ that is adjusted for extraordinary items and potential share dilution. The higher a company's ___, the more profitable it is considered. These metrics are one of the most important variables in determining a share's price. It is also a major component used to calculate the price-to-earnings (P/E) valuation ratio, where the E in P/E refers to this. By dividing a company's share price by its this, an investor can see the value of a stock in terms of how much the market is willing to pay for each dollar of earnings. This is one of the many indicators you could use to pick stocks. Comparing this in absolute terms may not have much meaning to investors because ordinary shareholders do not have direct access to the earnings. Instead, investors will compare this with the share price of the stock to determine the value of earnings and how investors feel about future growth.
net income
This is calculated as sales minus cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expenses. It is a useful number for investors to assess how much revenue exceeds the expenses of an organization. This number appears on a company's income statement and is also an indicator of a company's profitability. This also refers to an individual's income after taking taxes and deductions into account.
long term debt
This is debt that matures in more than one year. This can be viewed from two perspectives: - financial statement reporting by the issuer and - financial investing. In financial statement reporting, companies must record these issuances and all of its associated payment obligations on its financial statements. On the flip side, investing in this includes putting money into debt investments with maturities of more than one year. This is debt that matures in more than one year. Entities choose to issue this debt with various considerations, primarily focusing on the timeframe for repayment and interest to be paid. Investors invest in this debt for the benefits of interest payments and consider time to maturity as a liquidity risk. Overall, the lifetime obligations and valuations of this debt will be heavily dependent on market rate changes and whether or not a this issuance has fixed or floating rate interest terms.
PE Ratio
This is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS). This is also sometimes known as the price multiple or the earnings multiple. These are used by investors and analysts to determine the relative value of a company's shares in an apples-to-apples comparison. It can also be used to compare a company against its own historical record or to compare aggregate markets against one another or over time. In essence, the this ratio indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company's earnings. This is why this is sometimes referred to as the price multiple because it shows how much investors are willing to pay per dollar of earnings. If a company was currently trading at a ___ multiple of 20x, the interpretation is that an investor is willing to pay $20 for $1 of current earnings. This ratio helps investors determine the market value of a stock as compared to the company's earnings. In short, this ratio shows what the market is willing to pay today for a stock based on its past or future earnings. When this is high it could mean that a stock's price is high relative to earnings and possibly overvalued. Conversely, when this is low it might indicate that the current stock price is low relative to earnings.
net receivables
This is the total money owed to a company by its customers minus the money owed that will likely never be paid. These are often expressed as a percentage, and a higher percentage indicates that a business has a greater ability to collect from its customers. For example, if a company estimates that 2% of its sales are never going to be paid, this equal 98% (100% - 2%) of the accounts receivable (AR). Companies use this to measure the effectiveness of their collections process. They also utilize it when making forecasts to project anticipated cash inflows. These arise when companies grant credit to their customers. A company's accounts receivable represents the line of credit it extends to its customers for the goods or services it provides. This credit line requires the customer to make payments for an agreed-upon amount due at a specific date. This practice carries inherent credit and default risk, as the company does not receive payment upfront for the goods or services it sells. A company can improve its cash collections by tightening control over credit issued to customers, maintaining efficient collection procedures, and performing collection procedures promptly.
acquisitions
This is when one company purchases most or all of another company's shares to gain control of that company. Purchasing more than 50% of a target firm's stock and other assets allows the acquirer to make decisions about the newly acquired assets without the approval of the company's shareholders. These, which are very common in business, may occur with the target company's approval, or in spite of its disapproval. With approval, there is often a no-shop clause during the process. We mostly hear about these of large well-known companies because these huge and significant deals tend to dominate the news. In reality, mergers and these (M&A) occur more regularly between small- to medium-size firms than between large companies.
dilution
This occurs when a company issues new stock which results in a decrease of an existing stockholder's ownership percentage of that company. This can also occur when holders of stock options, such as company employees, or holders of other optionable securities exercise their options. When the number of shares outstanding increases, each existing stockholder owns a smaller, percentage of the company, making each share less valuable. This is simply a case of cutting the cake into more pieces. There will be more pieces but each will be smaller. So, you will still get your piece of the cake only that it will be smaller than you had been expecting, which is often not a desired outcome. A share of stock represents ownership in that company. When the board of directors decide to take their company public, usually through an initial public offering (IPO), they sanction the number of shares that will be initially offered. This number of outstanding stock is commonly referred to as the "float". If that company issues additional stock (often called secondary offerings) they have officially ___ their stock. The shareholders who bought the IPO now have a smaller ownership stake in the company. While it primarily affects company ownership, this also reduces the stock's EPS (net income divided by the "float") which often depresses stock prices. For this reason, many public companies calculate both EPS and diluted EPS, which is essentially a "what-if-scenario". Diluted EPS assumes that potentially dilutive securities have already been converted to outstanding shares thereby increasing the denominator (the "float"). Share ___may happen any time a company needs additional capital, seeing as new shares are issued on the public markets. The potential upside of share ___ is that the capital the company receives from selling additional shares can improve the company's profitability and the value of its stock. Understandably, share ___ is not normally viewed favorably by existing shareholders, and companies sometimes initiate share repurchase programs to help curb dilution. However, stock splits enacted by a company do not increase or decrease ___. In situations where a business splits its stock, current investors receive additional shares, keeping their percentage ownership in the company static.
outstanding shares
This refers to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders. These are shown on a company's balance sheet under the heading "Capital Stock." The number of outstanding shares is used in calculating key metrics such as a company's market capitalization, as well as its earnings per share (EPS) and cash flow per share (CFPS). A company's number of outstanding shares is not static and may fluctuate wildly over time. Understanding this: Any authorized shares that are held by or sold to a corporation's shareholders, exclusive of treasury stock which is held by the company itself, are known as this. In other words, the number of shares outstanding represents the amount of stock on the open market, including shares held by institutional investors and restricted shares held by insiders and company officers. This can fluctuate for a company for a number of reasons. The number will increase if the company issues additional shares. Companies typically issue shares when they raise capital through an equity financing, or upon exercising employee stock options (ESO) or other financial instruments. This will decrease if the company buys back its shares under a share repurchase program.
non-cash items
This refers to an expense listed on an income statement, such as capital depreciation, investment gains or losses, that does not involve a cash payment. Income statements, a tool used by companies in financial statements to tell investors how much money they made and lost, can include several items that affect earnings but not cash flow. That's because in accrual accounting, companies measure their income by also including transactions that do not involve a cash payment to give a more accurate picture of their current financial condition.
research & development
This refers to the activities companies undertake to innovate and introduce new products and services. It is often the first stage in the development process. The goal is typically to take new products and services to market and add to the company's bottom line.
cost of goods sold
This refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. It excludes indirect expenses, such as distribution costs and sales force costs.
volume
This refers to the number of shares that are sold, or traded, over a certain period of time (usually daily). A high daily ___ is common when stock-specific news items are released or when the market moves significantly, while a low daily ___ can occur on light-news days and calm days for the stock market. Broadly speaking, this in investing means the total amount of a security that changes hands over a given period of time. This can refer to shares of an individual stock, the number of options contracts traded, or the total number of shares exchanged within an index or an entire stock market. Daily ___ is the most commonly used time period, but these over longer or shorter periods of time can be useful as well. It's important to note that when counting this, each buy/sell transaction is counted only once. In other words, if one investor sells 1,000 shares and another investor buys those 1,000 shares, it will count as volume of 1,000 shares, not 2,000. This may sound obvious, but it's a rather common misconception. For investors, it's helpful to know that this generally gets higher when an investment's price is changing. Certain events, such as the company's earnings report or a major news release, can cause this to spike and can lead to a large move in either the positive or negative direction. If the entire market is crashing or rising rapidly, it can also lead to higher ___ across the market.
market capitalization
This refers to the total dollar market value of a company's outstanding shares of stock. It is calculated by multiplying the total number of a company's outstanding shares by the current market price of one share. As an example, a company with 10 million shares selling for $100 each would have a ___ of $1 billion. The investment community uses this figure to determine a company's size, as opposed to using sales or total asset figures. Using this to show the size of a company is important because company size is a basic determinant of various characteristics in which investors are interested, including risk. It is also easy to calculate. A company with 20 million shares selling at $100 a share would have a ___ of $2 billion.
free cash flow
This represents the cash a company generates after cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, this is a measure of profitability that excludes the non-cash expenses of the income statement and includes spending on equipment and assets as well as changes in working capital. Interest payments are excluded from the generally accepted definition of this. Investment bankers and analysts who need to evaluate a company's expected performance with different capital structures will use variations of free cash flow like free cash flow for the firm and free cash flow to equity, which are adjusted for interest payments and borrowings. This is often evaluated on a per share basis to evaluate the effect of dilution.
short term investments
Those which can easily be converted to cash, typically within 5 years. Many of these are sold or converted to cash after a period of only 3-12 months. Some common examples of these include: - CDs - money market accounts - high-yield savings accounts - government bonds - Treasury bills. Usually, these investments are high-quality and highly liquid assets or investment vehicles. These may also refer specifically to financial assets—of a similar kind, but with a few additional requirements—that are owned by a company. Recorded in a separate account, and listed in the current assets section of the corporate balance sheet, these are investments that a company has made that are expected to be converted into cash within one year.
purchases of investments
When a company makes an investment with cash, the price of that purchase decreases the amount of cash available to the company. No matter what type of investment (stock, bond, or something else) it is, the impact on cash influences the cash flows from investing activities.
income before tax
a company's income after all operating expenses, including interest and depreciation, have been deducted from total sales or revenues, but before income taxes have been subtracted. Because pretax earnings exclude taxes, this measure enables the intrinsic profitability of companies to be compared across industries or geographic regions where corporate taxes differ. For instance, while U.S.-based corporations face the same tax rates at the federal level, they face different tax rates at the state level.
