Why Footnotes Matter
Hidden items lurking in the financial footnotes can dramatically impact a company's yearly profitability. The post Why Footnotes Matter appeared first on Diligence Institute.
View ArticleOverfunded Pension Plan Assets – Invested Capital Adjustment
Overfunded pension assets are similar to excess cash, and should not be included in the calculation of return on invested capital (ROIC). The post Overfunded Pension Plan Assets – Invested Capital...
View ArticleExcess Cash – Invested Capital Adjustment
Most companies hold some cash—or cash equivalents in the form of investments—above this required amount. Companies hold excess cash in order to cushion against economic downturns, prepare for...
View ArticleAccumulated Goodwill Amortization and Unrecorded Goodwill – NOPAT Adjustment
Converting GAAP data into economic earnings should be part of every investor’s diligence process. Performing detailed analysis of footnotes and the MD&A is part of fulfilling fiduciary...
View ArticleOutstanding Employee Stock Options – Valuation Adjustment
Without careful footnotes research, investors would never know the amount of employee stock options that decrease the amount of future cash flow available to shareholders by diluting the value of...
View ArticlePreferred Stock – Valuation Adjustment
Preferred stock is a hybrid instrument that carries no voting rights but has a senior claim on assets and cash flows to common stock. Dividends usually must be paid out to preferred stock owners before...
View ArticleMinority Interests – Valuation Adjustment
We subtract the fair value of the minority interest liability from shareholder value in our DCF model as the minority interest shareholders have the rights to that portion of the cash flows. Without...
View ArticleAdjusted Total Debt – Valuation Adjustment
The fair value of a company’s total debt is the current amount the company would need to pay to retire the debt and settle the claims of the creditors. This fair value of debt is subtracted from...
View ArticlePension Net Funded Status – Valuation Adjustment
Companies with underfunded pensions will likely need to divert a greater amount of future cash flows away from shareholders to make up the funding gap. An accurate analysis of shareholder value should...
View ArticleNet Deferred Tax Assets and Liabilities – Valuation Adjustment
We subtract net deferred tax liabilities (DTLs minus DTAs) from our calculation of shareholder value as they are real future cash obligations that limit the amount of money available for distribution...
View ArticleDeferred Compensation Assets and Liabilities – Valuation Adjustment
The net amount of deferred compensation is included in shareholder value. If a company has a net liability, future cash flows will be diverted to pay for that obligation. If a company has a net asset,...
View ArticleDiscontinued Operations – Valuation Adjustment
There is one last adjustment we must make involving discontinued operations: adding net assets from discontinued operations to shareholder value. Because discontinued operations are parts of a company...
View ArticleExcess Cash – Valuation Adjustment
For most companies, we estimate the required amount of cash for normal business operations to be around 5% of sales. However, many companies hold cash or other liquid investments above and beyond this...
View ArticleReported Net Non-Operating Items – NOPAT Adjustment
Income statement adjustments include financing items like interest expense/income, preferred dividends and minority interest income. These items are related to the financing of a company’s operations,...
View ArticleMidyear Acquisitions – Invested Capital Adjustment
When a company makes an acquisition, the entire purchase price is added to the company’s balance sheet in the year of the acquisition along with any assumed debts or other long-term liabilities....
View ArticleNon-Operating Unconsolidated Subsidiaries—Invested Capital Adjustment
This report is one of a series on the adjustments we make to convert GAAP data to economic earnings. This report focuses on an adjustment we make to convert the reported balance sheet assets into...
View ArticleUnconsolidated Subsidiary Assets – Valuation Adjustment
Investors who ignore unconsolidated subsidiary assets are not getting a true picture of the cash available to be returned to shareholders. By adding unconsolidated subsidiary assets one can better...
View Article30+ Accounting Adjustments To Get The Truth About Earnings & Valuation
Reported earnings don’t tell the whole story of a company’s profits. They are frequently manipulated by companies to manage earnings. The post 30+ Accounting Adjustments To Get The Truth About Earnings...
View ArticleNOPAT Adjustment: Foreign Exchange Loss
Converting GAAP data into economic earnings should be part of every investor’s diligence process. Performing detailed analysis of footnotes and the MD&A is part of fulfilling fiduciary...
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Deferred Tax Assets and Liabilities – Invested Capital Adjustment
This report is one of a series on the adjustments we make to convert GAAP data to economic earnings. Reported earnings don’t tell the whole story of a company’s profits. They are based on accounting...
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