Lecture 3 / Chapter 4

Question 1

Quarterly Financial Reporting

Answer 1

public companies report financial performance every 3 months - Q1, Q2 etc. If not reported in timely manner, stock can be delisted from stock exchange and more. Some use calendar year for fiscal year, others use year that fits seasonality patterns

Question 2

SEC

Answer 2

securities and exchange commission (US)

Question 3

FASB

Answer 3

Financial Accounting Standards Board - independent private organization, granted authority by SEC to set standards used in US financial reporting/accounting

Question 4

GAAP

Answer 4

Generally Accepted Accounting Principles - rules set by FASB for the standards in US financial reporting and accounting - can be “non-GAAP” which means accounting aspects that are unique to business, but not mandatory to include. IFRS (International financial reporting standards)

Question 5

IASB

Answer 5

International Accounting Standards Board responsible for developing International Financial Reporting Standards (IFRS)

Question 6

EDGAR

Answer 6

online system of SEC, where companies must file GAAP compliant quarterly financial statements - freely available to review by public

Question 7

Income Statement

Answer 7

Also called Profit & Loss Statement or P&L. Tracks what company made/lost/spent over a period of time, and whether performance is improving or declining when compared with previous data

Question 8

Balance Sheet

Answer 8

tracks company’s assets, liabilities, net worth - summarizes what a company owns and owes at this point in time

Question 9

Cash Flow Statement

Answer 9

literally follows the money, shows amount of cash generated or spent by company in course of business over a period of time

Question 10

10-K or K Filing

Answer 10

fiscal fourth quarter filing - more detailed document of financial performance for quarter AND full fiscal year - financials for prior quarters/years as reference points. often includes letter from CEO to shareholders. Audited - filed in accordance with GAAP and certified by outside accounting firm.

Question 11

10-Q or Q filing

Answer 11

reports from quarters 1-3, using financial performance for prior year as a source of comparison. unaudited

Question 12

Revenue (Income Statement)

Answer 12

aka gross sales, top line - near top of income statement, could b broken into subcategories - total amount of money made from operations before expenses

Question 13

Costs of Goods Sold

Answer 13

aka COGS or COS - could be line or series of lines directly under revenue. direct costs that go into producing the product/services to generate revenue

Question 14

Gross Profit

Answer 14

revenue minus costs of goods sold

Question 15

General and Administrative Expense

Answer 15

aka G&A - items like sales, marketing, PR, research and development, salaries of headquarters personnel, other expenses that don’t go directly into producing product or services

Question 16

Operating Income

Answer 16

How much a company made after operating expenses (before taxes and debt deducted) aka operating profit or income from operations - profit or loss after COGS, G&A, depreciation & amortization, miscellaneous expense but BEFORE it pays taxes, interest expense or income tied to financing business (non operating expenses)

Question 17

Net Income

Answer 17

How much a company made after expenses (including taxes) literal “bottom line” - net income or earnings - line near bottom of income statement - profit or loss for period after every expense has been taken into account

Question 18

Operating Margin (Profit Margin)

Answer 18

measure of operational efficiency - shows how much money a company makes (has left over) on each dollar of sales it generates (before interest/taxes/dividends). Operating income (profit) divided by net revenue

Question 19

Net Margin

Answer 19

takes into account operating AND non operating expenses such as interest and taxes - all possible expenses are included. Net income (profit) divided by net revenue

Question 20

earnings per share (EPS

Answer 20

tells investors how much in the way of profit/loss shareholders would receive for each share if company was to distribute all earnings for the period. net income divided by total number of stock shares outstanding. usually found near bottom of income statement below net income line

Question 21

Asset

Answer 21

on balance sheet. something company owns that has value with potential to generate revenue. could be sold or used by company to produce product or service

Question 22

current assets

Answer 22

on balance sheet. assets company expects to convert to cash in a year or less

Question 23

noncurrent assests

Answer 23

on balance sheet. longer term assets that won’t be converted into cash in a year or less (factories, stores, buildings, equipment, fixtures)

Question 24

liabilities

Answer 24

a monetary obligation that an organization owes to others ie loans, mortgages, funds owed to suppliers (accounts payable), future income taxes payable, long-term debt

Question 25

current liabilities

Answer 25

company expects to pay in a year

Question 26

Noncurrent liabilities

Answer 26

payback duration longer that a year ie long-term debt or lease obligations

Question 27

shareholders equity

Answer 27

amount stockholders have invested in company via stock/other securities, and retained earnings (profit) since inception. AKA net worth or book value. If all assets sold and liabilities settled, shareholder equity is the hypothetical amount of value/money left for shareholders

Question 28

negative equity

Answer 28

negative amount of shareholder’s equity that indicates company risks being insolvent

Question 29

Substantial doubt

Answer 29

something auditors are required to state in audit opinion of public companies financial statement if they think the companies ability to continue is a “going concern”

Question 30

Financial Valuation Metrics

Answer 30

indicators used by business people, investors, stakeholders to determine investment value and financial health of publicly held companies

Question 31

Market Capitalization

Answer 31

aka market cap - determine total market value of firm based on all its shares of stock outstanding. Calculated by taking current value of companies stock and multiplying it by the total number of issued shares (provided near bottom of income statement). Not static - adjusts to changes in stock price and increase/decrease in amount of shares

Question 32

Enterprise Value

Answer 32

more detailed measure of company value, taking into account company’s stock market value plus net cash/debt and any preferred stock. Represents minimum price people would generally have to pay to buy entire company

Question 33

Price to Earnings Ratio (P/E ratio)

Answer 33

AKA earnings multiple. stock price per share/divided by earnings per share.

Question 34

fiscal year

Answer 34

financial term - can align with calendar year, but retail and other segments adjust this

Question 35

MD&A

Answer 35

Management Discussion and Analysis - explains financials in more detail, section w/I annual or quarter filing

Question 36

Annual reports

Answer 36

expansion on story of financial year - trends, forecasts, comparison to year - how it sits within larger ecosystem - sets context but not specifics - Q4 has more specific data