SASB Chapter 3 Vocab

Question 1

EBTIDA

Answer 1

One of the most common non-GAAP measures is earnings before interest, taxes, depreciation and amortization. Provides and alternative measure of a company’s profitability or cash flow not subject to standardized financial accounting practices.

Question 2

Enterprise Value (EV):

Answer 2

Measures a company’s total value, often used as a more comprehensive alternative to equity market capitalization. Enterprise value includes in its calculation the market capitalization of a company but also short-term and long term debt and any cash on the company’s balance sheet.

• Since the standardization of accounting it has become increasingly clear that, while standardized financial statements are a critical component to well-functioning markets, they alone do not tell a company’s full value creation story. This can be seen in a company’s declining ratio of net assets to enterprise value, in managerial myopia and short-term focus, and in changing regulatory and societal expectations.

Question 3

Intangible Assets

Answer 3

An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when it is separable, or when it arises from contractual or other legal rights. Separable assets can be sold, transferred, licensed, etc.

Question 4

Management Commentary

Answer 4

Some of the earliest efforts to promote the disclosure of non-financial information are represented by the existence of the management commentary portion of financial disclosures aligned with IFRS Standards and the Management’s Discussion and Analysis (MD&A) of regulatory filings in the US.

• Management commentary should provide users of financial statements with integrated information providing a context for the related financial statements, including the entity’s resources and the claims against the entity and its resources, and the transactions and other events that change them.
• Management commentary provides users with historical explanations of the amounts presented in the financial statements, specifically the entity’s financial position, financial performance and cash flows.

Question 5

Management’s Discussion and Analysis (MD&A):

Answer 5

• Provide space for company management to deliver important contextual informations or additional details needed to interpret performance.
• A section within a company’s annual report or quarterly filing where executives analyze the company’s performance. The section can also include a discussion of compliance, risks, and future plans, such as goals and new projects. The US SEC emphasizes four points regarding the focus and content of MD&A:
  1. Focus on material information
  2. Include Key performance indicators
  3. Disclose known trends and uncertainties that are reasonably likely
  4. Analyze information that is disclosed.