| 8K Filings | Events that require Form 8-K filings are discussed; the format of 8-K reports is addressed, and their importance for shareholders is explained. The utility of 8-K reports even in the absence of SEC 8-K rulings requiring them is also addressed. |
| Abnormal Return | Abnormal returns are discussed in layman’s terms, including an abnormal return definition, discussion of methods for abnormal return calculation, and an explanation of the importance of abnormal returns in market analysis and prediction. Abnormal return formulas, including the cumulative abnormal return formula, are defined and explained. |
| Accounting Rate of Return Definition | This article provides an accounting rate of return definition and discusses accounting rate of return formulas (including depreciation) and uses of the accounting rate of return method for businesses and capital expenditure planning. Specific accounting rate of return advantages and disadvantages are also discussed. |
| Accounts Payable | Accounts payable is an account of unpaid debt for goods & services received. A/P is an obligation that a company or individual is under to pay unpaid bills or invoices to venders or service providers |
| Accounts Receivable | Accounts Receivable is the money that is owed by a customer for goods & services rendered, but not yet paid for |
| Accounts Receivable Turnover Ratio | The accounts receivable turnover ratio measures a companies effectiveness in terms of qualifying their credit borrowers and collecting monies owed from them. |
| Accrual Accounting Versus Cash Accounting | The accrual method of accounting stipulates that revenue or expense recognition occurs on the date that the transaction occurs, regardless of whether or not cash was paid or received while the cash method records the transaction as of when the monies changed hands. |
| Accumulated Earnings | Accumulated earnings are defined and explained. The necessity for accumulated earnings in order to ensure continued company operation is discussed, as well as the tax implications of accumulated earnings and profits. The accumulated earnings tax is explained, along with the reasoning behind it. |
| Activity Based Costing | Accounting for indirect costs became increasingly difficult as the costs for overhead expenses increased and spreading these costs evenly over the different segements of the business became inaccurate. Rather than assigning costs to a project, or product, using the traditional man (machine) hour basis, activity based costing takes a more logical approach |
| After Tax Income | Applications and methods for calculating after tax income are discussed from a corporate standpoint. Cash flow analysis is explored insofar as it relates to after tax income and EBITDA and EBITDAR methods. Additionally, the advantages of after tax income distribution during retirement are explained. |
| Altman Z-Score | The Altman Z-Score gives an insight into the possibility of bankrupcy for a specific company. |
| Amortization | Amortization references the gradual repayment of debts over a specified time period, most commonly applied to mortgages. Amortization can also be used in the context of capital expenditures; amortization in this sense refers to the expensing of capital expenses over their expected useful lives |
| Asset Coverage Ratio | Asset coverage ratio uses and definitions are discussed, including minimum asset coverage ratios and fixed asset coverage ratios. Various asset coverage ratio formulas are presented and explained for a general consumer audience, and the importance of the asset coverage ratio in determining a company’s liquidity is highlighted. |
| Asset Mix - Retirement Investing Strategy | Asset mix is the percentages of the holdings within a portfolio. More aggressive investors will seek out funds where growth stocks make up the majority of the asset mix. |
| Asset Valuation Model | Asset valuation is a technique of evaluating the health of a company by determining the fair market value of the security. |
| Average Cost Method | The average cost method formula is explained, along with its use in inventory pricing and deriving a cost basis for securities. Examples are provided for the average cost method accounting system as well as the average cost method of inventory control. |
| Balance Sheet | A balance sheet is financial statement that represents a snapshot of a companies financial situation at a point in time; it is split out into three key segments which are Assets, liabilities, and Shareholders Equity |
| Benefit Cost Ratio | Jules Dupuit, an engineer from France, first introduced the concept of benefit cost ratio in 1848. Alfred Marshall, a British economist further enhanced the formula that became the basis for benefit cost ratio. |
| Book to Market Ratio | The book to market ratio provides relative value of a company by dividing its book value by its market value; it tells investors whether the company is undervalued or overvalued. |
| Book Value | The book value, or net tangible assets, of a company refers to liquidation value of their assets if they were forced to sell everything |
| Breakeven Analysis | The breakeven analysis is a calculation that forecasts the point at which a company’s total revenues are equal to its total expenses. Within this analysis are different variables such as fixed costs, variable unit costs, expected unit sales, unit price, total variable cost, total cost, total revenue, profit or loss and the breakeven point. |
| CAPEX | Capital Expenditures, or CAPEX spending refers to expenses that a business incurs to buy new assets or to add to, or upgrade, existing ones. These assets may include property, equipment or machinery, and even buildings. |
| Capital Appreciation | A capital appreciation definition is offered, along with a discussion of capital appreciation bonds and capital appreciation funds and their relative stances vis-à-vis the overall stock market forecast. An equation for calculating the capital appreciation value at the time of sale is included. |
| Capital Assets | Capital assets are defined and discussed, including material capital assets and securities. The capital asset pricing model and the capital asset ratio are explained, and the role of capital asset management teams is explored. |
| Capital Gains | Capital Gains(losses) are profits that result from the sale of a capital asset which was owned for investment purposes |
| Capital Structure - Debt & Equity Mix | A capital structure is the mix of a company's financing which is used to fund its day-to-day operations. These source of funds can originate from equity, debt and hybrid securities. |
| Cash Accounting | Cash accounting is explained, including a comparison to accrual basis accounting. Advantages and disadvantages of the cash accounting system are discussed. An example is given of a situation where the cash accounting basis is appropriate, and another where cash accounting is not recommended. |
| Cash Conversion Cycle | The cash conversion cycle, also known as the asset conversion cycle, is an expression of time, in days, that it takes to purchase raw materials for production, convert them into goods, sell them, and collect the accounts receivable for those sales. |
| Cash Flow Statement Example and Components | The cash flow statement is part of a company's financial reports and is comprised of three main components: (1) Operations, (2) Investing, and (3) Financing. |
| Cash on Hand - Measure of Financial Health | Cash on hand is the amount of money a company has been able to save from its business operations. |
| Common Stock | Common stock represents an ownership interest in a corporation. Rather than purchasing bonds, of which most have a fixed rate of return, investors look to purchase an equity stake for the possibility of stock price appreciation |
| Compound Annual Growth Rate | The compound annual growth rate, also known as CAGR, is a formula that is applied to an investment that can determine the investment's annual return. The final percentage that you get upon calculating the compound annual growth rate is fixed and provides a smooth rate of return that shows the positive or negative growth of your investment. |
| Cost of Capital Components, Formula and Risks | Fundamental analysis method for assessing the risk adjusted return on capital. |
| Cost of Goods Sold | Cost of goods sold, or COGS, refers to the direct costs incurred to produce finished goods which are made available for resale as well as any additional costs to get the product into inventory and available for sale |
| Current Assets | Current assets are a major component of the balance sheet and represent assets that are expected to be sold or used, typically within the next 12 months. They are also an important measure of a companies liquidity position. |
| Current Liabilities | Current liabilities refer to short term debt obligations of a company, to its creditors and suppliers, which are due within 1 year |
| Days Payable Outstanding | The days payable outstanding (DPO) calculates the total time it takes a business to pay back its creditors. |
| Debt Restructuring - Method for Increasing Liquidity | Debt restructuring is when a company is facing liquidity issues and attempts to negotiate with its creditors to change the terms of the loans in order to continue business operations. |
| Deferred Tax Assets | Deferred tax assets refer to a future tax liability or asset, which exist due to temporary differences and carry-forwards between the companies book value of assets (which they report to shareholders) and the value of their assets which they report on the balance sheet to the IRS |
| Deleverage | Deleveraging, or degearing, is simply the opposite of leveraging, or borrowing. It is the act of reducing the use of borrowed funds. |
| Depreciation | Depreciation refers to spreading out the original cost of a fixed asset, such as a factory or equipment, over the estimated useful life of this asset. Depreciation reduces the taxpayers taxable income, but not their actual cash balance |
| Discounted Cash Flow Formula & Example | The discounted cash flow model is used to reduce the value of future earnings in order to get their present value. |
| Dividends Types and Definition | Dividends are the distribution of a company's gains over a fixed period of time to shareholders. This disbursement of capital is done so under the authority of the board of directors. Dividends are issued on a per share basis and is called a per share dividend. |
| Earnings Before Tax Definition & Example | The earnings before tax (EBT) is simply the amount of earnings less income tax expenses. This method of evaluating a company is used to assess how profitable companies are from different regions. |
| Earnings Estimates Definition & Accuracy Rate | An earnings estimate is an analysts' expectation of what a company will earn on a quarterly or annual basis. This estimate is calculated by looking at previous earnings statements, current market conditions, and the management team in order to estimate the net income over a specified period of time. |
| Earnings Momentum Defintion & Trading Strategies | Earnings momentum occurs when a company continues to show accelerating earnings growth from quarter to quarter. This is often a long-term sign that a company's future is bright due to the increased demand for their goods and services. |
| Earnings Multiplier Formula & Example | The earnings multiplier is a variation of the price to earnings ratio that adjusts the current p/e to account for current interest rates. This is done in order to discount future earnings against monies that could be invested at the current interest rate over the same period of time. |
| Earnings Per Share - EPS | Earnings per share, or EPS, represents profits which accrue for the shareholders on a per share basis and can be found on the income statement |
| Earnings Surprise Definition & Trading Strategy | An earnings surprise occurs when a company's quarterly or annual report is above or below analysts' earnings estimates. There is no set number which constitutes a earnings surprise, other than it is not within the expected consensus estimate. Many times this surprise will lead to a sharp reaction in the stock. |
| EBITDA | EBITDA, or earnings before interest , taxes, depreciation, and amortization, is basically an indicator of a companies' profitability, not their cash flows as some believe. |
| EBITDAR | The financial term EBITDAR is defined, including variants. A general method for EBITDAR calculation is presented; the debt EBITDAR ratio is explained, along with its potential effect on corporate credit ratings. |
| Income Statement | An Income Statement is also known as a "profit and loss" statement for a given period of time, you may also see it referred to as the "statement of income" |
| Initial Public Offering | An IPO, or initial public offering, refers to the initial sale of a companies stock to the public. IPO's are utilized primarily by small-cap companies who are looking to expand their operations; however, some larger private companies may take this route as well |
| Internal Rate of Return - IRR | Internal rate of return refers to the yield of an investment, or the compounded rate of return on investment |
| Inventory Valuation | Inventory valuation and management are important factors in determining net profits. There are four key forms of valuation: FIFO, LIFO, Average Cost & Specific Identification. |
| Leverage Ratios | By using a combination of assets, debt, equity, and interest payments, leverage ratio's are used to understand a company's ability to meet it long term financial obligations |
| Liquidity Ratios | Liquidity ratios provide investors with details on a companies abilities to pay their short term debt. Liquidity ratios such as the current ratio, quick ratio, and cash ratio are used by many banks before extending loans to companies. |
| Mark to Market | Mark to Market accounting, or fair value accounting, mandates that companies must value their assets on their balance sheet based on the price that these assets could be sold for on the open market. |
| Market Capitalization | Market capitalization, or "market cap" represents the total dollar value of a companies outstanding equity shares. It is calculated by multiplying the total number of oustanding shares by the stock price. |
| Net Present Value - NPV | The valuation technique, known as net present value or NPV, allows a company to project the projects potential profitability by discounting future cash flow expectations and comparing the sum of these cash flows to the initial capital expenditure required to fund the project. |
| Preferred Stock | Preferred stock refers to a class of shares which has a higher ranking than common stock. Preferred stock does not carry any voting rights as do the common shares, however, they command priority over the common stock in the event of bankrupcy or liquidation and as far as dividends are concerned |
| Price to Earnings Ratio P/E Defintion & Historical Values | The P/E ratio is a valuation of a company's earnings per share. Historically stocks have had a P/E ratio of 15 and it is a good measure of a company's health. |
| Price To Earnings To Growth Ratio (PEG) | The PEG ratio integrates growth expectations into the P/E ratio to determine if a company is cheap or expensive based on its growth rates. |
| Price To Sales Ratio | The Price to Sales Ratio (Price/Sales) is a stock valuation tool used to compare the market capitalization of a company to its sales. Essentially, it reveals the market value assigned to each dollar of sales generated. |
| Profit Margins | The term profit margin refers to the amount of money a company makes after it subtracts the cost of goods sold from the gross revenues |
| Profitability Ratios | Profitability ratios measure a companies financial performance and its ability to increase its shareholders value and generate profits |
| Qualitative Analysis - Stocks | Qualitative Analysis is the process of examining the health of a company by looking at non-financial information such as the management team, culture of the company and customer loyalty. |
| Retained Earnings | When a company turns a net profit, they can elect to either pay it out as a dividend or take these earnings and reinvest them back into the company. In the case of the latter, the company will record these earnings as retained earnings which will be recorded on the balance sheet under shareholders equity |
| Return on Assets | Return on assets is a key profitability ratio which measures the amount of profit made per dollar of assets that they own |
| Return on Equity | The term Return on Equity, or ROE, measures the amount of profit that a company generates through the use of shareholders' equity |
| Return on Invested Capital | Return on Invested Capital measures a companies net operating profit as a percentage of the leverage that they are using |
| Shareholders Equity | Shareholders equity represents the net worth of a company after deducting all liabilities. A companies initial public offering (IPO) of common stock and preferred stock is the means to acquiring the funds to expand operations and grow the company |
| Sharpe Ratio | The Sharpe ratio provides insight into the risk/reward scenario of a security or a portfolio. It measures excess investment returns as a function of volatility. |
| Total Asset Turnover Definition & Formula | The total asset turnover represents the amount of revenue generated by a company as a result of its assets on hand. This equation is a basic formula for measuring how efficiently a company is operating. |
| Trailing Price to Earnings Ratio & Stock Prices | The trailing price to earnings ratio is the most widely used P/E ratio in fundamental analysis. This is because the trailing P/E ratio actually measures a stocks per share earnings over the previous twelve months. |
| Treasury Stock | The term treasury stock refers to common shares which have been repurchased or reacquired through the open market by the issuing company. This action will reduce the float, or number of common shares outstanding. |
| WACC Calculation | To calculate the WACC, one must weight the cost of each borrowed dollar as a proportion of the overall leverage taken by factoring in interest rates and capital structure. |
| Weighted Average Cost of Capital (WACC) | The weighted average cost of capital, or WACC, is the average cost of debt and equity financing that a company undertakes to finance its assets and operations. |
| Working Capital | Working capital describes the financial strength of a company on the short run; it describes their cash position after cashing out all short term assets and paying off short term liabilities |
| Write Down Definition & Example | A write down occurs when a bank reduces the book value of an asset to its true market value. This practice of writing down bad assets to their current value allows a company to display the true value of the company on the income statement. |
| Write-Up Definition & Example | A write-up is when an asset's value is increased on the income statement, to reflect its increased market value. |
