The most comprehensive educational resources for finance

What is Share Repurchase and Methods of Share Repurchase

A share repurchase refers to a transaction where a company buys back its own previously issued shares. A share repurchase can be considered an alternative to cash dividends, as the corporate uses its own cash to buy back the shares. Once the shares have been repurchased, they are referred to as treasury stock or cancelled,

Dividend Payment Dates

Once a company has decided to pay the dividends, the dividend payment process starts. The dividend payment chronology is quite standardized but may have some variations in different markets. Here we will look at the common and important dates in the chronology: Declaration date: This is the first date on timeline on which the company

Stock Splits and Reverse Stock Splits

A stock split refers to a situation where a company decides to split each share into multiple shares. A 3-for-1 stock split means each old stock is split into 3 new stocks. The impact is that the total outstanding shares increase, but the value of each share declines proportionately. Important Points Similar to stock dividends,

What are Dividends?

Dividends are a portion of the company profits paid out to its shareholders. When a company earns a profit, there are two ways in which it can utilize the surplus funds. The company can either decide to reinvest the profits in the business (retained earnings), or distribute it to the shareholders. The distribution of cash

Adjusting a Company’s Reported Financial Statements

At the core of financial analysis is the ability of an analyst to revise a company’s reported financial statements in order to create a “true” economic picture of performance and financial positions. In this article, we will look at: Balance Sheet: Common Analyst Adjustments Income Statement: Common Analyst Adjustments Statement of Cash Flows: Common Analyst

Financial Statement Analysis – Ratio Analysis

Financial analysts commonly use financial ratios to evaluate the investment worthiness of a company’s equity or debt.  Ratio analysis is commonly done in comparison to other companies of similar industry. When analyzing financial ratios, the analyst should consider the values in the context of the business cycle, trends, and industry or competitor standards. 5 Ratio

Analyzing Earnings Quality – the Accruals Ratio

A company’s accrual earnings has two components: cash earnings and aggregate accruals Accrual Basis Earnings = Cash Earnings + Aggregate Accruals Aggregate Accruals = Accrual Basis Earnings – Cash Earnings When aggregate accruals are the dominant component of a company’s earnings, mean reversion tends to occur more quickly and so earnings with a high accrual

Management Motivations for Financial Statement Manipulation

The management of a company has two types of motivations or incentives for manipulating financial reporting through accrual discretions: capital market incentives and contract based incentives. Capital Market Incentives: Financial reporting affects the price of a company’s stock and the price of its bonds. Therefore management has the incentive to exceed the market expectations. Management

Earnings and Cash Flows

This segment has focused on earnings; when reporting earnings management has certain discretion over the treatment of gains, losses, and expenses. Cash inflows and outflows can provide the analyst with a more objective view of the company’s economic reality. Analysts should compare trends in net income with trends in cash flow from operations and may

Various Definitions of Earnings

There are a number of earnings definitions and CFAI expects candidates to know the differences among the various definitions and recognize adjustments which should be made to reported earnings in order to perform valuation analysis. Operating Income (OI) OI = Revenues – Cost of Goods Sold – Selling, General, & Admin Expenses – Other Operating