What is PPE in Accounting?
PPE accounting refers to long term assets categorized as PPE (plant, property, and equipment), which are tangible assets that are expected to create cash flows over the long term. These can be significant to investors because their depreciation schedules directly influence the bottom line (earnings). This post will cover: The Basics of PPE and Depreciation […]
Days Sales in Inventory Guide – With Examples That Signal Future Problems
Days Sales in Inventory, or DSI, can be a invaluable ratio in evaluating inventory management of a public company—which can also sometimes signal future demand (and thus revenue) problems in advance. In this post, we’ll discuss: The Days Sales in Inventory (DSI) calculation Examples of bad DSI trends Best applications of the Days Sales in […]
Types of For Sale Securities and Their Accounting Treatment (AFS/HTM/HFT)
Have you wondered what all those assets on an insurance company’s balance sheet were? Or why do companies carry such a large mix of marketable securities? Did you know that Microsoft owns over $120 billion in short-term investments, over 70% of its current assets, and over 39% of its total assets? That is a large […]
Changes in Working Capital: An Easy Walk Through
Changes in working capital helps explain how a company uses its assets to generate growth. Some companies build up inventories, pay down liabilities, or extend their repayments to vendors to growt their cash flows. The better we understand how a company uses its assets and liabilities, the better we can predict changes in value. Please […]
SEC Form 4 Explained for Beginners
One of the best ways to track how management feels about the company they work for is to watch for insider buying or selling. Using Form 4 can help you determine any trades leadership makes regarding their stock options. With the increase of pay for insiders (C-suite) in the way of stock options, tracking their […]
How to Calculate Days Sales Outstanding (DSO) – w. Real Examples
The DSO acronym in finance stands for average days sales outstanding, and is critical to understanding a company’s revenue and sales trends. The DSO calculation is simple, yet its usefulness should not be glossed over. Using the DSO formula can help a financial analyst spot when a company could be “stuffing the channel”, leading to […]
Return on Total Capital and How to Calculate it
“Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.” – Warren Buffett, 1992 Berkshire Hathaway Shareholder Letter All great businesses generate high returns on capital, and they do so regularly. Companies such as Microsoft, […]
What a Good Debt to Asset Ratio Is and How to Calculate It
Many businesses use debt to fuel their growth in today’s low-interest business world. Because the cost of debt is far lower than equity, many companies choose to raise cash to grow by taking on larger amounts of debt. The debt to asset ratio measures that debt level and assesses how impactful that might be for […]
Share Based Compensation Expense – How to Locate it in the 10-k
The use of stock based compensation has grown over the last twenty years. Not only among the CEOs and other C-suite management but also among the lower tiers of employees. As many of the newer companies become public, the increase of stock-based compensation continues to grow. It makes sense when you think about it; enticing […]
Maintenance Capital Expenditures: The Easy Way to Calculate It (With Calculator)
To continue our series on owner earnings, I thought we would do a deeper dive into maintenance capital expenditures or maintenance CapEx. When calculating owner earnings, most of the values are pretty straight forward. But maintenance capital expenditures requires a little more digging to come up with a number that we can use for our […]
