Net Debt to EBITDA Guide: Risks, Valuation, Examples, and S&P 500 Data

Of the many ratios to measure risk with a particular stock, the Net Debt to EBITDA ratio is one of the more common you’ll see listed in company financials. The logic is simple, and the ratio isn’t terribly complex, so I’ll show you how to easily source it in this post. Feel free to skip […]

The Basics of Computer Software Depreciation – Common Q’s Answered

Some parts of GAAP accounting rules can be more tricky, and software and how it is depreciated can be one of those. Most software is depreciated over a useful life, but there can be a type of software which is not depreciated (if it is considered R&D software). First let’s talk about depreciation and amortization, […]

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 […]

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 […]

Depreciation Expense: How to Decode

Depreciation is an accounting term that has a big impact on the future profitability of a company. It is a bit of a controversial topic because, as Warren Buffett states in many shareholder letters, it is unquestionably a proxy for required capital expenditures. Which is why Buffett includes depreciation in his owner’s earnings calculations, and […]

Understanding Provision for Income Taxes and International Taxes

Provision for Income Taxes is a line item in a company’s Income Statement which tells investors how much a company pays in taxes for a given Fiscal Year. By looking closer in a company’s Notes to Financials, the investor can get clarity on additional details of the Provision for Income Taxes—such as which amount is […]

Operating Leverage Formula: How to Calculate It with the Income Statement

“For a fundamental investor, anticipating revisions in expectations is the key to generating attractive returns. Sources of those revisions include fundamental outcomes (typically earnings revisions) and an assessment of how the market will value those fundamentals (multiple expansion or contraction). Investors who are able to forecast earnings in a year’s time that are substantially different […]