Translating a Bond Indenture into Simpler Terms (Real-Life Example)

A bond indenture is simple in theory. It’s a document outlining the terms of a bond; what the issuer’s (or borrower’s) obligations are to the bondholder (lender). A common application of a bond indenture today is with publicly traded corporations who issue bonds to investors through investment banks like JP Morgan or Bank of America. […]

How Amortization of Intangible Assets Works; When it Unleashes Higher ROIC

The amortization of intangible assets can sometimes be hidden in the consolidated financial statements because amortization is grouped in with depreciation. But as the economy increasingly becomes more knowledge and intangible asset-based, investors need to more closely understand the accounting behind the amortization of intangibles. Depending on the intangible asset in question, a large amortization […]

How Schedule 13d Filings Can Help Investors Find Undervalued Stock Ideas

There are two main stock market strategies where reading schedule 13D filings is essential to success: portfolio cloning and deep value investing. In this post we’ll talk about what a schedule 13D is and why it is useful for those two strategies, by tackling the following: The Basics of the Schedule 13D Filing (vs the […]

Capitalizing R&D Expenses: How to Do It and Its Effect on Valuation

Updated 5/29/2023 Most valuation models begin with earnings to arrive at the cash flows, and when using this method, we assume that the earnings stem from expenses related to operations. But in today’s age of intangibles, those assets creating revenues are different. We must examine Items like research and development (R&D) and treat them differently. […]

Interpreting Off-Balance Sheet Items: Analyzing Risks in the Finance Industry

There are two main types of off-balance sheet items for investors to consider. One regards future obligations, and one regards potential off-balance sheet risks. These can be critical towards understanding the true potential of a company’s future free cash flows, and are found in a company’s 10-k. While there’s no official categories for the two […]

How to Look Up Debt Covenants: A Real-life Example from a 10-k

Out of the many aspects of fundamental analysis, reading debt covenants is probably among the most arduous, discouraging, and ignored part of the job. But in a time of crisis, much of the focus shifts from earnings and sales to debt covenants and liquidity. As an investor, it’s critical to understand a company’s true risks. […]

Net Investment Income: Its Significance for Many Financial Companies

Updated 4/21/2023 Continuing our discussion on investment portfolios for companies like Amazon, Microsoft, Prudential, and Apple. Today’s post covers the line item from the income statement reading as “net investment income.” For many companies, this line item is insignificant in the grand scheme of things, but for others, such as Prudential, it can make up […]

Held for Trading HFT/AFS Securities – Company Investment Portfolios [Guide]

Updated 3/30/2023 Ever wonder why Warren Buffett buys all those stocks and what the goal is behind them? Also, why does he mention valuing Berkshire Hathaway on its earnings is not the best method? Much of that stems from his investment portfolio and how the portfolio is treated based on gains and losses in the […]

Pros and Cons: Held to Maturity (HTM) Securities on Companies’ Balance Sheets

Updated 3/30/2023 Did you know the majority of financial assets for most companies comprise marketable securities? Did you also know companies such as Microsoft, Amazon, Google, and Berkshire Hathaway hold over 25% of their assets as marketable securities? It’s true; you can look it up. Or you can read the rest of this post and […]

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 balance 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 […]

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