Marketable Securities In-Depth Guide: What They Are, Valuation, and Impact
Updated 3/30/2023 Have you ever seen that line item on the balance sheet listed as marketable securities and wondered what they were? I know I did when I first started reading a company’s financials. Well, you are in luck because today, we will dive into each line item and open up your eyes to this […]
The Simplest Explanation of Backlog Accounting: A Home Buying Contract
I find that backlog accounting is best explained by the home builder industry. A backlog represents work that needs to be performed but has not been recognized as revenue yet. As an example, a customer who is approved for a mortgage on a new home goes into a home builder’s backlog. Once that transaction closes, […]
How Purchase Obligations (in the 10-k) Affect Inventories and Capex
Purchase obligations can be a key part of understanding future cash flow. In 2002, the SEC made the disclosure of purchase obligations (POs) a requirement in the MD&A section of the 10-k. Because POs are not part of GAAP, I’ll discuss the two ways they can affect future financials of a company. While Purchase Obligations […]
Valuation of Goodwill: Common Formulas Used to Estimate a Value
“We don’t think in terms of appraising physical assets. We think in terms of economic goodwill… We only buy if we think [economic goodwill] will appreciate.” –Warren Buffett Goodwill is controversial; many companies make up most of their assets with goodwill. Take, for example, the recent Amazon purchase of Whole Foods in 2017. Amazon paid […]
Insider Ownership Legalese Made Simple: How to Investigate It Yourself
Depending on the public company, the insider ownership situation can be simple or very complex. Publicly traded corporations can divvy up ownership through 1 class, or multiple classes of shares, and can designate these classes as voting or non-voting. Companies with active founders can sometimes structure their share classes in this way in order to […]
Financial Shenanigans: 6 Ways to Analyze Financial Reports for Fraud
Question for you? Do you think companies practice to deceive investors by practicing financial shenanigans or intentionally set up financial statements to deceive investors? Unfortunately, the answer is yes. A prime example of financial shenanigans is Enron. In 2011, Enron defrauded investors to the tune of $74 billion! Enron decided to deceive investors by practicing […]
Public Holding Company Benefits: Lowered Risks, More Autonomy, more…
A holding company, simply, is a company that holds (or owns) other companies. Some popular public holding companies include Warren Buffett’s Berkshire Hathaway, banks like JP Morgan, and financial service and insurance companies. Holding company benefits include autonomy, diversification, and legal protection, among others that will be discussed in this article. The are 3 official […]
Related Party Transactions Explained With Simple Examples (and in 10-k’s)
Corporate structures for public corporations can get confusing, between the various affiliates and subsidiaries that a company might hold. Then throw ownership stakes into the mix– and potentials for conflict of interest can create questions on legitimacy of some revenues. The disclosure of related party transactions in the 10-k can help an investor understand whether […]
Deferred Revenue: Debit or Credit and its Flow Through the Financials
Basic accounting for public companies can get confusing with different terms that mean the same thing (like deferred and unearned revenue), vs opaque definitions (such as recording a debit or credit on deferred revenues, assets, or expenses). Let’s clear that up. Of course, we should know that understanding the intricacies behind deferred revenue is of […]
Financial Statement Footnotes: Treasure Trove of Information from the 10-k
Reading the 10k of a company is required reading if you want to invest in the company, and part of that reading is scouring the financial statement footnotes. In fact, many seasoned investors read through the financial statement footnotes first to get a feel for the financial condition of the company. On many occasions, the […]
