Can a company's working capital turnover ratio be negative?

A: A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. The working capital turnover is calculated by taking a company's net sales and dividing them by its working capital. Since net sales cannot be negative, the turnover ratio can turn negative when a company has a negative working capital.Working CapitalA company m...

Free & operating cash flows: What's the Difference?

A: The calculation used to determine free cash flow is net income plus amortization and depreciation minus change in working capital minus capital expenditures. Operating cash flow is calculated in the same way, omitting capital expenditures.Free cash flow is most commonly defined as operating cash flow minus capital expenditures. A more stringent definition includes dividend outlays as ...

How are cash purchases recorded on a company's income statement?

A: Cash purchases are recorded more directly in the cash flow statement than in the income statement. In fact, specific cash outflow events do not appear on the income statement at all. Rather, different items on the operating section of a company's income statement are affected by the balance of cash purchases, credit purchases and other previously recorded transactions. One of the limiting f...

How are retained earnings related to a company's income statement?

A: Retained earnings appear on a company's balance sheet and may also be listed on its income statement. Retained earnings may also be published as a separate financial statement.The statement of retained earnings is one of the financial statements that any publicly traded company is required to publish on at least an annual basis. Retained earnings are essentially a company's bottom line ...

How can I access a company's earnings report?

A: One of the most important tools in the arsenal of the fundamental investor is the company earnings report. The earnings report is a public display of financial standing and the official word on recent business performance. All publicly traded companies are legally required to file quarterly reports, annual reports, and the 10-Q and 10-K reports. Current and potential shareholders can track comi...

How can I calculate capital employed from a company's balance sheet?

A: A company's balance sheet offers a snapshot of how a company utilizes its capital resources at a given point in time. To perform a capital-employed analysis, focus on funds being used during the operating cycle and from where those funds come. The most important items to identify are fixed assets, inventories, trade receivables and payables.Capital employed is financed by capital invested. ...

How can I find a company's EV/EBITDA multiple?

A: The EV/EBITDA multiple for a company can be found by comparing the enterprise value, or EV, to the earnings before interest, taxes, depreciation and amortization, or EBITDA.The EV/EBITDA Multiple RatioThe EV/EBITDA ratio is a metric widely used to help investors determine the value of a business. It compares a company’s value, including debt and liabilities, to the its true cash earnings, les...

How can I use Excel as my business's general ledger?

A: For a small business with few transactions, a savvy business owner can use Excel as a substitute for accounting software. Excel has all of the tools needed to create and maintain a general ledger, but will require a careful user and a solid understanding of basic accounting. According to Entrepreneur magazine, thanks to Excel’s diverse functionality, it is one of the biggest competitors for m...

How do bankruptcy costs affect a company's capital structure?

A: A higher amount of debt in a company's capital structure increases interest payments and the risk of bankruptcy. A company must seek an optimal capital structure that balances debt and equity.Bankruptcy costs significantly alter a company's cost of capital, according to the Modigliani and Miller theory of capital structure. According to the theory, as a company decides to take on more d...

How do I calculate how long it takes an investment to double (AKA 'The Rule of 72') in Excel?

A: You can calculate the approximate amount of years it would take an investment to double, given the annual expected rate of return. To do so, you would need to implement the rule of 72 in Microsoft Excel.The rule of 72 states that to determine the approximate amount of time it takes to double your investment at a given rate of return, you simply divide the rate of return by 72. For example, assu...

How do marketable securities impact a company's financial statements?

A: Marketable securities held by a company are reported in its financial statements. Exactly how the company classifies and records these investments in the financial statements depends on how long the company intends to hold these securities. Marketable securities can be classified as trading, available for sale or held to maturity. The manner in which the company reports the changes in the marke...

How do you determine a tangible asset's useful life?

A: A tangible asset is any asset with a physical form, and includes fixed assets such as machinery, land and buildings. Tangible assets are also current assets, such as inventory. Any tangible asset has a useful life of more than one year. Factors involved in determining the useful life of a tangible asset include the age of the asset when purchased, how frequently the asset is used and the enviro...

How do you find a company's P&L statement?

A: A company’s profit and loss (P&L) statement, also commonly known as an income statement, can be found in the annual financial reports that all publicly traded companies are required by law to issue and distribute to shareholders. Annual financial reports include a company's P&L statement as well as a balance sheet and a statement of cash flow. In addition to fulfilling the legal r...

How do you find the level of EBIT where EPS doesn't change?

A: One of the primary valuation metrics used by investors to assess a business' worth and financial stability is earnings per share (EPS). EPS reflects a company's net income divided by the number of common shares outstanding. EPS, of course, largely depends on a company's earnings. For the purposes of EPS calculation, earnings before interest and taxes (EBIT) is used because it reflec...

How does analyzing a bank's financial statements differ from companies in other sectors?

A: Just like a nonfinancial service company, a bank has to manage the trade-off between its profits and risks. However, two distinct characteristics for banks pose challenges in analyzing their financial statements. The first relates to defining debt and reinvestment needs for banks, making it difficult to calculate cash flows for investment analysis. The second difficulty has to do with regulatio...

How does beta measure a stock's market risk?

A: Beta is a statistical measure of the volatility of a stock versus the overall market. It's generally used as both a measure of systematic risk and a performance measure. The market is described as having a beta of 1. The beta for a stock describes how much the stock’s price moves in relation to the market. If a stock has a beta above 1, it's more volatile than the overall market. As a...

How does debt affect a company's beta?

A: Debt affects a company's levered beta in that increasing the total amount of a company's debt will increase the value of its levered beta, and vice versa. Debt does not affect a company's unlevered beta, which removes the effects of debt when calculating a company's beta.Since both unlevered beta and levered beta measure the volatility of a stock in relation to movements in the ...

How does goodwill increase a company's value?

A: Business goodwill is an intangible asset owned by and associated with the operation of the company. The goodwill of a company increases its value, as qualities such as the company's customer base, its brands, products, location, workforce and reputation demonstrate the company's proven track record of generating income. All this means that the company's value is actually greater tha...

How should I analyze a company's financial statements?

A: Investors should take advantage of the wealth of information provided in a company's financial statements to help them evaluate the company as a potential investment.In terms of overall profitability, the net income is the obvious place to start when analyzing a company’s financial statements. This bottom line dollar amount on a company's income statement is a good indicator of profit...

What are Manchester United's (MANU) largest revenue sources?

A: Manchester United is one of the most popular U.K. soccer teams. Its principal stadium is Old Trafford, located in the heart of the city of Manchester. Founded in 1878, Manchester United went public on stock markets in 1991 and, as of 2012, is traded on New York Stock Exchange. In 2014, the largest sources of revenue for Manchester United came from sponsorship agreements amounting to £135.8 mil...

What are the determinants of a stock's bid-ask spread?

A: Stock exchanges are set up to assist brokers and other specialists in coordinating bid and ask prices. The bid price is the amount that a buyer is willing to pay for a particular security; the ask price is the amount that a seller wants for that security - it is always a little higher than the bid price. The difference between the bid and ask prices is what is called the bid-ask spread and this...

What are the differences between a 10-K report and a firm's own annual report?

A: Publicly traded companies in the United States are required to file a host of documents, and two of the most important, for investors, are the annual report and the 10-K report. Similar in many ways, these documents are designed to help inform potential investors or current shareholders about the company's performance.Annual ReportA corporation's own annual report is usually a colored, ...

What are the odds of getting a perfect bracket in Warren Buffett's March Madness bracket challenge?

A: The NCAA Men’s Basketball tournament is well known for creating madness among college sports fans. Each year millions tune in to watch the games, with many fans participating in bracket challenges. Bracket challenges have become incredibly popular, with everyone from employers to major sports networks creating their own to see who can pick the tournament champion.In 2014 Warren Buffett, the b...

What can the coefficient of variation (COV) tell investors about an investment's volatility?

A: The coefficient of variation (COV) can determine the volatility of an investment. The COV is a ratio between the standard deviation of a data set to the expected mean. When used in the stock market, it helps to determine the amount of volatility in comparison to the expected return rate of an investment. The COV is found by dividing the volatility, or risk, by the absolute value of the investme...

What does a high times interest earned ratio signify with regard to a company's future?

A: A common solvency ratio utilized by both creditors and investors is the times interest earned ratio. Often referred to as the interest coverage ratio, the times interest earned ratio depicts a company's ability to cover the interest owed on debt obligations, expressed as income before interest and taxes divided by interest expense. The ratio is stated as a number as opposed to a percentage,...

What does a low working capital ratio show about a company's working capital management?

A: The working capital ratio is commonly used to assess a company's financial performance. Low working capital ratio values, near 1 or lower, can indicate serious financial problems with a company.Working capital is the money that a company uses to fund its day-to-day production. Working capital is used to purchase raw materials that the company uses to manufacture its goods. These goods are s...

What does high working capital say about a company's financial prospects?

A: If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, also called net working capital, is a liquidity metric used in corporate finance to assess a business' operational efficiency. It is calculated by subtracting a company's current liabilities from its current assets.Current assets are highly liquid assets, mean...

What does it mean when "N/A" appears for a company's P/E ratio?

A: A "N/A" reported in a stock's price-to-earnings ratio (P/E), can mean one of two things. The first, and simplest, would be that there is no data at time of reporting to calculate this ratio. This will be the case with a newly listed company that has yet to release its earnings. The second reason that a stock would report "N/A" as its P/E ratio could be that the number is...

What does low working capital say about a company's financial prospects?

A: When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business is just scraping by and barely has enough capital to cover its short-term expenses. However, in some cases, a business with a solid operating model that knows exactly how much money it needs to run smoothly may have low working capital because it has invested its excess c...

What does the 'FIG' at an investment bank refer to?

A: The 'FIG' at an investment bank usually refers to the financial institutions group - a group of professionals that provides investment banking and merger and acquisition expertise to financial institutions. In order to provide more tailored services, some investment banks further segment their areas of expertise under the financial institutions group into a banking or financial services...

What factors are the primary drivers of banks' share prices?

A: In a broad sense, bank share prices are driven by the same forces as any other shares. Major, abstract factors include overall market sentiment, expectations about the future, fundamental valuation and the demand for banking services. Banks are somewhat unique because central bank activity, such as Federal Reserve policy in the United States, plays a truly significant role in bank operations.St...

What is the difference between Class A shares and other common shares of company's stock?

A: The difference between Class A shares and other common shares of a company’s stock is usually the amount of voting rights assigned. The majority of all stocks issued are common stocks. Common shares are an ownership interest in a company and entitle shareholders to a portion of profits earned. Investors in common shares are usually given at least one vote for each share they hold. These votes...

What would happen to a company's external fund requirements if it reduces the payout ratio, or if it suffers a decline in its profit margin?

A: In short, the stronger the company's internal cash flow, and in turn cash position, the less the need to draw on an external fund. If internal cash flow or the retention ratio increases, external fund requirements would decrease. If internal cash flow suffers, external fund requirements will climb.Specifically, if a company reduces its payout ratio, it means that it is retaining more money ...

What's a good fixed asset turnover ratio?

A: The fixed asset turnover ratio is a metric that measures how effectively a company generates sales using their fixed assets. There's no ideal ratio that's considered a benchmark for all industries. Instead, investors should compare a company's fixed asset turnover ratio to those of other companies in the same sector. If a company has a higher fixed...

What's a put-call ratio and why is it important?

A: The put-call ratio is a popular tool used by investors to gauge the overall sentiment (mood) in the market. The ratio measures how many put options are being traded relative to call options. The put-call ratio is calculated by dividing the number of traded put options by the number of traded call options. How The Put-Call Ratio Is InterpretedA put-call ratio of 1 indicates that t...

What's an example of a P&L statement?

A: The profit and loss (P&L) statement, also referred to as the income statement, is one of three financial statements companies regularly produce. They are carefully reviewed by market analysts, investors and creditors to evaluate a company's financial condition and prospects for future growth. The P&L statement is usually a very straightforward presentation of a compan...

What's an example of stratified random sampling?

A: Simple random sampling is a sample of individuals that exist in a population; the individuals are randomly selected from the population and placed into a sample. This method of randomly selecting individuals seeks to select a sample size that is an unbiased representation of the population. However, it's not advantageous when the samples of the population vary widely.Stratified random sampl...

What's the difference between a confidence level and a confidence interval in Value at Risk (VaR)?

A: The value at risk (VaR) uses both the confidence level and confidence interval. A risk manager uses the VaR to monitor and control the risk levels in a company's investment portfolio. VaR is a statistical metric measuring the amount of the maximum potential loss within a specified period with a degree of confidence. The VaR indicates that a company's losses will not exceed a certain amo...

What's the difference between a credit rating and a credit score?

A: Although credit rating and credit score may be used interchangeably in some cases, there is a distinction between these two phrases. A credit rating, often expressed as a letter grade, conveys the creditworthiness of a business or government. A credit score is also an expression of creditworthiness, but it is expressed in numerical form and only used for individuals. Both ratings and scores are...

What's the difference between absolute and relative return?

A: Knowing whether a fund manager or broker is doing a good job can be a challenge for some investors. It's difficult to define what good is, because it depends on how the rest of the market has been performing. For example in a bull market, 2% is a horrible return. But in a bear market, when most investors are down 20%, just preserving your capital would be considered a triumph. In that case,...

What's the difference between accrued expenses and accounts payable?

A: Accrued expenses are payments that a company is obligated to pay in the future for which goods and services have already been delivered. These types of expenses are realized on the balance sheet and are usually current liabilities. The accrued liabilities are adjusted and recognized on the balance sheet at the end of each accounting period; adjustments are used to document goods and services th...

What's the difference between accrued expenses and provisions?

A: In accounting, accrued expenses and provisions are separated by their respective degrees of certainty. All accrued expenses have already been incurred but are not yet paid for. Provisions are far less certain, but they are not completely uncertain. Companies elect to make provisions for future obligations where the specific amount or timing is unknown. Provisions act like a hedge against possib...

What's the difference between alpha and beta?

A: Alpha is used in finance as a measure of performance. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark which is considered to represent the market’s movement as a whole. The excess return of an investment relative to the return of a benchmark index...

What's the difference between amortization and depreciation?

A: The cost of business assets can be expensed each year over the life of the asset. The expense amounts are subsequently used as a tax deduction reducing the tax liability for the business.Because very few assets last forever, a finite number of years is calculated which is called the asset's useful life. In this article, we'll review three common methods used by ...

What's the difference between arithmetic and geometric averages?

A: There are numerous ways to measure portfolio performance and determine if the investment strategy is successful. Among all of these metrics, investment professionals most often use means to estimate growth rates and returns on their portfolios. The average growth rate can vary depending on which method is used to calculate it. One of the most common averages used, especially in finance, is...

What's The Difference Between Bottom-line And Top-line Growth?

A: The top line and bottom lines are two of the most important lines on the income statement for a company. Investors and analysts pay particular attention to them for signs of any changes from quarter to quarter and year to year. The top line refers to a company's revenues or gross sales. Therefore, when a company has "top-line growth," the company is experiencin...

What's the difference between capital expenditures (CAPEX) and net working capital?

A: Both capital expenditures and net working capital are important accounting items that are found in a company's financial statements. Investors, lenders and management pay attention to these figures because they describe the financial viability of business operations. These two items are different but not completely independent.What Is CAPEX?When a company makes capital investments or reinve...

What's the difference between capital expenditures (CAPEX) and operational expenditures (OPEX)?

A: Both capital expenditures (CAPEX) and operational expenditures (OPEX) are accounts listed on the income statement. For income tax purposes, businesses generally prefer to have OPEX to CAPEX, but they do not have much discretion about what expenses can be listed under each line item. For example, CAPEX tends to cover fixed, physical assets; OPEX is normally (though not always) non-physical expen...

What's the difference between EaR, Value at Risk (VaR), and EVE?

A: Earnings at risk (EaR), value at risk (VaR) and economic value of equity (EVE) are measures used to assess potential value changes within a specified period. Earnings at risk only assesses the amount that net income may change due to a change in interest rates over a specified period. On the other hand, value at risk measures the overall change in value over a specified period with a degree of ...

What's the difference between economic value added (EVA) and accounting profit?

A: Economic value added (EVA) is a measure of a company's economic profit, which is the profit earned by a company minus the cost of financing the company's capital. Accounting profit is also known as net income and is a company's revenue minus all of its explicit costs.Economic value added = net operating profit after tax - (invested capital x weighted average cost of capital)EVA is a...

What's the difference between gross profit margin and net profit margin?

A: Gross profit margin and net profit margin are two separate profitability ratios used to assess a company's financial stability and overall health.Profit margin is a percentage measurement of profit that expresses the amount a company earns per dollar of sales. If a company makes more money per sale, it has a higher profit margin.Gross Profit MarginGross profit margin is a measure of profita...

What's the difference between investment banks and commercial banks?

A: Investment banking and commercial banking are two divisions of the banking industry that provide substantially different services. Investment banks expedite the purchase and sales of bonds, stocks and other investments and aid companies in making initial public offerings (IPOs). Commercial banks act as managers for deposit accounts for businesses and individuals, although they are primarily foc...

What's the difference between levered and unlevered free cash flow?

A: The difference between levered and unlevered free cash flow is expenses. Levered cash flow is the amount of cash a business has after it has met its financial obligations. Unlevered free cash flow is the money the business has before paying its financial obligations. Operating expenses and interest payments are examples of financial obligations that are paid from l...

What's the difference between outsourcing and subcontracting?

A: Business leaders often blur the lines between outsourcing and subcontracting, but both practices are distinct, and each is governed by specific rules and regulations. The primary difference is the amount of control a company has over the work process and if the task could be performed by an in-house department.Outsourcing was first recognized as a business strategy in 1989 and became an integra...

What's the difference between retained earnings and revenue?

A: You can see both retained earnings and revenue listed on a company's financial statements. Both figures can be compared with other firms in the same industry to provide a measure of performance. Revenue is the money that a business receives from the sale of goods and the provision of services. Expenses are not taken into account when calculating revenue. Retained earnings take revenue and s...

What's the difference between return on sales (ROS) and operating margin?

A: Return on sales (ROS) and operating profit margin are often used to describe the same financial ratio. The main difference between each usage lies in the way that their respective formulas are usually written. Ultimately, however, investors and analysts can consider ROS and operating margin to be synonymous.Investors, lenders and analysts use ROS and operating margin to compare companies of dif...

What's the difference between short-term investments in marketable securities and equity?

A: Most of the time, when an investor or analyst searches through the financial statements of a publicly traded company, he or she will run across a reference to short-term liquid assets, or cash and cash equivalents. A lot of companies explain cash positions in a couple of sentences, if not a paragraph, that is similar to the following:LiquidityThe following summarizes our cash and cash equivalen...

What's the difference between the general ledger and a general journal?

A: The difference between a general ledger and the general journal is that the general journal is considered the initial book of entry. The general ledger and general journal help create a double-entry bookkeeping record system, which is used to record financial transactions. These two record-keeping tools record the two different effects of financial transactions that include debits and credits. ...

What's the difference between weighted average accounting and FIFO/LILO accounting methods?

A: The main difference between weighted average cost accounting, LIFO, and FIFO methods of accounting is the difference in which each method calculates inventory and cost of goods sold.The weighted average cost method uses the average of the costs of the goods to assign costs. In other words, weighted average uses the formula: Total cost of items in inventory available for sale divided by total nu...

What's the difference between weighted average cost of capital (WACC) and internal rate of return (IRR)?

A: Weighted average cost of capital (WACC) is the average after-tax cost of a company’s various capital sources, including common stock, preferred stock, bonds and any other long-term debt. By taking the weighted average, the WACC shows how much interest the company pays for every dollar it finances.The internal rate of return (IRR), on the other hand, is the discount rate used in capital budget...

What's the formula for calculating free cash flow?

A: Free cash flow is the cash a company produces through its operations, less the cost of expenditures on assets. In other words, free cash flow or FCF is the cash left over after a company pays for its operating expenses and capital expenditures or CAPEX.Free cash flow is an important measurement since it shows how efficient a company is at genera...

When computing the PEG ratio for a stock, how is a company's earnings growth rate determined?

A: Remember that the price/earnings to growth ratio (PEG ratio) is simply a given stock's price/earnings ratio (P/E ratio) divided by its percentage growth rate. The resulting number expresses how expensive a stock's price is relative to its earnings performance.For example, let's say you're analyzing a stock trading with a P/E ratio of 16. Suppose the company's earnings per sh...

Where can I find a company's annual report and its SEC filings?

A: Thanks to the Internet, finding financial reports is easier than ever. Nowadays, every reputable company has an investor relations section on its website that is a wealth of information.Walt Disney Co is an excellent example of a business that uses its website to get information out to shareholders and prospective investors. It is very easy to find the link to its investor relations section.Thi...

Who are Intel's (INTC) main competitors?

A: Intel Computer (INTC) is an American multinational corporation and is the largest publicly traded semiconductor chip maker in the United States. It has six distinct operating segments with at least one competitor in each.In the PC client operating and revenue segment, Intel Corporation's most significant rivals are personal computer processor manufacturer Advanced Micro Devices; Americ...

Who are Monsanto's main competitors?

A: Monsanto (MON) is a multinational company that provides seeds and agriculture products to farmers worldwide. Its business is divided into two main divisions: seeds and genomics and agricultural productivity. It has a market capitalization of almost $50 billion and net sales of $13.5 billion for fiscal year 2016, a 10% decline from the year before. Major competitors for Monsanto Compan...

Who are Procter & Gamble's main competitors? (PG, REV)

A: Procter & Gamble (PG) is a multinational consumer goods company that was founded in 1837. The company has five revenue segments: beauty, hair and personal care; grooming; health care; fabric care and home care; and baby, feminine and family care.In the beauty, hair and personal care segment, Avon is a major competitor to Procter and Gamble as are Colgate-Palmolive (CL), Estee Lauder, R...

Who are Qualcomm's (QCOM) main competitors?

A: Qualcomm Incorporated (QCOM) is a multinational American company that sells telecommunications products. It competes in the three main revenue segments, QCT (Qualcomm CDMA Technologies), QTL (Qualcomm Technology Licensing), QSI (Qualcomm Strategic Initiatives) as well as an "other" segment. The company has over 31,300 employees and a market capitalization of $91.34...

Who are Tesla's (TSLA) main competitors?

A: Tesla Motor Inc. (TSLA) is an electric car and power-train designer, developer, manufacturer and distributor. It is also involved with providing services to other automotive companies toward these goals. Tesla Motors Inc. has two revenue segments: automotive sales and development services. As of Sept. 30, 2014, automotive sales accounted for 99.67 % of revenue, while development services m...

Who is responsible for protecting and managing shareholders' interests?

A: The average shareholder, who is typically not involved in the day-to-day operations of the company, relies on several parties to protect and further his or her interests. These parties include the company's employees, its executives and its board of directors. However, each one of these parties has its own interests, which may conflict with those of the shareholder.The board of directors is...

Why is a company's diluted EPS always lower than its simple EPS?

A: A company's diluted earnings per share is lower than its basic earnings per share because diluted earnings per share takes into account the total common shares outstanding and all convertible securities. Basic earnings per share only takes into account the total common shares outstanding.The basic earnings per share (EPS) is calculated by dividing a company's net income minus any prefer...

Why is an increase in capital stock on a company's balance sheet a bad sign for stockholders?

A: An increase in the total of capital stock showing on a company's balance sheet is bad for investors, because it represents the issuance of additional stock shares, which dilute the ownership value of investors' existing shares. However, the increase in capital stock may, in the long run, benefit investors in the form of increased return on equity through capital gains, an increase in di...

Why is the EBITDA margin considered to be a good indicator of a company's financial health?

A: The EBITDA margin is a considered to be a good indicator of a company's financial health, because it evaluates a company's performance without needing to take into account financial decisions, accounting decisions or various tax environments.The EBITDA margin measures a company's earnings before tax, depreciation and amortization as a percentage of the company's total revenue.EB...

Why would you look at a company's net debt rather than its gross debt?

A: Understanding debt carried by a company is key to gaining insight into its financial health. One of the various ways an observer can gauge the significance of debt on a company's balance sheet is by calculating net debt. Net debt is the book value of a company's gross debt less any cash and cash-like assets on the balance sheet. Gross debt is simply the sum total of the book value of a ...

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