F1 - M2 - EPS and Public Company Reporting Topics

Question 1

What is EDGAR?

Answer 1

This is where the SEC holds all the information filed by a public company, including their financial statements.

Question 2

What is the form 10-K?

Answer 2

This is the annual report that must be filed by U.S. registered companies.

Provides current and prospective investors about;

business of the company and relevant risk factors

financial and operating results for the year

the perspective of its executive leadership

Question 3

What is the filing deadline for 10k’s after year end?

Answer 3

60 days after year end for large accelerated filers (market value of outstanding common equity is greater than 700 million)

75 days after year end for accelerated filers (75 to 700 million in market value of outstanding common equity and at least 100 million in revenue)

90 days for everyone else (100 million revenue or less)

The idea behind it is, if you are a bigger company, you should be able to file your 10-K quicker, and that is why they have a higher deadline.

Question 4

One of the items in the 10-K is Management’s Discussion and Analysis of Financial Condition”, what is that? (MD&A)

Answer 4

This is where management puts into their own words the business results of the company.

You get an explanation through the eyes of management, and known trends and uncertainties.

Question 5

What are some of the components MD&A will include?

Answer 5

Material information relevant to the companies financial position - such as liquidity and capital resources. The lifeblood of the company.

Summarized financial and operating results, trends, risks, and uncertainties.

Material changes and uncertainties relative to the prior period.

Critical accounting estimates and assumptions.

Question 6

Another item in the 10-K is Quantitative and Qualitative Disclosures about Market Risk? What is that and what are some examples?

Answer 6

Market risk includes the risk of potential loss in value of financial instruments. Some examples include:

Interest rates - The interest rates go higher, which brings you more interest income.

Exchange rates - You do business in a foreign currency, and the exchange rate goes up or down which could lose or gain you more money.

Inflation, Recession, Supply chain distribution, and War/sanctions.

Question 7

Another item in the 10-K is Quantitative and Qualitative Disclosures about Market Risk? How can these items be disclosed in the 10k?

Answer 7

Tabular presentation related to market risk and sensitivity

Sensitivity analysis - If we changed by 1% more or less, how would this impact us?

Value at risk disclosures - potential loses in earnings, fair value, cash flows, instruments.

Question 8

Another item in the 10-K is Quantitative and Qualitative Disclosures about Market Risk? How is the qualitative information disclosed?

Answer 8

Primary market risk exposure - How exposed are you to these risks?

Management of these risks - How will you manage the risks?

Changes to the most recent fiscal year, and expectations for future periods - What does management think about the future with these risks?

Question 9

Another item in the 10-K is “Financial Statements and Supplementary Data” What is that and what are some examples?

Answer 9

This just means that this section includes the audited financial statements.

Question 10

The time period covered in the 10-k include which of the following?

Answer 10

Balance sheets for the two most recent fiscal years

Income statements for the most three recent fiscal years

Statement of cash flows for the three most recent fiscal years

Changes in owners equity in the three most recent fiscal years

Per the instructor, the easiest way to remember this is that the rule is the last three years for everything except for one exception. The balance sheet is just two years, but everything else is three years.

Question 11

Is the auditor report and the certification from the companies CEO and CFO included in the 10-K?

Answer 11

Yes

Question 12

What is a 10-Q and what are the filing deadlines?

Answer 12

Same as 10-k just quarterly, file for the first three quarters in the fiscal year. This is for only the first three quarters, and then the Q4 report is the actual 10-K.

40 days for large accelerated and accelerated filers

45 days for everyone else

Question 13

For the 10-Q, what is “Part 1, Item 1: Financial Statements?”

Answer 13

These are financial statements, but they are not audited but they are reviewed. Like a review is performed just like we do at work instead of an audit.

Question 14

Are the 10-Q financial statements normally audited?

Answer 14

No

Question 15

For the 10-Q, “Part 1, Item 1: Financial Statements”, how is the balance sheet presented?

Answer 15

The way the balance sheet needs to be presented is the current quarter, and also the preceding fiscal year. So if you are presenting on June 30th, 2025, you also have to show December 31st, 2024.

Now the exception is if you have some fluctuations in your numbers since the preceding fiscal year, you can also show the preceding fiscal quarter as well. For example, you sold a building for a big loss, but you want to give the reader more detail, not only would you show June 30th, 2025 and December 31st, 2024, but also June 30th, 2024 as well.

Question 16

For the 10-Q, “Part 1, Item 1: Financial Statements”, how is the income statement and comprehensive income presented?

Answer 16

This one is kind of weird, you would want to do both prior year and current year fiscal quarters, and prior year and current year year to date amounts.

So you would do Q2 of 2025, Q2 of 2024, and YTD 2025, and YTD 2024.

The exception is that you can also include a cumulative 12-month amount if you would like as well. So if we use the same example, you can also do July 2024-June 2025 and July 2023 to June 2024 as well.

Question 17

For the 10-Q, “Part 1, Item 1: Financial Statements”, how is the statement of cash flows presented?

Answer 17

Exact same as the way the income statement is presented, so remember that.

Question 18

What is the, “Part 1, Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations?”

Answer 18

Same as the 10-K along with the following additional disclosures:

• Financial condition of the end of the preceding fiscal year to the date of the most recent interim balance sheet.
• If the interim balance sheet is included, management should disclose any material changes in financial condition for the most recent interim balance sheet date.

Question 19

What is the, “Part 1, Item 3: Quantitative and Qualitative Disclosures About Market Risk?”

Answer 19

This is the exact same as the amount found in the 10-K.

Question 20

What is an 8-K, and what are some examples?

Answer 20

This is when a major event occurs, and you want to notify the shareholders and investors. They include

Bankruptcy, acquired or disposed major assets, change in accounting firm, changes in securities and accounting markets, changes in election of directors and officers, changes in articles of incorporation, changes in fiscal year, financial statement changes, material definitive agreements.

Normally have four business days to file this after a change occurred.

Question 21

Is it true that all public entities are required to present earnings per share on the face of the income statement?

Answer 21

Yes

Question 22

What is a simple capital structure? What does it mean for EPS?

Answer 22

An entity with a simple capital structure means they only have common stock outstanding.

No convertible bonds, convertible preferred equity, outstanding options, outstanding warrants. Nothing can dilute EPS.

The entity presents basic per share amounts on the income statement.

Question 23

For entities that are not a simple capital structure, what type of EPS must they present?

Answer 23

This is a complex capital structure, and have more than just common stock or have convertible common stock. Both basic and diluted eps amounts

Question 24

If the entity reports discontinued operations, they must present the basic and diluted eps amounts where on the income statement?

Answer 24

Either the face of the income statement or the notes. This is the only exception.

Question 25

For basic EPS, what are the two accounts you must calculate EPS for? What is the calc?

Answer 25

You have to calculate EPS for income from continuing operations and for net income on the face of the income statement. Both of these are the numerator. The denominator is the number of common shares outstanding.

Question 26

Can EPS be calculated for a quarter not just a year?

Answer 26

Yes, so watch the questions and make sure to pay attention to dates so you know if they want a quarter or year.

Question 27

For an organization with a simple capital structure, what is the formula for earnings per share?

Answer 27

Income available to common shareholders (Net income - preferred dividends)/ Weighted average number of common shares outstanding (WACSO) * NOTE: If they give you income available to common shareholders, do not subtract preferred dividends. Those have already been deducted out.

Question 28

How do you calculate preferred dividends if the dividend is cumulative and noncumulative?

Answer 28

Cumulative preferred shares - These are shares that accumulate when unpaid. Basically, if a company skips paying a divided in a certain year, the cumulative shareholders can get payment for those years that the shares were unpaid. Noncumulative, don't have any claim to any unpaid dividends. Formula below: Cumulative = Number of preferred shares * Par value per share * rate. You do not care whether or not these have been declared. Noncumulative = Any amount declared

Question 29

If you have a loss from continuing operations (or a net loss), how does this work for EPS calc?

Answer 29

The loss should be increased by the preferred shareholder dividends or claims to determine income available to the common shareholders.

Question 30

What is the formula for WACSO?

Answer 30

Shares outstanding at the beginning of the period + Shares sold during the period (on a time weighted basis) - Shares reacquired during the period (on a time weighted basis) - Treasury Stock + Stock dividends and stock splits (retroactively adjusted) - Reverse stock splits (retroactively adjusted) = WACSO

Question 31

If a stock dividend or a stock split occurred after year end but before the financial statements were issued, should those shares be entered into the shares outstanding for the EPS calc?

Answer 31

Yes

Question 32

Can you explain how the stock split calculation works?

Answer 32

For example, lets say you start the year with 1,000,000 shares outstanding and in March 1st, you have a 2-1 stock split. That basically means, instead of having 1,000,000 shares outstanding, you have 2 million. You treat the stock split retroactively, so you start the year with 2,000,000 outstanding like the stock split happened at the start of the year, even though it happened in March. Same applies for stock dividends. This is retroactive, so you only care about everything before the stock split, not after.

Question 33

What is the purpose of diluted EPS?

Answer 33

Things that can be converted to common stock, and makes basic EPS go down.

Question 34

What are some potentially dilutive securities?

Answer 34

Convertible Securities - Securities that can be converted to common stock. So bonds and preferred stock that can be converted to common stock. Warrants and other options: Contracts that may be settled in cash or stock - You can pay for goods and services with common stock. Can be potentially dilutive. Contingent Shares - You give shares, but if and only if, a certain thing occurs. Such as, they will give officers common stock, only if they reach certain targets.

Question 35

What is the formula for Diluted EPS?

Answer 35

Income available to the common stock shareholder + Interest on dilutive securities/ WACSO

Question 36

How do you know if options and warrants are dilutive?

Answer 36

They are only dilutive if the average price > Strike (exercise) price

Question 37

What dilution method is used for Options, Warrants, and their equivalents?

Answer 37

The Treasury Stock method - This means that they assume the exercise of stock options, warrants, and their equivalents, will be used by the company to repurchase treasury shares at the prevailing market rate. So if the average price is greater than the exercise price, the difference between the number of shares assumed issued to satisfy the options or warrants, and the number of shares assumed to be purchased with the proceeds should be included in the number of shares (denominator) for diluted EPS.

Question 38

What is the formula for the treasury stock method?

Answer 38

Additional Shares outstanding = Number of shares - (Number of shares * Exercise price / Average market price).

Question 39

What dilution method is used for convertible securities and bonds? What is the formula?

Answer 39

The "if - converted" method, assumes that the securities were converted to common stock at the beginning of the period. In the numerator, you need to add the interest expense net of tax for the assumed conversion of bonds to common stock. (interest expense * (1-tax)) In the denominator, you need to add the common shares associated with the assumed conversion. # of bonds * # of common stock per bond. Note: This is added to the basic EPS formula. Only report dilution if it makes EPS go down.

Question 40

Can you explain for convertible bonds, the saved interest net of tax?

Answer 40

So if you convert a bond to commons stock you would not be paying interest to your bond holders, because they are now common stockholders. So, for that reason, the interest expense that was paid or will be paid, will need to be added back to the numerator net of tax. So for example, if you paid the bondholders 20k in interest that would decrease your income by 20k. If the bond got converted to common stock, you would not have to pay that interest and would need to add back that interest, so it would increase your income. Video has a good example of this.

Question 41

Regarding the dilution for convertible securities, we covered what occurs for common stock. What happens if there is preferred stock involved?

Answer 41

You would adjust the numerator with the number of preferred dividends, since that does not impact net income. Now, if the preferred shares get converted to common shares, when you calculate diluted EPS, there would be no amounts to add in the numerator. Why, because they went from preferred div to common, and the basic EPS formula for the numerator is NI-Preferred div. Add to the denominator the number of shares associated with the assumed conversion. This would be the number of shares that went from preferred stock to common stock.

Question 42

For preferred stock and convertible bonds, which ones are added back to the numerator net of tax?

Answer 42

Dividends are not tax deductible so the whole amount gets added, but convertible bonds, the interest added back is net of tax.

Question 43

If a contract can be settled in either cash or stock, is this dilutive? How does this work?

Answer 43

If a contract can be either settled for cash or stock, we presume that it will be paid in stock. The stock payment will increase the number of shareholders that we have, which in turn will dilute our EPS.

Question 44

What is dilution from contingent shares?

Answer 44

This is where someone gets paid via stock only if certain targets are met. Like certain revenue goals are hit, or employee works a certain number of years. Now, if the targets were met before the end of the calendar year, then we will include these shares in the basic EPS formula as if the requirements were met at the beginning of the year.

Question 45

What must be disclosed in the financials for EPS?

Answer 45

Cash flows per share should not be reported, but you should report on the face of the income statement, EPS and diluted EPS from continuing operations and net income on the face of the financial statements.

Question 46

If the dilution is possible in the fiscal year, but has not occurred, do you still have to report it? For example, someone could covert preferred shares to common, they just didn't in the fiscal year?

Answer 46

Yes, even if it is an option, you still have to report the dilution.

Question 47

For the income statement, what are some accounts that need to be allocated among the different quarters, and what items are recognized when incurred?

Answer 47

Allocated: property taxes, repairs, more when I come across them. Not allocated: Gains and losses,