FAR 7 - Equity, EPS, Cash Flows Flashcards
(37 cards)
Basic EPS
Income available to common shareholders (NI-PD) / Weighted average number of common shares outstanding (WACSO)
Treasury Stock Method - EPS
*Occurs for options
*If average market price > exercise (strike) price
*Add to denominator:
Additional shares outstanding = Number of shares - (Number of shares x Exercise (strike price) / average market price)
If Converted Method - EPS
*Add to denominator the converted number of common shares
Convertible Bonds:
Adjust net income for interest expense net of taxes (interest x (1-Tax))
Convertible Preferred Stock:
Do not reduce income available to common shareholders by ps, instead pretend they were already converted.
Dilutive vs. Antidilutive
DO NOT report any anti dilutive EPS figures, aka any basic EPS that goes up due to options/conversions
Cash equivalent
Maturity date within 3 months of purchase date
Methods to find cash flow from operation (and their definitions)
1) Direct method - Cash collected from customers - cash paid for operating expenses
2) Indirect method - Net income is the starting point
Operating Activities
Changes in Operating Assets & Operating Liabilities
Operating Assets
All Current Assets except cash & cash equivalents
Operating Liabilities
All accruals (payables) except interest bearing liabilites
Most common interest bearing liabilites
Notes, Debt, Bonds, Debentures (finance liabilities)
What is included in the operating activities section using the Direct Method
1) Cash received and paid
2) Interest received and paid
3) Dividends received / Income taxes paid
4) Cash received and paid for trading securities only
5) Other cash received and paid for SG&A items
What is included in the operating activities section using the Indirect Method
Net income \+Depreciation/Amortization \+Losses -Gains -Equity earnings - (+/-) changes in operating assets \+ (+/-) changes in operating liabilities
*If assets go up = outflow (subtract) = indirect relationship
If liabilities go up = inflow (add) = direct relationship
Investing Activities
Changes in non-current assets
Financing Activities
Change in own debt and own equity
Material non cash activities
Provided separately in supplemental disclosure
Major difference of direct & indirect method
1) Format of operating activities section
2) Supplemental disclosures section
* If Indirect - include cash paid for tax & interest
* If Direct - reconciliation of indirect method
How to find cash paid for a specific payable (including dividend payable)
BACK INTO IT USING A T ACCOUNT Beg balance \+CY exp / dividend declared -cash paid =Ending balance
Requirements for defined benefit pension plans
1) Statement of Net Assets Available for Benefits
2) Statement of Changes in Net Assets Available for Benefits
3) Statement of Accumulated Plan Benefits
4) Statement of Changes in Accumulated Plan Benefits
* includes change in actuarial assumptions
Requirements for defined contribution pension plans
1) Statement of Net Assets Available for Benefits
2) Statement of Changes in Net Assets Available for Benefits
Common Stockholders’ Equity formula
Total shareholders’ equity
-Preferred stock outstanding
-cumulative preferred dividends in arrears
=Common shareholders’ equity
Book value per common share formula
Common shareholders’ equity/common shares outstanding
Cumulative vs. Noncumulative Preferred Stock
Cumulative - provides that all or part of the preferred dividend not paid accumulates and must be paid before dividends can be paid to common shareholders
*Accumulated amount = dividends in arrears
Noncumulative - dividends don’t accumulate and preferred shareholders lose the right to receive dividends that are not declared
Legal Capital (capital stock)
Amount that must be retained by the company
par value of common shares + par value of preferred shares
Fully Participating Preferred Stock
Share dividends equally then pro rata the remainder.
1) Preferred stock gets paid first based on outlined percentage. Be sure to account for dividends in arrears if cumulative
2) Subtract CS based on same percentage preferred received
3) Divide remaining amount based on proportion of PS & CS to Legal Capital (Capital Stock)
