Module 2: EPS and Public Company Reporting Topics Flashcards
(17 cards)
Form 10K
Annual report that must be filled by US registered companies (issuers)
**Filing deadlines:
-60 days for large accelerated fillers (700 million market value)
-75 days for accelerated fillers (75 to 700 million and 100 million revenue)
-90 days for all other registrants (100 million of revenue or less)
Form 10Q
The quarterly report that must be filled by US registered companies for each of the first three quarters of every fiscal year.
**Filling deadlines:
-40 days for large accelerated and accelerated fillers
-45 days for all other registrants
***10K takes over the fourth quarter
Form 8k
It’s like a press release - It reports changes whenever a material event occurs such as:
-Bankruptcy
-Acquisition or disposition of assets
-Changes in the public accounting firm used to audit the company
-Changes in securities and trading markets
-Changes in or election of directors and officers
-Amendments to bylaws or articles of incorporation
-Changes in FY
-Financial statement changes
-Material definitive agreements
Earnings per Share: Simple vs Complex Structures
Simple: There is only common stock outstanding there is nothing that can be converted to common stock.
Presented on the face of the income statement
Complex: The opposite There are bond, warrants and options and preferred equity that can be converted into common stock
**Both basic and diluted need to be presented
Basic EPS Formula
Income available to common shareholders (net income - preferred stock) / WACSO
Preferred Stock
-Cumulative: Subtract the total annual preferred dividends from net income, EVEN IF THEY ARE NOT DECLARED
**Dividends accumulated in the period on cumulative preferred stock (regardless of whether they have been declare)
-Noncumulative: Only subtract the preferred dividends that have actually been declared – From the statement of retained earnings
**Dividends declared in the period on noncumulative preferred stock (regardless of whether they have been paid)
Dilutive vs Antidilutive
Dilutive: average price > strike (exercise) price
**When a potential security (like stock options or convertible bonds) would reduce basic EPS if exercised or converted.
Antidilutive: strike (exercise) price > average price
**When they wouldn’t reduce reduce or it would increase the EPS
Why use the prior year end balance sheet in a 10 Q
To easily spot any changes or trends when there’s little quarter to quarter fluctuation
Under U.S. GAAP, earnings per share data should be reported for:
If the entity reports a discontinued operation, the entity presents the basic and diluted (if applicable) per share amounts for those items either on the face of the income statement or in the notes to the financial statements. Basic and diluted per share amounts for income from continuing operations and for net income should be presented on the face of the income statement (or statement of income and comprehensive income if the entity is using the one-statement approach) with equal prominence.
Dilutive EPS: Options and Warrants
Average price > Exercise Price
**Average price is the money we receive for the shares
**Exercise Price is the money we use to buy back the shares
-We use the Treasury Method which assumes we will back the shares
Formula: Additional Shares Outstanding = # of shares - (#of shares x exercise price/average price)
**We calculate how much money we will get (# of shares x exercise price) and divide it by the average price to see how many shares we can buy back with the proceeds. # of shares - shares we can buy back = new shares outstanding. (ISSUED - REPURCHASE)
**This is added to the denominator for Dilutive EPS
Dilutive EPS: Convertible Bonds
-Use the “If Converted Method”
*Add to the numerator the interest expense, net if tax, assuming that the bond is converted since we will nor be paying taxes on it if it does get converted “we get the money back”
Interest Expense x (1 - tax rate)
**Add to the denominator the number of cs associated with the assumed conversion
Dilutive EPS: Convertible Preferred Stock
-Numerator add the save preferred dividends on the convertible preferred stock. Ignore taxes because they are NOT tax deductible.
-Apply the “if-converted method”
-Add to the denominator the number of shares associated with the assumed conversion
Convertible Bonds with Amortization - EPS Calculation
When calculating EPS:
*Add the annual amortization of bond discount to the interest expense and then do (1-tax rate).
-This reflects the total interest savings if bonds are converted, increasing net income available to common shareholders
Calculating tax expense on convertible bonds
Principal x interest x (time period) x (1 - tax rate)
**remember that if it’s a statement for just 3 months interest just counts for 3/12
Contingent Shares
are potential shares that a company will issue only if certain conditions are met, like hitting profit goals or stock prices.
(If dilutive) contingent shares are included in the calculation of basic earnings per share (EPS) if (and as of the date) all conditions for issuance are met. Stock options do not enter into the calculation of basic EPS.
Form S-X
Regulation S-X sets forth (it means that the regulation specifies or establishes the exact structure, format, and layout that must be followed) the form and content of and requirements for interim and annual financial statements to be file with the SEC
