RE: Accounting: KEY RATIOS....
I don't have work experience in the field either. So I won't comment on about the employers' expectations. However, IMHO, understanding key ratios is quite important with respect to the work of an analyst. Analyst's work is to convert the clutter of financial information into knowledge revealing ... I don't have work experience in the field either. So I won't comment on about the employers' expectations.

However, IMHO, understanding key ratios is quite important with respect to the work of an analyst. Analyst's work is to convert the clutter of financial information into knowledge revealing the intrinsic value of the companies under sucritiny. Key ratios are very practical tools for this purpose.

Different companies use different ratios, or same ratios with different adjustments. So memorizing them will not be much of help. But once you understand why these ratios are employed, what they tell about the company, its operations, liquidity or solvency, you can use them easily for your own analysis. And who knows in time you can add your own ratios or adjustments which will strengthen their explanatory power.

Best of luck .... Read More

RE: Corporate Valuation: Diluted Shares Outstanding
The idea is that as the implied stock price increases, each option is also worth more and so the number of implied options also increases. Since the implied equity value and stock price is never the same in the sensitivity analysis, that explains the different diluted options outstanding.

RE: AFM Enhancements: Diluted Shares Oustanding figure
You are correct that the best way to calculate Implied Price per Share in a DCF analysis is to use the implied price to calculate dilutive options, thus changing the shares outstanding figure. That has the unfortunate effect of creating a circular reference because the newly updated diluted shares o... You are correct that the best way to calculate Implied Price per Share in a DCF analysis is to use the implied price to calculate dilutive options, thus changing the shares outstanding figure. That has the unfortunate effect of creating a circular reference because the newly updated diluted shares outstanding figure is used to recalculate the Implied Price per Share since the DCF analysis provides you with TEV and then Equity Value.

Since we avoid circular references at all costs whenever possible, there is indeed a fairly simple workaround solution. Simple in concept, annoying to implement, but once you have the template set up, it's plug and play. The steps:

1) Input the options strike prices and number of options by tranche of options if available. Recall for DCF analysis, since it is a standalone valuation, it is exerciseable not outstanding. To the right, calculate the cumulative options. For number of options, it's just a cumulative sum. For weighted avg strike price, you have to calculate new weighted average price for each new tranche of options, using sumproduct formula based on the number of options.

2) Once you have the cumulative, weighted average tranche of options (regardless of in the money or not) you will use the MIN formula as following

Fully Diluted Price = minimum of either:

i) Equity Value / Basic or
ii) (Equity Value + Options Out * Strike) / (Basic + Options Out)
Repeat above for each cumulative tranche

The MIN formula cycles through and figures out the lowest Implied Stock Price. The MIN is used b/c if an option tranche is out of the money, it will be anti-dilutive and will not be the smallest stock price.

This achieves the effect of increasing the Equity Value by the total proceeds as if the options were exercised and the exerciser actually paid the strike price. This is then divided by the new number of shares issued (1 for 1). Recall that the treasury method assumes a cash-less convert and issues "fractional shares". This method will achieve the same effect but without needing the end Implied Price as an input, thus avoiding the circular reference. Read More

RE: AFM Enhancements: book value of equity to calc total capital
These ratios are standard ratios in a credit context, determined by the banks (lending institutions) and rating agencies. The idea here is that you are attempting to capture "liquidation value" of sorts and thus, book value is used not market value. The company doesn't actually receive market value ... These ratios are standard ratios in a credit context, determined by the banks (lending institutions) and rating agencies. The idea here is that you are attempting to capture "liquidation value" of sorts and thus, book value is used not market value. The company doesn't actually receive market value so it's not an accurate judge of the capital the company has received (or used) to build the company and its operations. If a company were to issue more stock, clearly they issue at the then current market price and so the book value is a blend of previous stock issuances. Also, in theory, if a company were to go down, there should be assets or collateral equal to Assets less Liabilities, or Book Value, and thus, measuring the company's ability to pay. Banks ultimately care about ability to pay and recoverability of their funds. Market Value doesn't provide that since it's too volatile and changes too frequently. And to caveat, we know the plenty of problems wrong with Book Value, hence, it is but only one ratio and metric analyzed in credit analysis. Read More

Complex Trading Comps Analysis Treatment of gross profit
Haven't we overstated TGT's gross profit by including the net credit card revenues in our revenue line but excluding the "Credit card expenses" amount from our gross profit?