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What is an Earnings Recast?
An earnings recast is a revision of previous earnings reports, in which a company has made different choices with their accounting methodology that they feel are a better representation of their accounts. A common time to do this is after a company has divested itself of a subsidiary, when it will publish recast financial statements from the preceding years that show the company’s performance without the subsidiary being included. Continue reading...
What is Adjusted EBITDA?
Basically synonymous with Normalized EBITDA, Adjusted EBITDA is a non-GAAP method of making earnings valuations a little more standardized between companies. Adjusted Earnings is a valuation that has many moving parts in the form of the interest, taxes, depreciation and amortization that might be included there, in addition to the non-GAAP nature of the methods. EBITDA removes all of those moving parts and looks at the Earnings before any of the other arithmetic interferes, hence the name Earnings Before Interest, Taxes, Depreciation, and Amortization. Continue reading...
What is Accelerated Amortization?
Accelerated amortization is the recalculation of an amortization schedule, such as mortgage payments, after the borrower pays off some of the debt ahead of schedule. Amortization describes the accounting practice of giving a one-time expense a retirement schedule or payment plan by which it is to be either deducted for tax purposes, repaid, or paid out. Accelerated amortizations allow for more payments or deductions in the early years rather than later years. Continue reading...
What is Dividend Adjusted Return?
An accurate historical return calculation for an investment should be done with the dividends in mind, such as assuming all dividends were reinvested, which is the most common way they are used. Accurate historical information concerning prices and return should take the stock splits, dividends, and so-on into account. In a lesser-known context, dividend adjustment means a payment of accrued but yet-unpaid dividend amounts to the bearer of convertible preferred stock at the time that he or she converts them to shares of common stock. Continue reading...
What is an Adjustable Rate Mortgage?
A mortgage whose rate is variably adjusted according to the interest rate environment is known as an ARM. With an adjustable rate mortgage (ARM) , the interest rate is lower at the beginning than the fixed-rate alternative, but the customer bears the risk of interest rates going up in the future. The bank or institution creating such a product will usually peg the rate to a specific index or benchmark rate, and will also probably give the customer a cap at which rate hikes would stop. Continue reading...
What are Adjusted Earnings?
Adjusted Earnings are also known as pro forma, non-GAAP earnings, and are usually met with some cynicism. Non-GAAP methods of accounting for earnings are something that is not allowed to be used to mislead investors, according to SEC rules. GAAP stands for Generally Accepted Accounting Principles, and they represent the standards and SEC rulebook for a publicly-traded company’s accounting. There are times when it makes sense to use adjusted earnings instead of GAAP earnings because adjusted earnings will ignore non-recurring one-time expenses so that analysts can compare company performance in other areas without being distracted by a large one-time expense. Continue reading...
What is Adjusted Gross Income?
For tax purposes, Adjusted Gross Income is the basis of an individual’s income tax calculations, before “below the line” deductions. Adjusted Gross Income (AGI) is Gross Income (all of an individual’s earnings for the year) minus above-the-line deductions such as retirement plan contributions, education and medical expenses, Health Savings Accounts, alimony, military exemptions, and so on. After these adjustments, a person can take the standard federal deduction or itemize their other deductions. These are known as below-the-line deductions. Continue reading...
What is Earnings Momentum?
Earnings momentum is an indicator that is computed by not just looking at the earnings performance and estimations of a company, but looking at the positive or negative direction of earnings and the acceleration in that direction. Momentum in securities is much like momentum in physics. Where there is momentum, it is hard to slow things down and charge direction. Instead of looking only at the growth of earnings, which could be the slope of the inclining line, momentum also looks for increases in change to the growth rate, making earnings growth more parabolic or exponential. Continue reading...
What is Retained Earnings?
A company may reinvest earnings instead of paying out dividends. These earnings do not necessarily sit in a retained earnings account, but are used to improve the business and make it more profitable. This could even include paying off debt. Retained earnings is found in the Shareholder’s Equity portion of a company’s balance sheet. Despite the fact that earnings have not been dispensed to them in the form of dividends or share buybacks, shareholders will see the value of their stock appreciate when earnings are retained and used to grow the business. Continue reading...
What is an Earnings Call?
An earnings call is when a company opens up a teleconference line or webcast that the public can join to hear the company management talk about how the company performed recently, their plans for the future, and the market forces that exist in the current environment. Most publicly traded companies today have adopted this practice. Earnings calls may take place once a year or during earnings seasons after the quarterly earnings have been announced in a press release. Companies often have one executive whose job is to interface with the shareholders in such settings, but various executives are often given a chance to present some thoughts. Continue reading...
What does Earnings mean?
Earnings is another word for the net income of a company. It is one of the most important numbers in corporate finance. If a company cannot show earnings, and growth in earnings, investors aren’t going to stick around. Earnings are normally computed as revenue minus taxes and expenses. It is synonymous with net income. Earnings is a positive cash outlay for the year, which means the company is not operating at a deficit. Continue reading...
What is Earnings Season?
Earnings season describes not one, but four times in a year, when corporations release their quarterly earnings reports. Investors look forward to this time because they are able to get an update about how the year is going, compared to projections. After each fiscal quarter ends, there are a few weeks in which companies file their quarterly reports with the SEC and announce their current earnings and sales numbers. Each of these periods is known as earnings season. Continue reading...
What are Earnings per Share (EPS)?
EPS is derived by taking the net income of a company and dividing it by the share price. That gives an individual investor an idea of how much growth was captured by their shares. Earnings per share is one of the main articles that is announced by the quarterly reports given by companies to their investors. Earnings per share does not mean that each share has appreciated a certain amount, but if the quarterly reports in earnings seasons stir up demand for the shares based on solid fundamentals at a company, it can result in a higher price per share. Continue reading...
What is Earnings Before Tax (EBT)?
Earnings before tax (EBT) is used to look at cash flows after expenses but before taxes. In a world without tax, this is what earnings would look like. Taking advantage of an advantageous tax-event, or hiring a better CPA, or merging with a company that can reduce the tax implications of some regular transactions, can bring earnings closer to their before-tax amount. Earnings before tax from an accounting standpoint is net income (which is another word for earnings) with taxes added together with it. Continue reading...
What is Times Interest Earned (TIE)?
Times Interest Earned (TIE) is also known as the interest coverage ratio, is a cash-flow analysis that compares the pre-tax earnings of a company to the total amount of interest payable on their debt obligations. A healthy ratio indicates that a company will probably not default on loan repayments. To compute this ratio, divide a company’s annual income before taxes by their annual interest payments on debt obligations. This ratio is not concerned with the actual principal due on loans since the principal amount is already pegged to some of the assets on the books of the company, and other fundamental equations will already factor that in. Continue reading...
What are the Contribution Limits for a Roth IRA?
If you are eligible to make Roth IRA contributions, you can fund an account for yourself and a non-working spouse, up to the contribution limits. As of 2016, if you are under 50 years old, you are allowed to contribute $5,500 a year to your Roth IRA. If you have a spouse, even if he or she does not work, you can make contributions into an account for him or her, up to the full limit. For two people, that means $11,000 a year can be set aside each year. Continue reading...
What are Corporate Earnings?
Earnings are the net revenue of a company after expenses and, sometimes, taxes. Also known as profit. Corporate earnings are an important metric for individual companies and the economy as a whole, because it shows how much money has been made. Revenue is the inflow of money to a company, and earnings are the net revenue, or profit, after expenses have been taken out. Of course there is also EBITDA, which is Earnings Before Interest Taxes Depreciation and Amortization, but this is a non-GAAP method. Earnings are usually calculated on a quarterly basis. Continue reading...
What are Accounting Earnings?
Earnings that are reported in a given year may differ for the same company if different accounting methods were used. Earnings are the revenues of the company minus the cost of good sold, expenses, and investment losses. If that seems like something that’s pretty cut-and-dried, and will look the same no matter who is doing the accounting… well, that’s not entirely correct. Earnings can be made to look different if different non-GAAP or pro-forma methods are used. If non-recurring expenses are ignored or amortized in a pro-forma accounting method, then earnings will not match up to the GAAP-based books. Continue reading...
What are Earnings Estimates?
Earnings estimates are generally consolidated estimates which are averages of the estimates given by a number of market analysts. Companies give their own guidance on earnings estimations, and they will have their feet held to the fire, so to speak, if they are consistently off with their guidance, but most people will, rightly, give more weight to the consolidated estimates of outside experts. Earnings estimates on a publicly traded company will come from an array of industry analysts, and are normally consolidated into a single average estimate or range. The range might or average will certainly affect the trading prices of the stock, but not as much as adjustments to estimates will. Continue reading...
What is Earnings Power?
Earnings power is mostly a concept that investors talk about rather than a quantifiable amount, but there is a Basic Earnings Power (BEP) ratio that some analysts use. BEP is the EBIT (earnings before interest and taxes) of a company divided by its total assets (net assets), which is also called Return on Total Assets (ROTA). Earnings power is similar to the concept of staying power when most investors use it; a company that has had strong earnings and growth, and that seems to have the skill and resources to keep earnings up well into the future, is said to have earnings power. Continue reading...