It is a useful practice to compare the balance reported by the bank and your internal accounting, in the form of a Bank Reconciliation Statement. Bank Reconciliation is the useful practice of comparing the records of the bank and a business's internal accounting for a specific accounting period. Many businesses produce Bank Reconciliation Statements (BRS) on a monthly basis. There may be pending transactions that have not settled yet, such as outstanding checks to vendors, which have shown up on the business’s books but are not represented in the bank account balance. It can be important to identify which transactions have shown up on the bank’s ledger and which ones have not. Continue reading...
Book value is based on an accounting method that only considers certain factors, generally the more tangible or easily quantifiable ones, and excludes the more ethereal factors such as ‘goodwill.’ Book value can apply to an individual asset, a security, or a company, and tends to be pretty straightforward. Whatever value an asset is given on a balance sheet is its book value. For a tangible asset, this is calculated as the cost of the asset minus accumulated depreciation. Continue reading...
A company's balance sheet gives a picture of how all the assets, liabilities, and equities of the company "balance out." The basic accounting equation is Total Assets = Total Liabilities + Equity, and a Balance Sheet is going to detail these parts to show how everything adds up at the time of the report. With things equal on both sides of the equation, the company's books are balanced, the same way someone might go back through the carbon copies of checks they've written and "balance the checkbook" to make sure all checks written have been accounted for. Continue reading...
Price to Tangible Book Value serves as a conservative estimation of the value inherent in a share, without Goodwill and other intangibles (opposite of tangibles) factored in. Price to Tangible Book Value (PTBV) is a ratio of the share price over the Tangible Book Value of a company and helps investors see what inherent value is present on a company's books. The Tangible Value does not include goodwill, patents, and other intangible values. Continue reading...
A company might use this maneuver in order to keep their debt to equity levels in check. The most frequently used types of off-balance-sheet-financing are joint ventures, research and development partnerships, and operating leases. Continue reading...
On-Balance Volume (OBV) is a popular leading indicator introduced in the 1960s by Joe Granville. OBV is a line built using differences between daily trading volume – in Granville’s estimation, the major driver of market behavior – adding the difference on days that the market or stock moves up and subtracting the difference on days when the market or stock moves down. It looks for instances of rising volume that should correlate with price movement, but price movement has not occurred; additionally, OBV can be used to confirm lag. Continue reading...
Stock prices change based on the law of supply and demand. Ultimately, as with the price of any good or service, the outstanding supply and consumer demand will define its value in the marketplace. Indeed, the efficient market hypothesis states that the price of a LINK will already reflect all known information about it and what investors are willing to pay for it at the time, based on that information. Continue reading...
Tangible assets are the property of a company that are tangible and can be quickly liquidated. This includes current-period accounts receivable and money in checking, savings, and money-market accounts. Buildings, land, equipment and inventory are all tangible assets as well. Tangible assets are an important part of a company’s book value. For most valuations, intangible assets such as patents, other intellectual property, and goodwill are not included. Continue reading...
Corporate equity is retained earnings plus common shares outstanding. On a corporate balance sheet, the retained earnings and the outstanding common stock capitalization combined would be considered the corporate equity, also called shareholder’s equity / owner’s equity. Of the total corporate equity, the portion representing common stock equity is only the capital raised through the issuance of shares in an IPO (initial public offering), where payment for those shares was paid to the company. Subsequent trading in those shares does not affect the common stock equity on the company books. Continue reading...
An adjunct account increases the valuation of a liability account. An adjunct account is commonly used when accounting for a bond issue sold at a premium. The par value of the bonds sold is included in one line as a credit to Bonds Payable, and the increased premium in placed in another line as a credit to Premium on Bonds payable. The technical term for the account into which a discounted bond’s discount is placed is a Contra Account. Continue reading...
A Bank Statement is a report issued to an account holder on a regular basis, such as monthly, which contains the account balance as of the date of the report and usually a history of transactions for the period. A Bank Statement will usually be mailed, either by the postal service or electronically, to a banking customer every month. The statement will represent a summary of the bank’s records for the recent month on a particular account, and will probably show all transactions posted to the account, along with the ending balance of the account as of the date of the mailing. Continue reading...
Value Stock is a stock whose price has been deemed a value buy because of underlying fundamentals, book value, and projected earnings. Prices for stocks can temporarily be pushed around by sentiment, index tracking fund purchases, news and political effects, et cetera, and often the prices on very good and well positioned companies become undervalued as part of larger movements that overlook their inherent value. Continue reading...
Intrinsic Value is the value of a security which is “built into it.” Both options and stocks have it, but it is different for each. Options and stocks have intrinsic value. For options, the intrinsic value is easy to compute, if the option is in-the-money. It is the difference between the strike price of the option and the market price of the underlying security. If an option is out-of-the-money it has no intrinsic value. Continue reading...
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...
A monopoly is an unhealthy situation in the market in which a single company is the only option in a specific sector or area, which undermines the principals of a free market. In a free market, there is competition which keeps the prices and the quality of products as good as they can be for the consumer. The consumer will therefore receive the most value, and society will be in its best possible position, when the needs and demands of consumers are being addressed by several companies attempting to outdo each other to earn the consumer’s business. Continue reading...
Account reconcilement is the act of comparing and affirming multiple records of the same financial information. To “reconcile the books” is to compare different records of the same accounts to ensure that they match up. One might reconcile all the different record-keeping for the same account, such as copies of checks and receipts, to be sure that they add up to the balance and ledger shown on a bank account statement. It could be that the recipient of a check has not yet cashed it, and it is important to keep all records “synced” with one another. Continue reading...
Any item of economic value that a person or entity owns, benefits from, or has use of in generating income. Assets can generally be converted to cash, but economic circumstances often determine whether the asset can be sold at fair value. Some common examples of assets are cash, stocks, paid-for real estate, inventory, office equipment, jewelry, artwork, or other property of value that can be counted towards a person’s estate or a corporation’s balance sheet. Continue reading...
Currency exchange rates will fluctuate with various macroeconomic factors such as inflation, interest rates, trade balance, and so on, as well as political climate. Currency exchange rates are influenced by a number of factors, with some experts listing 5, some experts listing as many as 10. The main variables that will affect exchange rates are inflation rates, interest rates, the trade balance / current account, speculation in Forex markets, and government policies and interventions. Continue reading...
Long-term debt refers to the duration of a liability/amount owed, and to qualify it must be due at least 12 months out. The period is in reference to 12+ months from the date of the balance sheet. A company will typically take on long-term debt in the form of a mortgage for property owned, or as capital for growth raised through bond sales or other debentures. Continue reading...
A credit crunch is when access to liquidity dries up dramatically in rapid fashion, or becomes less accessible due to a spike in borrowing rates. Central banks will often step-in to try and curb the lack of liquidity by offering the markets access to cash at lower than market rates, in the event of a crisis. Perhaps the most famous credit crunch in history occurred in late 2007 and early 2008, when bank balance sheets became highly leveraged overnight due to mark-to-market accounting rules that were applied to the mortgage backed security portfolios on their balance sheets. Continue reading...