Goodwill is not amortized under US GAAP or IAS, but rather tested annually for impairment and written down only if the co. determines fair value < carrying value. Key point is IAS is same as US…got that wrong on a practice exam.
Thanks ng30. I like the random tidbits.
when making balance sheet adjustments for analysis: an increase in a pension liability (or decrease in pension asset) will result in an offsetting decline in equity and deferred tax liabilities
if a firm has a CTA on the balance sheet, the all-current method is used for at least some of its subsidiaries, whereas if there is non, functional = local currency for all subs & temporal method is used exclusively
from a practice test review: To sum up the possibilities you may face on exam day: If neither data series has a unit root, the regression results are valid. If only one data series has a unit root, the regression results are invalid. If both data series have a unit root and they are cointegrated, the regression results are valid. If both data series have a unit root and they are not cointegrated, the regression results are not valid.
ok, so i’m not finding a good tip every day, but when i do i’ll keep posting them. from qbank (don’t recall ever seeing these even): Cash flow duration: Cash flow duration is a version of effective duration that allows for cash flows to change as interest rates change. Disadvantage: Cash flow duration is based on the unrealistic assumption that a single prepayment rate exists over the life of a MBS for any given change in interest rates. Coupon curve duration is based on the relationship between coupon rates and prices for similar MBS. Disadvantages: 1) limited to generic MBS, 2) not readily applicable for CMO structures and other mortgage-based derivatives. Empirical duration is determined using regression analysis with historical prices and yields. Disadvantages: 1) time series price data difficult to obtain, 2) embedded options can distort the results, 3) volatility of the spreads with reference to Treasuries can distort the price reaction to interest rate changes.
5 ways to increase EVA: 1. increase revenues while holding operating expenses constant to improve margins 2. reduce operating expenses while holding rev. constant to incr. margins 3. use less invested capital by improving asset turnover ratios 4. take advantage of all positive NPV projects 5. reduce WACC by decreasing NOPAT volatility
historically the differenced in yield btw. AAA and BBB-rated bonds has averaged 100 basis points.
Management’s choice of debt or equity can provide signals on their opinion of firm’s future prospects: debt: mgmt. has confidence in the firm’s ability to repay it in the future equity: typically viewed as negative signal that mgmt thinks stock is overvalued
^ one note to that though- if you’re talking about pecking order theory, best signal is internally generated equity, then debt, then external equity being the worst signal.
Re: Saucy. new Posted by: ng30 (IP Logged) [hide posts from this user] Date: May 16, 2008 06:47PM when making balance sheet adjustments for analysis: an increase in a pension liability (or decrease in pension asset) will result in an offsetting decline in equity and deferred tax liabilities if the amount of increase in pension liab is A then offsetting decrease in equity is Ax(1-T) and DTL is Ax(T) ONE MORE POINT: for FCFF, FCinv=capital exp-proceeds from sales of LT assets and capital exp=end gross PP&E-beg gross PP&E WCinv is equial change in working capital EXCLUDING cash, cash equivalents, notes payable, and current porton os LT debt.
banni, i think those 2 go hand in hand. externally generated equity is least preferred (pecking order) b/c of the negative signal it sends (original post)
A company is only required to disclose 3 assumptions in their footnotes: rate of compensation increase, expected return on plan assets, and discount rate.
how about expected rate of return?
yes, sorry was just going to edit: add expected return on plan assets. schweser makes the original statement on page 187 and then adds return on page 193.
pension fun: adjusted pension expense=service cost+interest cost-actual return on plan assets adjusted operating income=reported operating income+reported pension expense-service cost adjusted income before taxes=report inc. before taxes+reported pension expense-adjusted pension expense
ng30 can you explain adjusted operating income and adjusted income before taxes? how does these +/- sign come?
achogogo, you’re adjusting for the smoothed items, so you’re adding back the smoothed reported expense and then subtracting the adjusted expense, which is a better reflection of economic reality. make sense?
and why for adjusted operating income=reported operating income+reported pension expense-service cost? because it’s operating(EBIT)?