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Here is one (article) that I have had parked on the pc for a week or so, about the "funny" accounting that has continued to find its way into the mix. I was reminded of item 2 in your linked article. My linked article starts with Twitter, but moves to the more general areas of funny numbers used by companies. I am not an account; but am aware that apparently the standards change by policy changes that are approved by the proper overseers. Anyone with an understanding of these changes is appreciated to place an opinion. We investors travel with our investments among a dubious group of folks throughtout the "money" industry.
While the starting point for looking at a company should be GAAP, there are valid reasons for looking from other perspectives. These "sales pitches" are allowed.
A startup, e.g. a software company, may not have any large capital expenditures in the near future (after having paid for its printers, other office stuff). What matters is whether it can generate enough cash to pay its operational expenses (i.e. is it self sustaining)? Investor money then goes strictly for expansion, which is what investors want to see.
A frequently used measure is EBITDA - earnings before interest, taxes, depreciation, amortization. If capital expenditures are going to be pretty small, as noted above, it's okay to ignore the cost of previous expenditures (depreciation, amortization) in evaluating the expected viability and growth of the company. But if a company is in the business, say, of manufacturing LCD screens, then it needs a lot of hardware (manufacturing equipment), and it will be periodically replacing this hardware over time.
So if you're investing in a company like this, you don't want to ignore the capital expenses. Worse, if the company is planning to expand, it not only needs cash to replace its equipment over time, but it needs even more cash to pay for the additional machines. The faster the company says it will expand, the more cash it's going to need up front to expand (revenues/earnings won't cover a rapid expansion, though they might cover a more gradual one).
I believe the US standards are set by FASB, and that their objective is to converge with European accounting standards. My understanding is that they're pretty close now, but I don't follow this stuff unless I have a reason to go poking around.
Here's a good, pretty plain English web page talking about the various "alternate" forms of financial statements, and when they are good to use (and when they shouldn't be used). http://www.investorsfriend.com/Cashflow_EBITDA.htm
Stupid things overheard: I was called down (chaplain) to the ER. Dreadful accident, doctors worked and worked to save the man. His family shows up, all nervous and concerned...A young doctor has to come out and tell them (with me) the bad news. And the stupid thing THIS doctor said? "I'm terribly sorry, but your husband's condition was so serious as to be incompatible with life." They were dumbfounded and stunned. I asked pointedly: Doctor, are you trying to tell them that the patient has died?
...At least it's possible to simply ignore stupid things that talking heads on tv tell you.
Comments
Here is one (article) that I have had parked on the pc for a week or so, about the "funny" accounting that has continued to find its way into the mix. I was reminded of item 2 in your linked article. My linked article starts with Twitter, but moves to the more general areas of funny numbers used by companies.
I am not an account; but am aware that apparently the standards change by policy changes that are approved by the proper overseers. Anyone with an understanding of these changes is appreciated to place an opinion.
We investors travel with our investments among a dubious group of folks throughtout the "money" industry.
Regards,
Catch
A startup, e.g. a software company, may not have any large capital expenditures in the near future (after having paid for its printers, other office stuff). What matters is whether it can generate enough cash to pay its operational expenses (i.e. is it self sustaining)? Investor money then goes strictly for expansion, which is what investors want to see.
A frequently used measure is EBITDA - earnings before interest, taxes, depreciation, amortization. If capital expenditures are going to be pretty small, as noted above, it's okay to ignore the cost of previous expenditures (depreciation, amortization) in evaluating the expected viability and growth of the company. But if a company is in the business, say, of manufacturing LCD screens, then it needs a lot of hardware (manufacturing equipment), and it will be periodically replacing this hardware over time.
So if you're investing in a company like this, you don't want to ignore the capital expenses. Worse, if the company is planning to expand, it not only needs cash to replace its equipment over time, but it needs even more cash to pay for the additional machines. The faster the company says it will expand, the more cash it's going to need up front to expand (revenues/earnings won't cover a rapid expansion, though they might cover a more gradual one).
I believe the US standards are set by FASB, and that their objective is to converge with European accounting standards. My understanding is that they're pretty close now, but I don't follow this stuff unless I have a reason to go poking around.
Here's a good, pretty plain English web page talking about the various "alternate" forms of financial statements, and when they are good to use (and when they shouldn't be used).
http://www.investorsfriend.com/Cashflow_EBITDA.htm
...At least it's possible to simply ignore stupid things that talking heads on tv tell you.