Contributing Member of the Accounting & Financial Analysis Councils

GLG News by this Author

GLG News is now G+ Insights

G+ is a community for professionals, academics and entrepreneurs to connect through online discussions and in-person meetings. You will continue to see G+ Insights (formerly GLG News) here as well as on the G+ website, where you can share and discuss the G+ Insights you read.

ATHN: Level of DSOs are “Confusing” – Logical Explanation or Potential Red Flag?

April 21, 2010

I recently came across athenahealth, Inc. (ATHN) where I encountered some notable discrepancies in the area of receivables between (1) the current level of DSOs being in the low 50-day range and (2) the much shorter timeframe of a week the company states it takes to collect invoices for “most” of its physician clients.  Absent  further disclosures, there is a potential risk that ATHN is recognizing a certain level of revenue earlier than what it states – which is a potential Red Flag.

Despite Improvement in Equity Markets, Pension-Related Risks Still Remain

April 13, 2010

A key takeaway from an interesting pension study is the financial health of top corporate pension plans improved in 2009, largely due to strong stock market returns.  However, overall pension deficits remain quite large and many companies may need to contribute significantly more into their plans over the next few years to return to full funding levels.  This issue needs to be monitored for companies with material levels of under-funded pension plans - from a leverage and liquidity perspective.

U.S. GAAP vs. IFRS – Like It or Not – It’s Probably Time for a Better Understanding

December 14, 2007

Analysis of:U.S. GAAP vs. IFRS - The Basics | www.ey.com

The SEC recently gave its approval for foreign companies listed in the U.S. to present financials exclusively using the IASB's version of IFRS – with no reconciliation to U.S. GAAP.  The SEC is now seriously looking into the possibility of giving U.S. companies the option of using IFRS in lieu of U.S. GAAP.  There are some notable obstacles to overcome before the ultimate demise of U.S. GAAP (and transition to IFRS) becomes a reality for U.S. companies and investors.  However, the time has probably come for most investors “born and raised” on U.S. GAAP to start thinking more about IFRS and understand the similarities and key differences between the two standards.  The "Analysis" section below provides some links to recent publications by E&Y and PWC that provide nice resources on the key similarities and difference between the two sets of standards. 

Follow Up on Receivable Securitization Programs – “Debt in Disguise”

December 11, 2007

Analysis of:Debt in Disguise | www.cfo.com

I came across an interesting article (link included in this post) on the topic of receivable securitization programs which gives a nice overview of these types of programs including the structure, economics and accounting for them.  The article essentially calls receivable securitizations as “debt in disguise” – which I believe is reasonable because receivable sales programs are more appropriately classified as financing activities.  In fact, the article points out some companies are bringing securitized receivables back on the balance sheet and treating them as debt - desiring to bring financial reporting in line with the economic reality of these programs.  The "Analysis" section below provides an actual public company example on this topic.

New Acquisition Accounting Standard – Let’s Hope for Improved Fair Value Measurements

December 11, 2007

Analysis of:SFAS 141(R) – Business Combinations | fasb.org

The FASB issued a new standard last week within the area of accounting for acquisitions that is said to represent a major departure from the current accounting practices being used by companies.  Some are saying the new rule will be difficult to apply and will require companies and analysts to overcome a notable learning curve.  The "Analysis" section below (1) gives a brief summary of the new standard, (2) discusses several points on why investors should care about this new standard and (3) discusses the potential for improved fair value measurements of assets, liabilities and resulting goodwill.

VeriFone Holdings (PAY) – Hindsight is “20-20” – But Some Potential Red Flags Existed

December 4, 2007

Analysis of:VeriFone Announces Anticipated Restatement of 2007 Quarterly Financial Statements | biz.yahoo.com

As was well publicized, VeriFone Holdings (PAY) issued a press release yesterday disclosing it overstated its pre-tax income by approximately $30 million during the first three quarters of F2007 (which ends in October).  Importantly, the overstatement represents 80% of the company’s pre-tax income for the first three quarters of F2007 and the company’s shares have sold off significantly since the news broke (down approximately 50% at the time of this post).  The "Analysis" section below discusses some potential "red flags" that previously existed, as well as a recent stock sale by the company's CEO, prior to the company's negative announcement.

Gift Card Accounting – Watch Out for Potential Earnings Management with Retailers and Restaurants

November 28, 2007

Analysis of:Accounting for Gift Cards | www.aicpa.org

An interesting study was recently published on the accounting for gift cards – which demonstrated the wide disparities in accounting practices used among retailers and restaurants within this area.  The study, additional commentary and links in the "Analysis" section below should provide an especially interesting read for those investors with exposure to various retail and restaurant companies.  Some issues regarding earnings quality and potential earnings management are also addressed.

Analyzing Payables for Warning Signals and Red Flags

November 26, 2007

Analysis of:Extending or “Stretching” of Payables – A Common Cash Flow Manipulation Technique | theharrissolution.blogspot.com

This post specifically discusses some key potential risks with payables on the balance sheet that are common across a broad base of companies. The "Analysis" section below gives several recommended tips and techniques for investors on how to analyze payables for these specific risks. A link to a quick "case study" on Cardinal Health (CAH) is also provided.

Pending Change in Lease Accounting – Certain Financial Metrics Could Look Much Different

November 26, 2007

Analysis of:New leasing standard brings windfall for some | financialweek.com

The FASB and IASB are in the early stages of a multi-year project which could potentially recognize more leases (historically recognized as operating) as assets and corresponding liabilities on corporate balance sheets.  The "Analysis" section below discusses an article and recent research study, as well as other relevant points, that provide a nice reminder of the significant impacts that lease accounting can have on financial statements.  A new standard within this accounting area could have significant impacts on certain profitability and leverage ratios for a broad base of companies.

Extending or “Stretching” of Payables – A Common Cash Flow Manipulation Technique

November 13, 2007

Analysis of:6/30/06 Form 10-K for Cardinal Health (CAH) | www.sec.gov

This post specifically discusses the potential for significant distortions to operating cash flow due to material levels of extending or "stretching" of payables. The "Analysis" section below provides an actual public company example of how operating cash flow can be impacted and illustrates several recommended steps on how to analyze if a company is engaging in such activities.

Analyzing Deferred Taxes for Warning Signals and Red Flags

November 12, 2007

Analysis of:12/31/06 10-K for General Motors (GM) | www.sec.gov

General Motors (GM) made headlines last week when the company announced a large $39 billion charge to establish a full valuation allowance for its deferred tax assets in the U.S., as well as Canada and Germany. Given the considerable attention by the media and multiple questions I’ve received regarding GM’s charge, I thought it would be timely to write about some key risks within the area of deferred taxes that are common across a broad base of companies.  Included in the "Analysis" section below is recommended steps on how to analyze deferred taxes for these specific risks.

Life Without a Single EPS Figure or P/E Ratio – Hard to Imagine

November 1, 2007

Analysis of:More to the bottom line debate | www.ft.com

An accounting project is currently in the works that could significantly change the way financial statements are presented. The most controversial part of the proposal appears to be the potential elimination of net income – and (logically) the potential elimination of a single EPS figure. This in turn could jeopardize the utility of arguably the most popular measure of a company's valuation - the P/E ratio.  The "Analysis" section below discusses a recent letter sent to the U.S. Financial Accounting Standards Board (FASB) and London-based International Accounting Standards Board (IASB), which warns that not having a single earnings number would be a very bad idea.

“Cash is King” - A Formula for Estimating “Normalized” Operating Cash Flow

October 29, 2007

Analysis of:Cash Flow Manipulation – Analyzing and Identifying | theharrissolution.com

The cash flow statement is often considered to be one of the “cleaner” areas of the financial statements. However, there are numerous ways in which operating cash flow (and free cash flow) can be manipulated within the boundaries of U.S. GAAP.  The "Analysis" section below provides a formula which can be a useful tool for investors to estimate normalized operating cash flow on a broad-base of companies.

ESOARS – A New (Controversial) Way to Value Stock Options

October 26, 2007

Analysis of:Zions Bancorporation Announces Notification From SEC Regarding Market-Based Employee Stock Option Valuation Method | www.snl.com

The SEC recently gave final clearance to a company approving the use of ESOARS instruments as a valuation method for stock options under SFAS 123R.  The "Analysis" section below gives an overview of ESOARS and discusses certain criticisms of this new controversial way to value stock options.  Investors need to be aware of the ESOARS valuation method and its potential to artificially reduce stock option expense relative to other more traditional methods.

Don’t Trust that “Unqualified” Audit Opinion Too Much

October 24, 2007

Analysis of:REPORT ON THE PCAOB'S 2004, 2005, AND 2006 INSPECTIONS OF DOMESTIC TRIENNIALLY INSPECTED FIRMS | www.pcaobus.org

The Public Company Accounting Oversight Board (PCAOB) recently released a report discussing the most serious and common problems it found during its first three years of inspections of “smaller” U.S. public accounting firms.  The "Analysis" section below lists the 11 problem areas the PCAOB found during its inspections of smaller audit firms and gives an example of the magnitude of audit deficiencies found within the area of revenue recognition.  The PCAOB report is a good reminder for investors to not place too much trust in an auditor’s “unqualified” audit opinion.

A Few More “Tidbits” on a “Potential” Insider Trading Scandal – Stay Tuned!

October 18, 2007

Analysis of:SEC Reviews Countrywide CEO Stock Sales | online.wsj.com

The SEC is seriously looking into the potential for manipulation relating to the use of “10b5-1” stock-trading plans for corporate executives.  The ultimate fear is that certain executives are in fact trading on insider information and using these trading plans as a cover.  There have been some recent developments relating to the potential abuse of 10b5-1 plans involving Countrywide Financial (CFC).  Importantly, the potential manipulations of these trading plans by a broad base of executives is being regularly compared to as the next "high-profile" option backdating scandal.  

CSX Corporation – Underperforming its Class I Peers?

October 18, 2007

Analysis of:The Children’s Investment Master Fund Urges CSX to Take Immediate Action to Improve Corporate Governance and Business Performance | home.businesswire.com

A large hedge fund based in London recently made headlines by publicizing a critical letter that it sent to the board of CSX Corporation (CSX).  The letter raised several concerns and called for a broad slate of improved practices and performance at the large Class I rail carrier.  Reading through the letter brought to mind some previous studies of mine where I analyzed certain aspects of the financial performance of the Class I rail carriers.  What I found with CSX is consistent with certain aspects of the critical letter - the company underperformed its peers in terms of earnings quality and ROIC/EVA performance.  

Marketable “Trading” Securities – Watch Out for Material Distortions to Operating Cash Flow

October 16, 2007

Analysis of:3/31/07 10-K for Arctic Cat (ACAT) | sec.gov

This post specifically discusses the potential for significant distortions to operating cash flow due to material levels of investments in marketable “trading” securities.  The "Analysis" section below provides some actual public company examples of how operating cash flow can be impacted and gives several recommended steps on how to analyze if a company is engaging in such activities.

Reducing Complexity in Financial Reporting – Moving One Step Forward and Two Steps Back?

October 15, 2007

Analysis of:How to Simplify Accounting in One Year | www.cfo.com

The SEC and FASB (and others) in recent years have been helping to lead a major national effort to reduce the complexity in financial reporting.  The analysis section below argues these parties will be fighting quite a headwind going forward with the significant number of new, pending and proposed accounting standards and projects in the works – which will probably only further increase the complexity of financial reporting. 

Financial Statements – Get Ready for a Potentially Significant “Face-Lift”

October 9, 2007

Analysis of:FASB Handouts - Financial Statement Presentation Meeting | www.fasb.org

This post specifically discusses an accounting project currently in the works that could significantly change the way financial statements are presented.  The "Analysis" section below discusses and gives examples of various alternatives to the financial statements currently being considered.  The financial statement presentation project could potentially result in a significant “face-lift” to financial statements as we know them.  The proposed changes being contemplated would undoubtedly present a notable learning curve for investors to overcome.

Page : 123Next1 to 20 of 48