dece2011

Adding to the list:

- Diluted EPS numerator still subtracts preferred dividends if they aren't convertible. If all preferred can be converted (assuming not antidilutive) then just go with Net Income (plus any interest payments net of tax).

- Trading securities' unrealized gains/losses are included in Net Income. Available for sale securities' unrealized gains/losses are not (they flow through to equity).

- Under GAAP, the direct method has to include an indirect method reconciliation, not the other way around. I remember this because a. it's very rare for a company to use the direct method and b. everyone wants to see how OCF is derived from NI, so they want the disclosure.

- GE (I think of General Electric as an EXTRAORDINARY company, at least under Jack Welch, anyways) so G & E are together... meaning extraordinary items are only permitted under GAAP.

- Income tax expense (nobody likes taxes, and nobody likes that you have to add the change in DTL and subtract the change in DTA) so taxes payable + deltaDTL + deltraDTA = income tax expense.

- Flotation costs "float" to the top, to the very first CF (cash outlay) where they should be added.

- Net Operating Cycle means the Cash Conversion Cycle!

- Treat the income RE method like valuing a preferred stock. NOI is assumed to continue into perpetuity, so you divide by the discount rate (cap rate) like you would a preferred dividend.


Also, a couple helpful (at least I find them helpful) thoughts for the first group:

- Non-renewable resources have perfectly elastic supply.
For this one, I think about how a renewable resource (use water as the example) has perfectly inelastic supply, and the graph looks just like a well going into the ground. Then I remember that non-renewable is the opposite: perfectly elastic.

- OAS < z-volatility spread for a call option, because you need to be compensated for the prepayment risk inherent in a call. Whereas if there’s a put, you’re willing to “give up” some yield for the option to sell the bond.