Archive for June, 2007
Wednesday, June 20th, 2007
The markets opened higher today, buoyed by a Home Depot announcement to repurchase close to $23 billion in company stock moving forward. An increase in share buybacks means fewer shares available to investors, which in turn boosts Home Depot Earnings Per Share (EPS), and sends share prices higher. The company plans to use the proceeds from the sale of its supply business (the unit was sold to several private equity companies, including Bain Capital) to fund the share repurchase. The announcement sent shares 6% higher in the morning trading session. With the the housing market on the rocks, and the prospects for its improvement unclear, this is probably a smart move - the company will likely pick up the shares at a price below intrinsic value, since investors still seem to be avoiding housing related stocks.
In addition, Morgan Stanley announced a 40% increase in Q2 earnings, driven by strong performance in its wealth management and institutional securities businesses. This translates into an EPS of $2.45 per share vs. analyst consensus of $2.01 per share. Shares in morning trading are up around 1.5% at $89.03.
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Wednesday, June 6th, 2007
Cash is, quite simply, king when it comes to stocks. While the income statement captures the earnings of a company for a given period, some of those earnings haven’t been realized yet. That is, the company may have sold 100 mainframes in the first quarter of the year, which will show up as revenue booked on the income statement. However, if the company which purchased those items doesn’t pay for them until the end of the year, that money won’t be reflected as “cash flow” until Q4. Thus, net income is more representative of transactions, while cash flow reflects when money actually changes hands. As you would expect, investors prefer cash since it is “money in hand” vs. an IOU.
There are typically 3 main components of the cash flow statement. In general, these are comprised of a number of detailed line items. We’ll cover the high level concepts below.
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Saturday, June 2nd, 2007
The income statement is one of the most important financial statements produced by a company. In a nutshell, the income statement is a summary of operations for a given period (year or quarter) which outlines revenue, cost, and profit produced by the firm. When a company “announces earnings” this is invariably the document which is being referenced. It is also where the Net Income and Earnings Per Share (EPS) metrics are found.
However, keep in mind that earnings numbers can be manipulated using fancy or “creative” accounting techniques which can hide unfavorable performance. Therefore, it is always important to maintain a critical eye when reviewing this document - and to cross reference the Statement of Cash Flows as well. The major components of the Income Statement are outlined below.
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