Wsp Accounting Answers And Questions Set 1.Pdf

WSP ACCOUNTING ANSWERS AND QUESTIONS SET
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✔✔Diluted Shares Outstanding - ✔✔-include the impact of potentially dilutive security
holders that expand the share base, like stock option holders and preferred
shareholders that can convert their preferred shares to common stock

✔✔Earnings Per Share (EPS) - ✔✔-indicates how much money a company makes for
each share of its stock and is a widely used metric for corporate profits
-indicates more value because investors will pay more for a company with higher profits
-Net income / Basic Weighted Average Shares Outstanding
-Net income / Diluted Weighted Average Shares Outstanding
-Diluted is the favored approach

✔✔Stock-Based Compensation - ✔✔-compensates an employee with stock (like stock
options or restricted stock), the value of that compensation (called "stock based
compensation" or "SBC") is recognized as an expense in the same expense category
as the employee's regular cash compensation
Ex. For example, a company that pays a sales person a cash salary of $100,000 and
stock options valued at $50,000 will recognize: $150,000 in SG&A compensation (even
though only $100,000 was spent). The extra $50,000 reflects that the employee earned
an additional $50,000 in compensation (the actual payment down the road in the form of
additional shares may not happen for a while).

✔✔Common Dividends - ✔✔-represents a portion of a company's net income that is
returned to shareholders, typically on a quarterly basis, in the form of cash

✔✔GAAP Income Statement - ✔✔-This is what analysts actually have
Revenue -------------------------->100
Less: COGS ----------------------->25
Less: SG&A------------------------>20
EBIT-------------------------------=55
Less: Interest expense------------>5
Pretax income-------------------->50
Less: Tax expense---------------->20

, Net income---------------------->30

✔✔The ideal income statement - ✔✔-If analysts had this level of detail they wouldn't
need the cash flow statement to calculate EBITDA for they could calculate it directly
from the income statement
Revenue ---------------------------------------->100
Less: Cost of Goods Sold (excluding D&A)---> 20
Less: SG&A (excluding D&A)-------------------> 15
EBITDA------------------------------------------=65
Less: D&A----------------------------------------> 10
EBIT----------------------------------------------=55
Less: Interest expense--------------------------->5
Pretax income------------------------------------=50
Less: Tax expense--------------------------------->20
Net income----------------------------------------=30

✔✔Balance Sheet - ✔✔-reports the company's resources (assets) and how those
resources were funded (liabilities and shareholders' equity) on a particular date (end of
the quarter, end of the year)
-The fundamental equation in accounting is: Assets = Liabilities + Stockholders Equity

✔✔Assets - ✔✔-represent the company's resources. To qualify as THIS, the following
requirements must be met:
1. A company must own the resource
2. The resource must be of value
3. The resource must have a quantifiable, measurable cost
Ex. cash, marketable securities, accounts receivable, inventories, prepaid expenses,
PP&E, intangible assets & goodwill
-are presented in descending order of liquidity

✔✔Liabilites - ✔✔-what the company owes to others
-are presented in order of when they are to be paid
Ex. Accounts Payable, Accrued Expenses, Short term Debt, Long-Term Debt D

✔✔Equity - ✔✔-represents sources of funds through equity investments and retained
earnings
Ex. Preferred Stock, Common Stock, Treasury Stock, Retained Earnings

✔✔I/S and B/S connection - ✔✔-The income statement is connected to the balance
sheet through retained earnings in shareholders' equity -All income on the income
statement (revenue, interest income, etc.) increases retained earnings on the balance
sheet (credits)
-All expenses on the income statement (COGS, SG&A, tax, etc.) decrease retained
earnings
-Cash does not affect retained earnings