Beruflich Dokumente
Kultur Dokumente
Strictly Financials
Jan. 3 , 2013
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Donald W. Reynolds National Center for Business Journalism at Arizona State University
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gary.trennepohl@okstate.edu
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Topics
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Goodwill, impairment Pro forma Bank financials Comparing companies: A Changing Industry The concepts and your companies
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Goodwill, Impairment
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Goodwill
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Difference between what a firm pays to buy another company and the book value (total assets minus total liabilities) of that company. Has been written off over time, typically 40 years No longer amortize Other intangible assets will continue to be amortized over useful lives.
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Impairment
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Instead of writing off over time, now use impairment testing The impairment is expensed on the income statement.
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Examples
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Pro Forma
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Critics: Selectively defined earnings Expenses against earnings are not standardized across an industry. SECs Regulation G (1/03) states that non-GAAP numbers used in an earnings release must be accompanied by, and reconciled with, the most directly comparable GAAP number.
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Recommendation: GAAP results should precede pro forma results in earnings releases. Headlines should show GAAP earnings. Many firms say pro forma has value. Common form: EBITDA. Also, OIBDA. As a matter of form
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Examples
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Dow Sprint HP
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The business of a bank The balance sheet The income statement Some key financial ratios Sources of bank data
Banks are a financial intermediary, taking in money from savers and loaning it out to investors - they buy and sell money. For most banks, the majority of their earnings come from interest income on loans, and interest earned on securities.
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Banks also earn fee income for services. Banks two main risks are:
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= Liabilities + Capital
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Cash +
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Primary Reserve
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Deposits
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Securities
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Secondary Res.
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Loans
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Demand Deposits Savings Deposits Now/Money Market Accts. CDs, Time Deposits Fed Funds purchased Repo agreements
Non-deposit Borrowings
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Return on Assets = Net Income/(Avg. Total Assets) n Typically runs around 1.0% to 1.5% n Averages 4 quarters of total assets for the denominator to smooth effect of asset swings Return on Equity = (Net Income)/(Equity capital) n Will be different for publicly traded banks versus private banks Capitalization Ratio = Equity/(Total Avg. Assets) n Tier 1 Capital should be 10%
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Think of it as the ratio of troubled loans to capital OREO is Other Real Estate Owned Early-warning system to measure a banks potential for failure. Banks tend to fail as TR approaches 100% (troubled bank) Dont get a mortgage loan from a troubled bank. Data to calculate at http://www2.fdic.gov/sdi/main.asp. Use non-performing assets and bank real estate owned/equity and loss reserves
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CFPB begins life January 2013, and most rules still being written. CFPB answers only to Fed. Banks are either OCC; Fed or State/FDIC regulated. How will these regulators interact with CFPB?
FDIC-insurance limits revert to $250,000 maximum. Will consumers withdraw funds from local banks now?
The Uniform Bank Performance Report (UBPR) is provided by federal regulators so analysts can compare bank performance against peer groups. Web link:
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www.ffiec.gov www.BankRegData.com
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Doing Comparisons
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Common-size analysis is an excellent tool for comparing companies, regardless of size. Companies in the same industry might have similar or widely differing statements. Common size brings out those similarities and differences.
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Model Is Changing
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Business models are changing everywhere. Pharmacies have been quietly changing for the past several years. Now, a somewhat new entrant poses a big threat.
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A Disruptive Technology?
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Express Scripts How will it change, and how will its model change the business? Is this an example of a disruptive technology in the Clayton Christensen sense?
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