Operating Cash Flows, Cash Recovery Rates And Internal Rates Of Return

Investors depend on financial reporting to assess the amounts and timing of future cash flows. Unfortunately, the historical cost basis may not provide sufficient information to judge future cash flows. The Financial Accounting Standards Board argues that the market price of common stock incorporates the market estimate of discounted future cash flows. This paper illustrates the calculation of operating cash flow on a per share (CFPS) basis and measures a firm’s internal rate of return by dividing the CFPS by the beginning of the year stock price reported by the Dow Jones Industrials. Although this measure may be affected by other market events, we believe it has potential information content and may provide investors with a tool to value stocks

Impact Of Stock Options On Quarterly EPS: A Proposal For Change

The purpose of this paper is to: 1) explore the annual and quarterly economic impact of FAS 123 on a group of S&P 100 firms; 2) propose changes in the measurement and disclosure rules of FAS 123; and 3) determine the annual and quarterly economic impact of these proposed changes on the same group of S&P 100 firms. While both FAS 123 and dynamic option expense measurement approaches have material economic impact and reduce the EPS amounts reported under APBO 25 rules approximately 16 percent or more, no statistically significant differences are found between the results of these two approaches in any year 2000 quarters. However, when the sample is split into two groups based on negative and positive quarterly returns, the differences between the results of the two methods are statistically significant for seven of eight quarterly observations. Compared to the static (FAS 123) measurement approach, the dynamic (quarterly recalculated) approach results in lower option expenses and higher EPS values for firms with declining stock prices and higher option expenses and lower EPS values for firms with increasing stock prices. Thus, the dynamic measurement approach proposed in this paper more faithfully represents the economic reality of individual firms

GAAP/Tax Differences In Accounting For Nonqualified Employee Stock Options: The Gathering Storm

The escalating size of compensation packages to senior managers and investor disillusionment resulted in the issuance of FAS 123(R). Under the current rules, the grant date fair value of employee stock options (ESO) are expensed over the vesting period. The two primary methods used to value ESO are the Black-Scholes closed form equation and the lattice model. Several studies suggested an alternative Simple model for valuing ESO that marks the option expense to market in succeeding financial statement dates and allows for the staggered exercise dates of option holders. This approach is easy to understand, would have a low cost of implementation, and offers a superior estimate of the true cash flow effects and economic injury associated with the opportunity cost to shareholders of ESO exercise. Moreover, the Simple model would head off another threat to the legitimacy of the FASB that is unfolding in the U.S. Congress as Senator Carl Levin holds hearings on ESO in the Senate Permanent Subcommittee on Investigations to decide what to do about the multi-billion dollar gap between what companies report to stockholders as ESO expense and what they deduct on their tax returns. In addition, this gap results in highly controversial rules of accounting and reporting for the favorable impact of the deductions in the financial statements

No More Scandals: A Simple Model For Valuing Employee Stock Options

The escalating size of compensation packages to senior managers and investor disillusionment have resulted in growing calls for the expensing of employee stock options (ESO).  While initially slow to respond, the FASB has now mandated the expensing of ESO.  The two primary methods used to value ESO, the Black-Scholes closed form equation and the lattice model, suffer from several deficiencies  .A Simple model for valuing ESO that marks the option expense to market in succeeding financial statement dates and allows for the staggered exercise dates of option holders is available. The model is easy to understand, would have a low cost of implementation, and offers a superior estimate of the true cash flow effects associated with the opportunity cost to shareholders of ESO exercise

pi-football: A Bayesian network model for forecasting Association Football match outcomes

A Bayesian network is a graphical probabilistic belief network that represents the conditional dependencies among uncertain variables, which can be both objective and subjective. We present a Bayesian network model for forecasting Association Football matches in which the subjective variables represent the factors that are important for prediction but which historical data fails to capture. The model (pi-football) was used to generate forecasts about the outcomes of the English Premier League (EPL) matches during season 2010/11 (but is easily extended to any football league). Forecasts were published online at www.pi-football.com prior to the start of each match. In this paper, we demonstrate that a) using an appropriate measure of forecast accuracy, the subjective information improved the model such that posterior forecasts were on par with bookmakers ' performance; b) using a standard profitability measure with discrepancy levels at ≥ 5%, the model generates profit under maximum, mean, and common bookmakers ’ odds, even allowing for the bookmakers ' built-in profit margin. Hence, compared with other published football forecast models, pi-football not only appears to be exceptionally accurate, but it can also be used to 'beat the bookies'

The course of mental health after miscarriage and induced abortion: a longitudinal, five-year follow-up study

BACKGROUND: Miscarriage and induced abortion are life events that can potentially cause mental distress. The objective of this study was to determine whether there are differences in the patterns of normalization of mental health scores after these two pregnancy termination events. METHODS: Forty women who experienced miscarriages and 80 women who underwent abortions at the main hospital of Buskerud County in Norway were interviewed. All subjects completed the following questionnaires 10 days (T1), six months (T2), two years (T3) and five years (T4) after the pregnancy termination: Impact of Event Scale (IES), Quality of Life, Hospital Anxiety and Depression Scale (HADS), and another addressing their feelings about the pregnancy termination. Differential changes in mean scores were determined by analysis of covariance (ANCOVA) and inter-group differences were assessed by ordinary least squares methods. RESULTS: Women who had experienced a miscarriage had more mental distress at 10 days and six months after the pregnancy termination than women who had undergone an abortion. However, women who had had a miscarriage exhibited significantly quicker improvement on IES scores for avoidance, grief, loss, guilt and anger throughout the observation period. Women who experienced induced abortion had significantly greater IES scores for avoidance and for the feelings of guilt, shame and relief than the miscarriage group at two and five years after the pregnancy termination (IES avoidance means: 3.2 vs 9.3 at T3, respectively, p < 0.001; 1.5 vs 8.3 at T4, respectively, p < 0.001). Compared with the general population, women who had undergone induced abortion had significantly higher HADS anxiety scores at all four interviews (p < 0.01 to p < 0.001), while women who had had a miscarriage had significantly higher anxiety scores only at T1 (p < 0.01). CONCLUSION: The course of psychological responses to miscarriage and abortion differed during the five-year period after the event. Women who had undergone an abortion exhibited higher scores during the follow-up period for some outcomes. The difference in the courses of responses may partly result from the different characteristics of the two pregnancy termination events

Accounting For Stock Options: Comparison Of Alternative Approaches

The Financial Accounting Standards Board in Standard No. 123 requires the disclosure of the annual option expense assuming a market based static model is used to measure the option "value" at issue data. This study reviews and tests alternative measures of accounting for stock options that were previously proposed by the Board. Our results suggest the exercise date model provides a measure of option expense which more consistently reflexes the changes in the market value of the option

The Income Tax Accounting Controversy: A Matter Of Perspective

The study examines SFAS No. 96 and SFAS No. 109 in the context of the unit problem. The unit problem involves the selection of the appropriate perspective for applying measurement and recognition conventions to the phenomenon of interest. From an individual event perspective, the FASBs conclusions regarding liability recognition are inconsistent with their definition of a liability found in State of Finance Accounting Concepts No. 6. In addition, the use of inconsistent perspectives by the SFAS No. 96 and SFAS No. 109 create disagreements with the Boards positions. The simultaneous use of both the individual and aggregate perspectives as the basis of the Boards decisions is the source of these disagreements. The study argues that the income tax accounting issue should be viewed from an aggregate perspective and concludes that the flow through method of accounting for income taxes should be adopted