Calculating Maintenance Capital Expenditure

The earnings that you can take out of the business every year without affecting its competitive position is called as Owner Earnings. I wrote about it in detail here. This term was coined by Warren Buffet and the formula for calculating it is given below. The capital expenditure (capex) he refers to is maintenance capex and…

Accounting For Pensions

So far I wrote about accounting for debt, leases, taxes, and stock compensation. You can find them all here. Some companies pay its retired employees for services they provided in their working years. These payments are called as pensions, which is the topic of this post. In every pension plan, three entities are involved (1) company or employer who…

Accounting For Stock Compensation

So far I wrote about accounting for debt, leases and taxes. You can find them all here. Companies pay its employees using cash and stocks. All cash payments made to employees are shown as expenses in the income statement. But when it comes to stock compensation things are not that straightforward. Companies pay its employees using restricted stocks and stock options…

Accounting For Taxes

So far I wrote about accounting for long-term debt and leases. You can find them here and here. In this post I will be writing about accounting for taxes. In US, every company maintains two sets of books. One of them is prepared according to the GAAP rules which are read by investors, creditors, and…

Accounting For Leases

In the previous post we learnt how to do accounting for long-term debt. In this post I will be writing about accounting for leases. A lease is a rental agreement by which one party (the lessor) transfers to another party (the lessee) the right to use an asset for a stated period of time in return for…

Accounting For Long-Term Debt

I am a Software Engineer by profession. Some of the accounting concepts involving operating leases, pensions, stock options, deferred taxes, and long-term debt issuances sound arcane to me. When I encounter them in the annual reports I ignore them. This limitation didn’t bother me much until I read one of the principles of Penman – Ignore Information At Your Peril.…

Depreciation

Depreciation is a non cash expense that reduces the value of an asset as a result of wear and tear, age or obsolescence. Most assets lose their value over time and must be replaced once the end of their useful life is reached. Imagine you have own an Ice cream Business. You purchased the ice…