The Zen of Corporate Finance

I promised my friends that I will do a small presentation on the drivers of the intrinsic value of a business. To fulfill that promise I am doing this write up. Take a look at the Net Operating Profits Less Adjusted Taxes (NOPLAT) for Great and Gruesome. Both companies are generating the same NOPLAT 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.…

Cumulative and Geometric returns

If you had invested $1 with Warren Buffett in 1965, it would have grown to $2078 in 2000. Given below are the returns extracted from his letter to the shareholders. How did he arrive at the average annual gain of 23.6% and an overall gain of 207,821%. Let us start with the calculations for overall gain.…