analyzing industry effects
DESCRIPTION
Analyzing Industry Effects. ACTG 6920 Session 3 Professor Kile. SEGMENT DATA. Consolidated financial statements allow companies to hide the financial performance of individual companies within aggregated totals. SEGMENT DATA. However, the SEC, (under pressure - PowerPoint PPT PresentationTRANSCRIPT
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Analyzing Industry Effects
ACTG 6920 Session 3Professor Kile
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SEGMENT DATA
Consolidated financial statements allowcompanies to hide the financial performance of individual companies within aggregated totals.
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SEGMENT DATA
However, the SEC, (under pressurefrom analysts), recognizes that disaggregated information aboutthe performance of individual business segments is essential tounderstanding past performance, creditworthiness and the prospectsFor future performance.
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SEGMENT DATA
Consequently, Companies are required by GAAP and the SEC to disclose a limited amount of segment disclosures.
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SEGMENT DATA
FIRST LIMITATION:FIRST LIMITATION:The SEC requires only onebasis for segmentation.
Segmentation can be based Upon products, services, Geography, legal organization,Customer base, distribution orVirtually any basis deemed approprate.
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SEGMENT DATA
Management decides which basis of segmentation toprovide.
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SEGMENT DATA
Once management decideshow to segment its reporting,any significant segment must be reported separately.
Significant = 10% sales or10% profit/loss or 10% assets.
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SEGMENT DATA
Segmentation has to accountfor at least 75% of total sales.
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SEGMENT DATA
Segment information isin a separate footnote(usually toward the end).
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SEGMENT DATA
SECOND LIMITATION:SECOND LIMITATION:Companies are only required to disclose by segment:REVENUEINCOMEDEPRECIATION EXPENSETOTAL ASSETSCAPITAL EXPENDITURES FOR PPE
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SEGMENT DATA
SECOND LIMITATION:SECOND LIMITATION:Companies are not required to disclose COST OF GOODS SOLDOr GROSS MARGIN by segment
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SEGMENT DATA
Companies must reconcile segmentbreakdown to total (usually titled“Unallocated”).
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SEGMENT DATA
Companies must disclose MajorCustomers (those comprising10% or more of total sales).
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SEGMENT DATA
Examples of Limitations:Coach – Business Week article and 10-K
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SEGMENT DATA
Examples of Limitations: Coach
Factory stores versusN. American Retail
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Item 1 Business Description
The SEC requires that companiesProvide extensive information about their operations in Item 1 of their 10-K.
(The SEC reviews these disclosures)
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Item 1 Business Description
Information required includes:Detailed description of business(es)Significant events in its historyMore information about segmentsProducts & Markets & DistributionRaw Materials & AvailabilityProduct DevelopmentDiscussion of Intangible Assets & of R&DSeasonality
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Item 1 Business Description
Information required includes:Business practices that affect Working CaptlDetails about significant customers or groupsAmounts and details about backlogDescription of competitive conditionsExposure to environmental laws and liabilityDetails about international risks
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Item 7 MD&A
MD&A (item 7 of the 10-K) is an SEC required candid discussion of thebusiness from a managementperspective. This section iscarefully reviewed by the SEC staff.
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Item 7 MD&A
The MD&A requires a breakdownOf Price and Quantity.
See CF Industries 10-K
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Item 7 MD&A
The MD&A is also required inQuarterly reports (10-q).
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Usefulness of PxQ and COGS
Assuming a downward-slopingdemand curve, if there is anincrease in variable costs, and noCorresponding increase in demandin order to maximize profit, the firmmust. . .1.Increase Price2.Reduce Quantity3.Recognize less Revenue & less Inc.
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Usefulness of PxQ and COGS
The danger is that a company canreport increased sales and yetdecreased profits.
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Item 7 MD&A
The MD&A also requires a breakdown or disclosure of Same Store Sales forretail.
See TJX Companies Inc. 10-KTarget Corp. 10-K
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Item 7 MD&A
Same Store Sales Comparisons are alsoroutinely disclosed.
See Target Corp News Releases
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Industry Classifications
Industry data is commonly providedaccording to industry classification coding systems. The most common:SIC codesNAICS codesGICS codesother less common and more specialized
To pull data, you will need to know classifications for each of your company’s industries.