Calculated Intangible Value - CIV
A method of
valuing a company's intangible assets. This calculation attempts to
allocate a fixed value to intangible assets
that does not
change according to the company's market value. Examples of intangible assets
include brand equity
and proprietary
technology.
Usually a
company's intangible assets are valued by subtracting a firm's book value
from its market value. However, opponents of this method
argue that
because market value constantly changes, the value of intangible assets
changes also, making it an inferior measure.
Finding a
company's CIV involves seven steps:
1. Calculate the average pretax earnings for the past three years.
2. Calculate the average year-end tangible assets for the past three years.
3. Calculate the company's return on assets (ROA).
4. Calculate the industry average ROA for the same three-year period as in Step
2.
5. Calculate excess ROA by multiplying the industry average ROA by
the average tangible assets calculated in Step 2. Subtract the excess return
from the pretax earnings from Step 1.
6. Calculate the three-year average corporate tax rate and multiply by the
excess return. Deduct the result from the excess return.
7. Calculate the net present value of the after-tax excess return. Use the
company's cost of capital as a discount rate.
Capitalized Interest
An account
created in the income statement section of a business' financial
statements that holds a suitable amount of funds meant to
pay
off upcoming interest payments. Furthermore, this type of interest
is seen as an asset and unlike most conventional types of
interest,
it also is expensed
over time.
Some debate
exists over the decision to capitalize interest for tax
purposes. Some people don't prefer to take
the tax
deduction benefit that arises from making an interest payment spread
over time in a situation where
interest is
capitalized. To these people, it is far more beneficial to receive
the complete deduction right away.
Cash And Cash Equivalents - CCE
An item on the
balance sheet that reports the value of a company's assets that are
cash or can be converted into cash immediately.
Examples of
cash and cash equivalents are bank accounts, marketable securities and
Treasury bills.
Current Portion Of Long-Term Debt
A portion of the
balance sheet that represents the total amount
of long-term debt that must be paid within the next year.
The balance
sheet has a liability section, which is broken down into long-term and
current debt.
When a debt
payment is set to be made in longer than a year's time, it is recorded in
the long-term debt section,
and when that
payment becomes due within a year, it moves to the "current portion of long-term
debt" section.
The purpose and
importance of this section of the balance sheet is that it gives investors an
idea of
how much money
will be spent this year to resolve the current portion of the long-term debt.
This can be
compared to the current cash and cash equivalents to measure whether the
company is
actually able to make the payment. A company with a large current portion and a
small
cash position
has a higher risk of default and should be a warning sign to investors.
Cash Earnings Per Share - Cash EPS
A measure of
financial performance that looks at the cash flow generated by a company
on a per share basis.
This differs
from basic earnings per share (EPS), which looks at the net income of
the company on a per share basis.
The higher a
company's cash EPS, the better it is considered to have performed over the
period.
A company's cash EPS can be used to draw comparisons to other companies
or to the company's own past results.
You may
sometimes see cash EPS defined as either EPS plus amortization of goodwill and
other intangible items, or net income plus
depreciation
divided by outstanding shares.
Whatever the definition, the point of cash EPS is that it's a
stricter number than other variations on EPS because cash flow
cannot be manipulated
as easily as net income.
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