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Saturday, January 21, 2006

Dictionary of Extrafinancial Terms

visual financial statement format

cash flow three card monte (CF3CM):
shifting portions of operations related receivables into long term receivables, notes receivable, floor-plan notes, leases receivable, or franchises receivable AND moving changes in those accounts into cash flows from investing rather than cash flows from operations. See this post for details.

diff output:
diff is a utility which compares two files for differences, which is an important thing to do when a company releases an amended financial statement such as a 10-K/A. Using the -u option, the first character of each line determines what the line contains. A line starting with @ (actually two of them) specifies the locations in each of the files, don't worry about this too much except that each time you see one, you're looking at a new place in the two files. A line starting with "-" shows something that exists in the original file but not in the updated one. Likewise, a line starting with "+" shows something in the updated file and not in the original. A line starting with a space " " is just a reference point and is the same in both files (don't be fooled by these, thinking that it's part of the difference).

Example (the first two lines below specify the files being compared):
--- 10-K    2006-03-25 09:29:00 -0500
+++ 10-K/A 2006-03-22 08:15:00 0500
@@ -1,3 +1,3 @@
Cheatem and Run, Inc.
-10K issued by cheatem-and-run-dot-com
-we are lying to you
+10K/A issued by cheatem-and-run-dot-com
+we are not lying to you
In this case, the only two changes are that they changed "we are lying to you" to say "we are not lying to you" which is an important change, and that it's a 10-K/A now instead of a 10-K which is not an important change (it's obviously going to be changed).

diluted shares
: number of diluted shares claimed by the company.

distress release: a press release containing information so underwhelming that it's actually bad news. Example: "XYZ Corporation announced that most of its employees showed up for work today."

Fardo principle: states that all non-financial management believes they're doing better than the accounts show. Therefore, if this management is allowed to use their judgement in reporting results, it will nearly always be overly optimistic. [named after the esteemed Elias Fardo who apparently developed the principle]

fully diluted shares: number of outstanding shares plus the total number of outstanding warrants and options.

ghost pirates: a "company" without viable operations which tries to acquire operations to have an excuse to draw a salary from the corporation, typically churning through multiple business failures.

ghost ship: a company without clear direction and leadership, usually coasting off prior success.

GRAAP: a hypothetical accounting system similar to GAAP, but much more flexible and open to the opinions of management. GRAAP based results are oddly always far superior to the same results stated using GAAP due to the Fardo effect: "...at the heart of every non-financial management person is the quiet belief that they are really doing much better than the accounts show." -- Elias Fardo --

local royalty: people who have lived in a small geographic area for a long time and have become highly respected within the community. Conflict can arise when global competition enters the geographic area since it's almost always more effective/productive/responsive/etc. than the locals. The local royalty has the advantage of having a strong reputation (built over a long time period) to protect, making them often more trustworthy. They also usually understand the local market better.

mousetrap: a company which is betting its future on some gimmick, usually patented. These are rarely successful because the business leaders are too focused on their fancy solution and not on the customers' problems.

plate-o-shrimp: an unrecognized cause of two otherwise coincidental events, often where those two events are incorrectly assigned some direct cause-and-effect relationship. The name comes from the movie Repo Man where the character Miller says, "suppose you're thinkin' about a plate o' shrimp. Suddenly someone'll say, like, plate, or shrimp, or plate o' shrimp out of the blue, no explanation. No point in lookin' for one, either. It's all part of a cosmic unconciousness." Later in the movie you see a sign in the background advertising a "Plate o' Shrimp" for $2.95 (which one could assume caused a coincidence involving a plate of shrimp). When confronted with a surprising coincidence or an unlikely cause-and-effect relationship, it's important to always look for the missing "plate o' shrimp" (i.e. unrecognized common cause of both events).

Example: I pride myself on having solved the "It's always Thursday" syndrome (mostly just because I recognized it as a plate-o-shrimp situation). Several co-workers years ago had this humorous theory that it's always Thursday because whenever someone would ask "What day is it?" and the answer would always be "Thursday!" Here's the plate-o-shrimp: On Mondays or Fridays you'll never ask what day it is because it will be obvious. Tuesday you still pretty much know what day it is. By Wednesday, you're starting to lose track. And by Thursday, you do lose track and you have to ask and the answer is: Thursday! This is obvious if you change "It's always Thursday" to "I'm always awake and never sleeping." [Is this related to the Zen assertion that people are more self-aware when their thought patterns follow unusual routes?]

serial acquirer: a company which compulsively buys other companies for no good reason.

totally diluted shares: total expected number of diluted shares some time in the distant future when I'd be selling the stock at full price.

underpants gnomes: a business with a compeletely flawed business plan without any clear idea of how to make a profit (see here for details).

hehe i think i liked underpants gnomes the most
Yeah, it's surprisingly accurate for a lot of businesses.
Step 1: Collect Underpants
Step 2: ?
Step 3: Profit
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