Dr. David Young

GLG News^SM Analyses by David Young(?)

Coming to terms with fair value accounting

December 26, 2007

Analysis of:The Finer Points of Fair Value | www.aicpa.org

This article is the best summary to date of the FASB's new standard on fair value accounting.  FAS 157 is an important standard.  First, it allows (but doesn't require) companies to abandon historical cost for a broad range of financial assets and liabilities.   It also reflects a change in the FASB's philosophical approach towards a more balance-sheet oriented approach to standards setting, in contrast to the earnings measurement approach that used to dominate.  Also of interest is the principles-based nature of the standards.  In both of these ways, FAS 157 is close to what one might expect from the IFRS.  This standard is just one more step on the road to GAAP-IFRS congruence.  The article is also useful in pointing out the key issues that analysts need to understand to avoid being blindsided by reporting entities.

The sub-prime meltdown has far reaching accounting effects

December 26, 2007

Analysis of:Accounting consequences of the credit crunch | ifrs.pwc.com

The article shows why the recent problems in global credit markets can have accounting effects that go far beyond the banks and other players directly touched by the crisis.  It also highlights the areas that financial statement readers should be wary of when accessing the possible effects of the crisis on companies of interest.  For example, recent market turmoil could lead to significant asset impairment charges, even for companies with no direct involvement in subprime loans.

Wendy's Buyback is a Good Move

October 20, 2006

Analysis of:Wendy’s Launching Aggressive Buyback | www.cfo.com

The article focuses on Wendy's recent announcement to buy back up to 35 million shares (around $800 million) over the next 18-24 months.  The company says that the move is motivated by the desire to "return value" to shareholders, although the author speculates that the company may have decided on buyback as a defensive move against a particular hedge fund manager who has taken a position in Wendy's.

Do buybacks really create value?

September 21, 2006

Analysis of:Stock Buybacks at 'Unprecedented Level' | www.cfo.com

The article discusses a recent surge in share buybacks, focusing on Applied Materials and Cigna.  It quotes an analyst who says that buybacks offer two advantages: short-term price support and higher EPS.  The article goes on to say that buyback levels, both in number of transactions and dollar value, have never been higher.

A Possible Downside to Share Buybacks

June 13, 2006

Analysis of:Buybacks as merger fuel? | www.cfo.com

The article is really just a comment from a blogger.  It addresses the staggering levels of share buybacks in the U.S.  More specifically, he claims that the recent spate of buybacks may be a precursor to some big M&A activity.  Here's the logic:  When U.S. companies buy shares, they tend to transfer them to corporate treasury, instead of canceling them (which many countries require).  The shares can then be reissued as employees exercise stock options, etc.  The key point is that some companies don't like keeping treasury shares for very long, implying that they are itching to reissue them.  One way for them to do this is to use the shares for M&A.  He also notes that there are tax advantages to share-based (as opposed to cash-based) takeover activities.

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