All GLG News Analyses Filed Under: Accounting Regulatory Bodies

Leave P&L ratios for true net equity value

July 21, 2006

Analysis by: GLG Expert Contributor

Analysis of:FACTBOX-Retailers seen taking biggest hit from lease accounting | today.reuters.com

As far as retailers share values are concerned, markets make too much use of P&L ratios and not enough of net equity value.

Potential reforms on lease accounting will bring better light into retailers real economic value showing the real indebtedness of some companies and their low net asset value.

Changing lease accounting effects

July 21, 2006

Analysis by: GLG Expert Contributor

Analysis of:FACTBOX-Retailers seen taking biggest hit from lease accounting | today.reuters.com

Over the years, corporate America has jumped on the bandwagon of (legitimate) off balance sheet accounting practices.  I, for one, structured several millions of dollars in operating leases under current GAAP requirements with conservative assumptions.  While these guidelines may be heartburn for external auditors and SEC regulators, this has been a strong market over the past 10 years for finance companies.  With the proposed changes in the works, this could cause companies to rethink their big ticket spending

Nitish GroverPrincipal, OwnerNitish Grover and Associates

Lease Accounting - How Soon and How Far the FASB Revamp

July 21, 2006

Analysis of:FACTBOX-Retailers seen taking biggest hit from lease accounting | today.reuters.com

The  FASB  has  announced  its  intention  to  revamp  the  accounting  for  leases. The  present  rules  regarding  accounting  for  leases  are  contained  in  SFAS  13. The  FASB  feels  that  the  standard  is  deficient  on  two  counts:
1. It  is  not  designed  to  keep  pace  with  fast  evolving  new  commercial  instruments  which  are  of  the  nature  of  leases  and  are disclosed  as  off  balance  sheet  transactions.
2. The  present   standard  is   rules  based  rather  than  principles  based  and  as  part  of  the  convergence  project  with  the  IASB  it  is  intended   to  bring  it  in  line  with  IFRS  requirements which  are  principles  based.

This  analysis  is  being  written  as  a  response  to  a  public  request  which  has  asked  the following  specific  question:

Will  the  potential  reforms  have  a  positive  or  negative  effect  on  the  retail  industry? What  will   be  the  implications  on  my  fundamental  ratios?

Peter CulpepperChief Financial OfficerProvectus Pharmaceuticals, Inc.

FAS 123R surprise: a new look at getting the most from equity incentives

April 21, 2006

Analysis of:FAS 123R's Golden Opportunity: Performance-based equity compensation comes into its own | www.deloitte.com

The key implication of the article is that the Financial Accounting Standards Board (FASB) Statement No. 123R, Share-Based Payment (FAS 123R) is allowing Companies the potential opportunity, intended or not, to now go back and reconsider the performance-based equity incentive designs for equity compensation rather than the fixed option awards that were in vogue before FAS 123R became a reality.

Investment analysts can now use the advent of FAS 123R to see which Companies understand how to motivate their employees and how they are using equity compensation to do so.  Furthermore, investment analysts can see how top executives are responding to any changes in their equity compensation.  And, it will become apparent if a Company's critical employees will be given equity compensation under FAS 123R.  The implication is that the Companies that do well will reward their critical employees with performance-based equity incentives.  Investment analysts will be able to see how high performance Companies get high performance output from their employees by focusing on performance-based equity incentives. 

This new potential opportunity created by FAS 123R is a reality now because all Companies need to recognize all stock option expense on their income statements, whereas previously under Accounting Principles Board Opinion 25 (APB 25), Companies were penalized for performance-based equity incentives versus fixed option award designs. Now, the implication is that it's all about performance.

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