Arguments in Favor of Direct and Indirect Methods of Cash Flow

The primary advantage of the direct method is that it presents the firm's operating cash receipts and payments, while the indirect method only presents the net result of these receipts and payments. Therefore, the direct method provides more information than the indirect method. This knowledge of past receipts and payments is useful in estimating future operating cash flows.

The main advantage of the indirect method is that it focuses on the differences in net income and operating Cash flow. This provides a useful link to the income statement when forecasting future operating cash flow. Analysts forecast net income and then derive operating cash flow by adjusting net income for the differences between accrual accounting and the cash basis of accounting.

Disclosure requirements
Under U.S. GAAP, a direct method presentation must also disclose the adjustments necessary to reconcile net income to cash flow from operating activities. This disclosure is the same information that is presented in an indirect method cash flow statement. This reconciliation is not required under IFRS.

Under IFRS, payments for interest and taxes must be disclosed separately in the cash flow statement under either method (direct or indirect). Under U.S. GAAP, payments for interest and taxes can be reported in the cash flow statement or disclosed in the footnotes.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income includes all changes in stockholders' equity except for transactions recognized in the income statement (net income) and transactions with sharesholders, such as issuing stock, reacquiring stock, and paying dividends.

Comprehensive income is an income measure over a period of time. It includes net income and other comprehensive income for the period. Accumulated other comprehensive income does not include net income but is a component of stockholders' equity at a point in time.

Goodwill

Goodwill is the excess of purchase price over the fair value of the identifiable assts and liabilities acquired in a business acquisition. It's a typical one of the unidetifiable intangible asset.

Example: Goodwill
W Corp. paid $600 million for the outstanding stock of P Corp. At the acquisition date, P reported the following Condensed balance sheet.

P Corp. - Condensed Balance Sheet
------------------------------------------------------
----------------------------- Book Value (millions)
Current assets --------------------$80
Plant and equipment, net ----------760
Goodwil -----------------------------30
Liabilities --------------------------400
Stocksholders' equity ---------------470
------------------------------------------------------

The fair value of the plant and equipment was $120 million more than recorded book value. The fair value of all other identifiable assets and liabilities were equal to their recorded book values. Calculate the amount of goodwill W should report on its consolidated balance sheet.
Answer:
------------------------------------------------------
------------------------------ Book value(millions)
Current assets---------------------$80
Plant and equipment, net----------880
Liabilities--------------------------(400)
Fair value of net assets-------------560

Purchase price---------------------600
Less: Fair value of net assets-------(560)
Acquisition goodwill----------------40
------------------------------------------------------
The plant and equipment was "written up" by $120 million to reflect fair value. The goodwill reported on P's balance sheet is an unidentifiable asset and is thus ignored in the calculation of W's goodwill.

商誉(goodwill)是指能在未来期间为企业经营带来超额利润的潜在经济价值，或一家企业预期的获利能力超过可辨认资产正常获利能力（如社会平均投资回报率）的资本化价值。商誉是企业整体价值的组成部分。在企业合并时，它是购买企业投资成本超过被并企业净资产公允价值的差额。

核心商誉论:美国财务会计准则委员会(FASB)于1999 年9月7日公布了一项征求意见稿,首次提出了“核心商誉”(core goodwill)的概念。

FASB认为,商誉可描述为由六个要素组成:(1)被收购企业净资产在收购日的公允市价大于其账面价值的差额。(2)被收购企业未确认的其他净资产的公允市价。(3)被收购企业存续业务“持续经营”(going-concern)构件的公允价值。(4)收购企业与被收购企业净资产和业务结合的预期协同效应的公允市价。(5)收购企业由于计量收购报价的错误而多计量的金额。尽管在所有现金交易中的收购价格不会出现计量错误,但如果是涉及到股票交换的交易,则很难说不会出现计量错误。(6)收购企业多支付或少支付的金额。

要素1和要素2都与被收购企业有关,它们从概念上讲都不是商誉。要素1反映的是被收购企业未确认净资产的利得,要素2只不过是指那些能够单独辨认但由于不能完全符合确认标准而未确认的无形资产。要素5和要素6与收购企业有关,它们从概念上讲也不是商誉,要素5是一个计量误差,要素6代表的则是收购企业的损失(在多支付的情况下)或利得(在少支付的情况 下)。只有要素3和要素4从概念上讲是商誉的一部分。要素3与被收购企业有关,它反映了被收购企业净资产的“超额组装价值”(excess assembled value)。它表示被收购企业事先存在的自创商誉或以前从企业兼并中收购的商誉。要素4与收购企业和被收购企业的结合有关,它反映了由合并而创造的“超 额组装价值”,即收购企业和被收购企业经营结合所产生的协同效应。FASB将要素3和要素4统称为“核心商誉”。

Treasury Stock Method

B Company has 5000 shares outstanding all year. B had 2000 outstanding warrants all year, convertible into one share each at $20 per share. The year-end price of B stock was $40, and the average stock price was $30. What effect will these warrants have on the weighted average number of shares?

Answer:
If the warrants are exercised, the company will receive 2000*$20=$40000 and issue 2000 new shares. The treasury stock method assumes the company uses these funds to repurchase shares at the average market price of $30. The company would repurchase $40000/$30=1333 shares. Net shares issued would be 2000-1333=667 shares.

从此题可以理解期权(warrants/options)的部分成分。期权可以理解为期望和权力，即对期望值履行权力和义务。期权分为两种，一种为看涨期权，一种为看跌(看空)期权。通俗点讲，如果对期望值，即涨跌估计正确，购入的相应的期权就会盈利(也属于对冲基金的范畴)。从期权的角度看本题 $20<$30<$40，明显是属于购买了看跌期权，可实际情况却是股票升值。在此时，可以放弃对看跌行使权利，即放弃转换为股票，因为$20<$30，原本可以转换成2000股的期权，现在却只能转换为1333股。放弃转换只损失购买期权的成本，放弃转换的权力，从而将损失减少到最小。从期权角度来讲，此题是不理性的，分明知道履行权力会损失更大。但是本题的目的是为了介绍Treasury stock method，运用这种方法必须满足两种假设条件：1.从期权转换出来的资金或这证券必须用于回购本公司的股票。2.出售期权的股票价值必须遵守市场平均价格。如果从期权角度讲，理性地放弃回购公司股票的话，就不会满足假设条件1，也就没有介绍此方法的必要了。

Implications for Financial Analysis

Expense recognition requires a number of estimates. Since the estimates are involved, it is possible for firms to delay or accelerate the recognition of expenses. Delayed recognition increases current net income and is therefore more aggressive.

If a firm's bad debt expense has recently decreased, did the firm lower its expense estimate because its collection experience imporved, or was the expense decreased to manipulate net income?

If a firm's warrant expense is significant;y less than that of a peer firm, is the lower warranty expense a result of higher quality products, or is the firm's expense reognition more aggressive than that of the peer firm?

Firms disclose their accounting policies and significant estimates in the financial statement footnotes and in the management discussion and analysis (MD&A) section of the annual report.

IFRS Vs. U.S. GAAP

International Financial Reporting Standards (IFRS) and U.S. GAAP generally agree in their overall framework and are working toward convergence. However, IFRS requires ussers to consider the framework in the absence of a specific standard, U.S. GAAP distinguishes between objectives for business and non-business entities, the IASB framework gives more emphasis to the importance of the accrual and going concern assumptions than the FASB framework does, the U.S. GAAP framework establishes a hierarchy of qualitative financial statement characteristics, and some differences still exist in how each defines, recognizes, and measures the individual elements of financial statements.

Securities and Exchange Commission Required Filings

Form s-1: Registration statement filed prior to the sale of new securities to the public.

Form 10-K: Required annual filing that includes information about the business and its management, audited financial staements and disclosures, and disclosures about legal matters involving the firm. Information required in Form 10-K is similar to that which a firm typically provides in its annual report to shareholders. However, a firm's annual report is not a substitute for the required 10-K filling. Equivalent SEC forms for foreign issuers in the U.S. markets are Form 40-F for Canadian companies and form 20-F for other foreign issuers.

Form 10-Q: U.S. firms are required to file this form quarterly, with updated financial statements (unlike Form 10-K, these statements fo not have to be audited) and disclosures about certain events such as significant legal proceedings or changes in accounting policy. Non-U.S. companies are typlically required to file the equivalent Form 6-K semiannually.

Form DEF-14A: When a company prepares a proxy statement for its shareholders prior to the annual meeting or othershareholder vote, it also files the statement with the SEC as Form DEF-14A.

Form 8-K: Companies must file this form to disclose material events including significant asset acquisitions and disposals, changes in management orcorporate governance, or matters related to its accountatns, its financial statements, or the mrkets in which its securities trade.

Form 144: A company can issue securities to certain qualified buyers without registering the securities with thte SEC but must notify the SEC that it intends to do so.

Form3, 4, and 5: they involve the beneficial ownership of securities by a company's officers and directors. Analysts can use these filings to learn about purchases and sales of company securities by corporate insides.

American Army landed in Haiti

纪念在海地逝去的同胞

向在海地逝去的英雄们致敬！！！

关于谷歌放言退出中国的一点看法

消息的放出着实给商务部来个措手不及，业内人士和专家评论谷歌太情绪化，这让人哭笑不得。一方面反映国内对新信息处理的延时性，另一方面让人不能不佩服谷歌这个大公司对重大信息的保密性做得如此到位。

谷歌多年来在国内学习的非常出色。笔者推敲谷歌是在要权，并不是执意退出中国。这就是俗话讲的“撂挑子”。近些年来，谷歌中国在国内扮演了十分重要的角色，对国内各大领域和阶层提供了极大的帮助和支持。但是谷歌并不是傻子，它毕竟是在做生意，做了这么些年的服务和支持，却和它的回报不成正比，赔本的生意是没有人做的。再加上谷歌处处受到如商务部，中宣部和保密部门的制约和调查，又在开拓新业务方面到处碰壁，这不能不使得它好好坐下来思考一下对策。这次的“上策”起到了很不错的效果，既不哭也不闹我也不上吊，我要让管理我的部门和机构也跟我一起坐下来好好想想我在国内的地位是什么样子的，你们也要好好认清我的位置！

提及到谷歌在中国学习出色的原因是这次谷歌采取的是以退为进的战略。有人会问谷歌这次可能真的要退出中国市场，你的臆断会付出代价。我看不然，谷歌是大浪淘沙的搜索行业的领头羊，业务遍布全球，案例为顶尖商学院备案，试想一下“迎难而上”这么简单的道理，老百姓们都天天挂在嘴边，谷歌这个经验丰富的搜索巨头会不清楚，我相信很多度过的危机都教导了谷歌人士这个成语。从另一方面考虑，谷歌正是知道迎难而上才要这么做的，这是他为了“迎难而上”而采取的策略。中国的崛起只是时间的问题，谁跟随中国的崛起谁就载入史册成为商业中的传奇，我想谷歌的决策层应该比我这个毛头小子清楚得很。有人又会讲，此评论出自爱国者之手，没有一定的可信度。我简单的举个例子，20多年前我的家乡是个吃不饱穿不暖的小镇子，唯一像样的火车站还是个大牛棚，现在地铁1号线将在明年竣工。从一座废墟到一个中等发达城市只用了不到30年的时间，我想让大家知道中国的潜力是多么的巨大，像家乡的城市，中国还有许多许多，中国和美国的国土面积差不多，其中存在的巨大的商机和无限的发展。

昨日看到了事态正向不好的方面发展。美国参议院通过谷歌退出中国事件呼吁美国技术公司联合推出中国。事态的发展从单纯的商业发展战略染指到了与政治目的挂钩，不可控制性提高。事出有因，国内对谷歌的限制多少处于政治目的方面的考虑，因为谷歌在美国也是举足轻重。两种意识形态的冲突通过谷歌这个平台，开始显得越来越透彻。美国政府也借助这个问题，声讨中国，要求中国对美国公司不公平的对待给个说法。事情发展的趋势还不明朗，但是只要从政治因素参与进去的那一刻起，中美双方的博弈和谈判又要开启。双方你争我抢，尔虞我诈。作为一位国人，我没有资格讨论美方，我就作为国人给点个人的看法。中国在国际上扮演的角色向来就是“软弱”的，这是有目共睹的。但是在原则性的问题是不动摇的，比如主权问题，领土和边界问题。中国在国际上树造的个性也是很鲜明的，那就是吃软不吃硬！什么事情都可以谈，大家求同存异，共同发展。但是你不要逼我，不要让我做有反原则性的问题，中国政府是经过革命，战斗，政治斗争，演变，修正，等多方面的考验，不要质疑其能力，一些做千古罪人的事情，政府比谁看得都清楚，他们拼了自己所有的政治资本也要向敌对势力抗争到底。这样看来，美国政府拿这些东西反华的话，谷歌并不想走也要请其走人了，双方均吃亏，双方吃亏多少暂不作评论。在这个世界里，缺了什么地球都照转，中国没有谷歌可能会有不小的影响，这种影响和变化会随着时间的流逝而冲淡，但是趋势却不随着谷歌的离开而改变，谷歌的离开并不动摇华夏的根基。

前几日，看到国人有给谷歌标志献花和鲁迅的作品。请不要把单纯的商业活动强行转嫁到政治上面去。社会环境和五四运动的时候风马牛不相及，没有必要暗示和提及那些敏感的问题，一个纯商业的活动恰恰给了某些聪明人机会表现你比别人都聪明，思想有多进步？留点小聪明用在建设祖国吧。

《史记卷八十七李斯列传第二十七》

高曰：“夫大行不小谨，盛德不辞让，乡曲各有宜而百官不同功。故顾小而忘大，后必有害；狐疑犹豫，后必有悔。断而敢行，鬼神避之，后有成功。愿子遂之！”

高曰：“安可危也，危可安也。安危不定，何以贵圣？”

高曰：“故秋霜降者草花落，水摇动者万物作。”

高曰：“上下合同，可以长久；中外若一，事无表里。”

机场运营利润来源和小型机场运作可行性

机场和航空公司运营的根本区别是机场90%的运营成本在基建上，也就是说固定成本占绝大部分份额。机场的直接客户是航空公司而不是旅客，这就合理地解释了旅客服务质量提高困难的问题。

机场获得利润的领域如下：
1. 地面服务和客货运服务，如客机行李托运和货机的货物存放和配给。机场能否大面积盈利很大程度依靠航班调度和起降密度管理和分配水平决定，和此机场的性质即航线终端或者过站决定。
2. 油料补给。航空煤油价格直接和国际接轨，对国际石油价格很敏感。
3. 客机配餐。耗费人力的服务。
4. 为飞机大修定验和过站保养提供配套服务。根据机场的大小和配置分为三种情况。
(1).提供完善的顶级大维护的机场。这类机场的维修基地全部都已成立了独立的维修公司，比如北京首都机场，上海虹桥机场，和广州白云机场。甚至地皮厂房机库都是维修公司买断的。故驻地机场获得利润有限。
(2).提供一般中级以下的定验和过站保养。这类机场完全拥有维修基地的经营控制权，理论上是应该利润丰厚，但实际上大部分航空公司都有意跳过这类机场服务，只要飞机没有影响飞行安全的故障都会坚持飞回自己的长期合作母基地进行排故维护。
(3).连一般定检维护都保证不了，只能做简单过站检查的机场，国内大部分机场都属于这类机场。

机场的运营状况，是直接有所驻地的各航空公司的运营状况决定的。国内机场基本属于地方政府管辖，而国内各航空公司却属于民航总局管辖。国内机场基本都是国企单位，绝大部分的中小型机场是所在地方财政的包袱。

国内小型机场运作可行性不是很高。在国内运营小型机场首先要解决以下问题：
1. 小型机场定位
2. 地方政府支持程度
3. 航线和航班的拥有数
4. 事故危险反应能力程度

Criteria for Selecting the Appropriate Test Statistic

When sampling from a:	Test statistic	Test statistic
	Small Sample (n<30)	Large Sample (n>30)
Normal distribution with known variance	z-statistic	z-statistic
Normal distribution with unknown variance	t-statistic	t-statistic*
Nonnormal distribution with known variance	not available	z-statisitc
Nonnormal distribution with unknown variance	not available	t-statistic*

*The z-statistic is theoretically acceptable here, but use of the t-statistic is more conservative.

Normal Distribution Vs. Lognormal distributions

The lognormal distribution is skewed to the right, whereas the normal distribution is symmetrical. The lognormal distribution can only have positive values: whereas the normal distribution includes both postive and negative values. This property makes the lognormal distribution useful for modeling asset prices.

对数正态分布常常被用来描述股票价格的运动，而正态分布则被用来描述股票收益率和资产的价格。因为如果用正态分布来描述股票价格的变动，则我们有时会得到收益率<-100%的结果，这样股票价格有可能成为负值。而使用对数正态分布的价格模型描述股票价格的变动可以避免这样的问题，股票的价格永远非负值。对数分布也比较适合描述资产的价格，因为资产价格理论上不会<0。而正态分布有正负值之分，比较适合用来描述投资的收益率。

Monte Carlo Simulation Vs. Historical Simulation

Monte Carlo simulation is a technique based on the repeated generation of one or more risk factors that affect security values, in order to generate a distribution of security values.

For each of the risk factors, the analyst must specify the parameters of the probability distribution that the risk factor is assumed to follow. A computer is then used to generate random values for each risk factor baed on its assumed probability distributions. Each set of randomly generated risk facotrs is used with a pricing model to value the security. this procedure is repeated many times (100s, 1000s, or 10000s) and the distribution of simulated asset values is used to draw inferences about the expected (mean) value of the security and possibly the variance of security values about the mean as well.

As an example, consider the valuation of stock options that can only be exercised on a particular date. The main risk factor is the value of the stock itself, but interest rates could affect the valuation as well. the simulation procedure would be to:

1. Specify the probability distribution of stock prices and of the relevant interest rate, as well as the parameters (mean, variance, possibly skewness) of the distributions.
2. Randomly generate values for both stock prices and interest rates.
3. Value the options for each pair of risk factor values.
4. After many iterations, calculate the mean option value and use that as your estimate of the option's value.

Monte Carlo simulation is used to:

• Value complex securities.
• Simulate the profits/losses from a trading strategy.
• Calculate estimates of vale at risk (VAR) to determine the riskiness of a portfolio of assets and liabilities.
• Simulate pension fund assets and liabilities over time to examine the variability of the difference between the two.
• Value portfolio of assets that have non-normal returns distributions.

The limitation of Monte Carlo simulation are that it is fairly complex and will provide answers that are no better than the assumptions about the distributions of the risk factors and the pricing/valuation model that is used. Also, simulation is not an analytic method but a statistical one, and cannot provide the insights that analytic methods can.

Historical simulation is based on actual changes in value or actual changes in risk factors over some prior period. Rather than model the distribution of risk factors, as prior period is used. Each iteration of the simulation involves randomly selecting one of these past changes for each risk factor and calculating the value of the asset or protfolio in question, based on those changes in risk factors.

Historical simulation has the advantage of using the actual distribution of risk factors so that the distribution of changes in the risk factors does not have to be estimated. it suffers from the fact that past changes in risk factors may not be a good indication of future changes. Events that occur infrequently may not be reflected in historical simulation reults unless the events occurred during the period from which the values for risk factors are drawn. An additional limitation of historical simulation is that it cannot address the sort of "what if" questions that Monte Carlo simulation can. With Monte Carlo simulation we can investigate the effect on the distribution of security/portfolio values of increasing the variance of one of the risk factors by 20%; with historical simulation we cannot do this.

蒙特卡罗模拟对历史性模拟

当研究的系统和问题过于复杂和慎重时，有必要进行一系列的模拟。一边情况下模拟方式分为两种：蒙特卡罗模拟和历史性模拟。两种模拟方法广泛用于风险管理，用于估计VAR。

蒙特卡罗模拟过程是：首先确定和辨明系统或者问题中的变量，然后设计并假定其变量的概略分布模型，生成一系列的随机序列，再用这些随机序列计算出所需的数值和指标，重复足够多的次数（样本越大，体现出的特性就越明显，误差越小，从而得出更精确的结果）。最后对所有的模拟产生的结果进行统计。蒙特卡罗模拟通过计算机技术产生大量的随机数学模拟分布来解决问题。

历史性模拟不是假定随机变量的分布，而是采用其历史数据的分布来进行模拟。

两种模拟的优缺点：

蒙特卡罗模拟相比之下比较复杂，结果的准确性过于依赖概率分布模型，模拟方法不是一种分析方法而是一种统计方法，缺乏一定的见解和主观评价，换句话讲句是一大堆数据过于抽象，还有就是模拟结果不会知道其运用分布模型和参数是否正确有效。运用历史性模拟情况下，如果历史上没有发生的事件，在模拟中肯定也不会出现，模型缺乏创造性和随机事件充分性。相比蒙特卡罗模拟下，历史性模拟不能做猜测功能的列举。另外，蒙特卡罗模拟产出的数值方差跨度可以比历史性模拟大出20%， 这样能充分地得到事件和数值。

Thanks Darin

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