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What does this mean?

Discussion in 'Beginner's Lounge' started by viciam, Nov 24, 2016.

  1. viciam

    viciam

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    Hi guys,

    Hope you're all well. I was just reading through the q3 2016 report of a company where I found this line in the footnotes;

    "As of October 2, 2016, approximately $203.2 million of unrecognized compensation cost related to stock options, restricted stock, and ESPP shares
    granted to date is expected to be recognized over a weighted-average period of approximately 2.4 years."

    How should I interpret this line as I am not sure what to make of it. Or is it irrelevant? £208 million of unrecognised costs relating to options and stuff seems a lot? Where will it be recognized in the next 2.4 years and will it effect net income?

    Any thoughts would be welcome.

    Thanks in advance.
     
  2. DeepState

    DeepState Multi-Strategy, Quant and Fundamental

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    It means that XYZ company (Illumina Inc) has been caught artificially inflating the prior years of earnings at some historical stage by not properly recording adequate allowance for compensation. The appropriate treatment for such things is clearly codified and I would not regard the prior practice as accidental.

    In order to bring this in to account, they are intending to expense it in the coming 2.4 years, which would lower the earnings as would otherwise have been reported. This is the price for artificially inflating prior years of earnings. This progressive recognition may have already begun prior to Oct. You'll need to read the accounts to figure this out.

    The absolute size of the unrecognised compensation is large. From my read of their accounts, it is not small for the company. I wonder what actions were taken on the CFO/CEO/Chair of Audit Committee and auditor upon the 'discovery' of these unrecognised compensation. I suspect the CEO and CFO recognised they are part of their remuneration package....
     
  3. tech/a

    tech/a No Ordinary Duck

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    And fundamental analysis is all knowing.

    Creative accounting is alive and thriving.
     
  4. systematic

    systematic

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    If you've read my posts you know I don't use the terms fundamental or technical analysis - at least to describe myself; I'm happy to stick to convention and use the terms when chatting to others.
    It's also rare that I'll wade in to a debate or post with the sole motive of disagreeing with someone - even here my point is not an argument, but to nip something in the bud.

    This comment was simply unhelpful and useless in this thread

    a) This is a beginner's forum. I've said it before - I think posters should be ultra helpful in the beginner's forum. Flippant remarks don't help.

    b) The original post is always important to at least bear in mind, even when threads become long and go off on tangents (which is fine). This comment doesn't address the question at all, which was asking for a definition of a term. If I didn't know that the author of the comment was an established forum member I'd start to think it was one of those, 'start a fundamental vs technical debate' type posters that you get on market forums.

    c) I'm surprised you'd make the comment, based on recent thoughts I've seen you share re: agreeing that data is data - if you can use it, use it!

    d) Even if you take the comment as serious (which it can't be - because it doesn't make sense) it's easily shot down with the following:
    "And fundamental analysis is all knowing."
    - Who in their right mind actually claims that? Is there a single self-processed fundamental analyst on this forum that claims that?
    - If someone posted in one of your threads on chart trades a random comment (e.g. when a trade went wrong), "And technical analysis is all knowing" what would you think? How would you respond? What do you think of people who mock technical analysis based on, for example, a single losing trade?(!)

    e) "Creative accounting is alive and thriving."
    - If that is the case, can you please clarify if that's a problem? Or is it an opportunity?


    Sorry tech/a, I just thought this one was a bit too flippant to not pull up on, probably moreso as it was posted to a beginner asking for a definition of something. But all good, only my :2twocents
     
  5. tech/a

    tech/a No Ordinary Duck

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    Was flippant --seen in the brevity.
    All analysis as you point out is input in.
    Its what comes out that matters.

    Deepstates answer just highlights how difficult input can be.
     
  6. systematic

    systematic

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    Good stuff. :xyxthumbs

    ...and spot on re: DeepState's answer!
     
  7. icemanmelb

    icemanmelb

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    I would put it as a red flag on management, find out who the management are as see if I hold any other stocks that these guys control and start reducing my holdings in them. Also check your market cap as well as the short list.

    Ice
     
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