Comment by chx | Hacker News Reader

Comment by chx | Hacker News Reader

I absolutely hate these confusing words. It is alongside of "surname" and "last name" -- why can't you just use "family name" and "given name".

While I understand an investor report needs to be precise the articles about it needs to use terms people understand. Like "this is how much money came in the doors" -- aka. income. I believe the word "revenue" is used for what a layperson would call "income" and "income" is also used but for something else.

And then good luck figuring out how much profit they made. I searched and this article alone http://phys.org/news/2016-07-microsoft-profit-year-big-loss.... puts it in easy-to-understand way right in the very first sentence:

> Microsoft said Tuesday it posted a profit of $3.1 billion in the just-ended quarter

Is that painful to write or what? Because noone else did.

Edit: for example, one could write "Microsoft have sold software and services for $22.6B and made a profit of $3.1B". That's easy. Also, I realize it's not perfect (because they also sold hardware and got money from IP deals) but it's not my task to come up with easy-to-understand phrasing and it only needs to be done once. It's just an example of how to use words that non-accountant people can understand.

You're complaining about them using words like "revenue" and "income" in the way they're meant to be used in accounting? That's...puzzling. Even surname (which you seem to dislike) is a pretty common word.

Not everything has to be immediately accessible; every field has terminology we have to be aware of when entering it - and that's not a bad thing.

The confusing words you hate are pretty much standard terms in every earnings press release ever written.

GAAP is basically a huge bundle of compromises between corporations and the FASB. In reality, "revenue" and "income" don't really have rigourous definitions. Quarterly figures are also often adjusted in subsequent periods. Unfortunately, many websites simply gloss over this fact and just report the stated numbers.

As noted in my other comment, I had to look up what GAAP meant.

What's the FASB?

Financial Accounting Standards Board.

To complicate matters further there is US GAAP, UK GAAP, German GAAP, etc. The tl;dr of the earlier comment is that accounting reports don't usually reflect economic realities of large corporations.

There are several companies/methodologies that significantly adjust public filings to reflect economic realities: [1] https://www.credit-suisse.com/sites/holt/en.html [2] http://finance.wharton.upenn.edu/~acmack/Chapter_12_app.pdf

I think it's more a case of there not being any singular knowable economic reality of a sufficiently large organisation -- so you agree on some principles that are at least somewhat consistent and comparable over time and between (similar) organisations.

I had a financial accounting professor who would recount the quote, "Profit is an opinion, but cash is a reality."

The 10k's we would go over took a lot of analysis to understand financially and operationally if the company is in good shape based on the stated numbers.

Definitely not true. You can manipulate cash flow. For example you can give your customer a sweet heart deal where you give your customer a massive discounts on future orders for upfront payment you get a lot of cash the current q, but you are hurting yourself in future q. You can also increase you ap and make cash flow better.you can also pay employees with stock and increase cash flow, but decrease share holder value.

Sure that's the cash flow statement. When looking at free cash flows one would take into account changes in net working capital and adjust accordingly.

From investopedia:

Free cash flow is most commonly defined as operating cash flow minus capital expenditures

You would need to make adjustments to the cash flow if you wanted to account for the extra liabilities since that doesn't use cash in the current quarter.

My point is cash flow can be manipulated just like income statements. You really need to look at income statement, cash flow, and balance sheet to know what is going on.

That's the investopedia definition.

Here's an alternate definition (and you'd adjust based on a given industry or company)

Start with Net income + expenses not using cash (such as depreciation and amortization) - revenues not providing cash (such as recognition of deferred revenues) - increase in working capital or + decrease in working capital - increase in required cash balances or + decrease in required cash balances + interest paid in cash (recall that all firms must disclose this number) - interest tax shield (the tax “savings” from financing charges due to the tax deductibility of interest) - long term capital investment (including, but not limited to capital expenditures or “CAPEX”) + cash from sales of assets (including sales of PPE)

= Free Cash Flows to the Unlevered Firm

You'd continue on with more calculations to get to free cash flows to common equity or whatever you're interested in.

Revenue and net income are standard, and (relatively) precise terms. Using "income" in place of revenue would only make it confusing to people who know the standard terms, while only marginally lessening the confusion of people who don't know them.

Right. I had to look up what GAAP means so I could understand non-GAAP.

GAAP - Generally Accepted Accounting Principles

So what then is non-GAAP?

But lack of standardization in these calculations, plus the potential for creative accounting, make it difficult to draw relevant comparisons among companies or draw meaningful conclusions from these statistics.[1]

Riiiiiiight.

It the article was from a financially oriented news organisation it'd make a bit more sense to use the terms of industry.

1. http://financial-dictionary.thefreedictionary.com/Non-GAAP

In this case, "Non-GAAP" means an earnings/revenue figure that the company produced itself. Companies usually claim this reflects economic reality but keep in mind they are free to cook up whatever numbers they want. GAAP would mean figures that adhere to general accounting rules, which independent auditors help confirm.

Generally, "Non-GAAP" can mean either IFRS or Cash Basis Accounting

Basically:

GAAP - Generally Accepted Accounting Principles = the way large corporations in the US have to account for things (assets, liabilities, equity, earnings, cash flows, etc.) --> Accruals

IFRS - International Financial Reporting Standards = how European companies account for things --> Accruals

Cash Basis Accounting = the way small businesses usually account for things

Cash Basis Accounting vs. Accrual Accounting (GAAP/IFRS/etc.)

* Cash Basis --> expenses and revenues directly match cash flows, I buy a machine that lasts 5 years today and expense the whole purchase price today

* Accrual Accounting --> expenses are recorded when "incurred" and revenues when "earned", I buy a machine that lasts 5 years today and expense the purchase price over 5 years

Individual standards (IFRS/GAAP, etc.) define these soft terms: incurred, earned, assets, debt, equity, other income, etc.

The only trouble I have with what you've said are in your examples for cash basis vs. accrual. Even on a cash basis I have to depreciate capital goods over time. The capital asset still has value regardless of my accounting method, so in a sense I've converted the cash (an asset) into a machine (another kind of asset). I still expense over time under the cash method because I'm representing things like wear and obsolescence rather than showing the commitment to an expense vs. the actual settlement of that commitment.

I think it's easier to demonstrate on the revenue side: if I sell a customer something and give them 30 days to pay, under the cash method I don't record the sale until I actually receive the cash whereas under the accrual method I record the sale when I invoice the customer: in the cash basis Accounts Receivable is basically a non-booking account and under the accrual method Accounts Receivable is an asset account. (Note I'm ignoring issues of deferred revenue :-) ).

I do think your definitions are sound.

Note: there are some U.S. tax rules about the first $X yearly capital purchases being immediately depreciable each year (though it's a relatively small amount).

Non-GAAP lets executives create nicer Power Point presentations.

Bullseye.

Revenue and income mean different things. Revenue specifically means sales (sorta) and income is generally after cost of goods sold and other operating expenses. These matter, though. A company can have high revenue and low profit, or vice versa. If you want to see their net income, you can look at their financial statements on SEDAR's website, or on Google or Yahoo finance.

The article is definitely poorly worded, but the words themselves are not the problem.

Maybe this article was written by a bot

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