In this episode, we review upcoming new accounting standards, as well as some of the better metrics relating to asset utilization. Key points discussed concerning new accounting standards are:

• Conceptual Framework Project; could be at the top of the GAAP Hierarchy

• Business Combinations; acquisition method

• Fair Value Option

• Earnings per Share; to converge with IFRS standards

• Income Taxes; to converge with IFRS standards

• Nonprofit Accounting

• Post-Retirement Benefits; implementation guidance

• Subsequent Events; cleanup issues

• Emerging Issues Task Force; changes to its approval process

• Securities and Exchange Commission; Staff Accounting Bulletin 108

Key points relating to the metrics for asset utilization are:

• Sales per person; can be adjusted by using outsourcing or part-time employees

• Need to look at asset utilization on an individual basis to see impact on bottleneck operations

• Repairs to fixed assets ratio; fixed assets are stated at gross, and intangible assets are excluded

• Accumulated depreciation to fixed assets ratio; increasing trend shows preponderance of old assets; might also still have old assets on the books that have already been dispositioned

• Breakeven point; useful for understanding maximum possible profitability, as well as the margin of safety; can be used to view the impact of new fixed asset purchases on the breakeven point

Related Courses

Business Ratios Guidebook

GAAP Guidebook