ShmoopTube

Where Monty Python meets your 10th grade teacher.

Search Thousands of Shmoop Videos

Principles of Finance: Unit 3, What is Accrual and Why Do I Care? 11 Views


Share It!


Description:

Accrual accounting, as it relates to free cash flow, gives you options to buy back your stock, buy your competitors, or buy that fancy new motorized scooter you've had your eye on.

Language:
English Language

Transcript

00:00

principles of finance - a la shmoop. what is accrual accounting and why do I

00:07

care? all right well the $5 word of the day is accrual. and note that you accrue

00:13

at your own peril if you act crew too aggressively or to passively when you [accrue defined]

00:19

depreciate that tractor factory. think accrual is the Lazarus anti to lien of

00:25

cash accounting or something like that. all right free cash flow is the Golden

00:29

Goose . and in the management of companies it is the smell of napalm in the morning.

00:36

all right well when you have free cash flow you have options. you can buy back

00:40

your own stock. you can buy your competitors and raise prices or lower

00:45

expenses or both. or you could raise your dividend or just pay one if you weren't.

00:49

in any outcome free cash is generally happy cash. right well the goal here is

00:53

to magically convert accrual basis earnings into cash generated from or

00:59

consumed by operations. so how do we do that? all right we're gonna delve into [cash in a melting pot]

01:04

Mattel corporation yes the makers of Barbie and Ken in the Easy Bake Oven.

01:09

just because we think it's so odd that these gender and racial stereotypes

01:14

still get sold to the young people of this country and around the world. oh and

01:18

because Mattel is pretty easy to understand. they basically remould cheap

01:22

plastic into a relatively expensive representations of humans and then sell

01:27

them on the web and in toy stores around the world. well here's a recent set of

01:32

filings glanced through the balance sheet and the statement of operations-

01:35

fancy name for income statement. and get quickly to the consolidated statements [income statements stacked]

01:40

of cash flows. note that this is yep consolidated .Mattel has many divisions

01:46

and does business in many countries and this consolidated thing is just a

01:50

mash-up of all of those discrete elements inside the company to produce

01:54

one document that everyone can look at. why is this good? well because you can't

01:58

invest only in Mattel Singapore. you can did Mattel corporation that's it. so the

02:05

good the bad the ugly they all go into soup that you are eating. think of that [ doll parts thrown in a soup]

02:09

when you slurp.

Up Next

GED Social Studies 1.1 Civics and Government
39794 Views

GED Social Studies 1.1 Civics and Government

Related Videos

Fake News
11938 Views

How do you tell fake news from real news?

Finance: What is Bankruptcy?
260 Views

What is bankruptcy? Deadbeats who can't pay their bills declare bankruptcy. Either they borrowed too much money, or the business fell apart. They t...

Finance: What is a Dividend?
1777 Views

What's a dividend? At will, the board of directors can pay a dividend on common stock. Usually, that payout is some percentage less than 100 of ear...

Finance: How Are Risks and Rewards Related?
589 Views

How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in...