Stock-options-versus-rsu

Stock-options-versus-rsu

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Apa yang Dibatasi Saham 038 Dibatasi Stock Unit (RSUs) Saham terbatas dan saham terbatas (RSU) telah menjadi pilihan populer bagi banyak perusahaan yang ingin memberi penghargaan kepada karyawan dengan kepemilikan saham di perusahaan tanpa kompleksitas administratif rencana opsi saham tradisional . Rencana saham yang dibatasi telah menunjukkan diri mereka lebih menguntungkan daripada rekan-rekan tradisional mereka dalam artian tidak mungkin saham menjadi tidak berharga, karena untuk pilihan atau hak. Tapi sementara stok terbatas dan RSU serupa dalam banyak hal, kebanyakan pengusaha cenderung menyukai RSU. Ini karena mereka mengizinkan perusahaan menunda penerbitan saham aktual kepada peserta untuk jangka waktu tertentu. Apa yang Dibatasi Stok Saham terbatas adalah saham yang, sesuai namanya, dilengkapi dengan pembatasan tertentu atas penerbitan dan penjualannya oleh pemberi kerja. Jenis saham ini tidak boleh dikacaukan dengan kategori sekuritas lain yang dibatasi yang dikeluarkan untuk eksekutif perusahaan di bawah SEC Rule 144, yang melarang perdagangan orang dalam. Stok terbatas dapat dikeluarkan untuk semua jenis karyawan di perusahaan, dan penerbitan dan administrasinya tidak diatur oleh Rule 144, per se. Namun, saham yang dibatasi adalah entitas terpisah dari rencana pensiun yang memenuhi syarat, seperti 401k. Yang termasuk dalam peraturan ERISA. Ini tidak menerima perlakuan yang diuntungkan pajak dengan cara apa pun sesuai dengan rencana yang berkualitas. Struktur dan Tujuan Saham terbatas diberikan kepada karyawan pada tanggal pemberian opsi dengan cara yang serupa dengan rencana opsi saham biasa. Namun, saham terlarang tidak memiliki fitur latihan yang biasanya sahamnya ditahan oleh perusahaan sampai jadwal vestasinya selesai. Stok terbatas diklasifikasikan sebagai ldquofull-value grant, rdquo yang berarti bahwa saham tersebut memiliki nilai penuh dari saham pada saat diberikan. Stok terbatas menyerupai rencana tradisional yang tidak memenuhi syarat karena ada risiko penyitaan yang besar terhadap karyawan tersebut. Jika persyaratan jadwal vesting tidak terpenuhi, maka karyawan tersebut akan kehilangan sahamnya kembali ke pemberi kerja. Jadwal Vesting Pengusaha menerbitkan saham terbatas sebagai sarana untuk memotivasi karyawan untuk mencapai tujuan perusahaan tertentu. Umumnya ada tiga jenis kondisi vesting yang digunakan untuk stock terbatas: Kepemilikan Karyawan. Banyak rencana saham terbatas hanya mengharuskan karyawan tersebut untuk tetap dipekerjakan di perusahaan tersebut dalam jangka waktu tertentu, seperti tiga sampai lima tahun. Kinerja karyawan . Beberapa jadwal vesting membayar pada pencapaian tujuan perusahaan tertentu, seperti pengembangan produk baru atau mencapai ambang produksi tertentu. Accelerated Vesting. Percepatan vesting dapat digunakan jika perusahaan menjadi bangkrut atau bangkrut (sehingga karyawan setidaknya bisa menerima sesuatu sebelum stok menjadi tidak berharga) atau karyawan tersebut meninggal atau menjadi cacat. Beberapa jadwal vesting menggabungkan fitur ini. Misalnya, perusahaan mungkin menawarkan jadwal vesting empat tahun yang akan mempercepat jika karyawan tersebut mencapai tujuan atau tugas tertentu. Jadwal vesting untuk saham terlarang mencerminkan rencana pembagian keuntungan yang memenuhi syarat, dan mungkin juga berdasarkan pada diskresioner pengusaha. Cliff vesting adalah pengaturan dimana karyawan menerima semua saham sekaligus setelah jangka waktu tertentu, seperti lima tahun. Rompi bertingkat secara berkala menghilangkan batasan pada sebagian saham selama jangka waktu tertentu ndash misalnya, 20 saham sekali setahun selama periode lima tahun sejak masa hibah. Perpajakan Saham Terbatas Seperti opsi saham yang tidak memenuhi syarat. Stok terbatas tidak dikenakan pajak pada saat hibah (atau olahraga, karena tidak ada fitur olahraga di sini). Nilai saham yang dibatasi penggunaannya menjadi kena pajak penuh pada saat menjadi hak tersebut, bila tidak ada risiko penyitaan lebih lanjut dan karyawan tersebut menerima penerimaan saham secara konstruktif. Jumlah yang dikenakan pajak sama dengan jumlah saham yang menjadi hak pada tanggal vesting dikalikan dengan harga penutupan saham. Jumlah ini dikenakan pajak kepada karyawan sebagai kompensasi pada tingkat pendapatan biasa, terlepas dari apakah karyawan tersebut segera menjual saham atau memegang saham untuk jangka waktu tertentu. Pajak penggajian ndash termasuk pajak negara bagian, lokal, jaminan sosial, dan pajak Meditasi ndash dikeluarkan, dan pemberi kerja dapat memilih untuk mengurangi jumlah saham yang dibayarkan kepada karyawan tersebut dengan jumlah saham yang diperlukan untuk menutupi pajak yang dipotong. Karyawan yang memilih untuk menyimpan saham dan menjualnya di kemudian hari melaporkan keuntungan atau kerugian jangka pendek atau jangka panjang yang sesuai, dengan harga saham atau harga pada tanggal (atau tanggal) vesting menjadi dasar biaya penjualan. Contoh Perpajakan di Vesting Sam menjadi hak pemegang saham terlarang pada 1.000 saham pada tanggal 5 September. Stok ditutup pada 45 per saham hari itu. Dia harus melaporkan 45.000 kompensasi yang diterima untuk ini. Jika dia berada dalam rencana pelelangan bergradasi, maka harga saham penutupan pada setiap tanggal vesting digunakan. Penghasilan ini akan ditambahkan ke sisa upahnya pada formulir W-2. Bagian 83 (b) Pemilihan Karyawan yang menerima saham terlarang harus membuat pilihan penting begitu mereka masuk ke dalam rencana ini. Mereka memiliki pilihan untuk membayar pajak pada saat vesting, atau mereka dapat membayar pajak atas persediaan pada saat pemberian. Bagian 83 (b) dari Internal Revenue Code mengizinkan pemilihan ini dan memungkinkan karyawan membayar pajak sebelum melakukan vesting sebagai alat untuk membayar lebih sedikit pajak secara keseluruhan. Tentu saja, apakah strategi ini berhasil sepenuhnya tergantung pada kinerja saham. Contoh 83 (b) Pemilihan Joan mengetahui bahwa dia akan diberikan 1.000 saham dengan saham terbatas. Harga saham perusahaan adalah 10 pada tanggal pemberian. Joan merasa bahwa harga saham akan dihargai secara substansial dalam lima tahun ke depan, jadi dia memilih untuk membayar pajak sekarang dengan harga di bawah Bagian 83 (b). Dia dikenakan pajak atas 10.000 kompensasi biasa sebagai hasilnya. Lima tahun kemudian, dia menjadi benar-benar berada di bawah stok di bawah jadwal pelelangan tebing, dan stoknya bernilai 25 per saham. Joan secara efektif lolos dari pajak sebesar 15.000 dari pendapatan berdasarkan ketentuan ini. Namun, jika harga sahamnya lebih rendah dari 10 saat dia menjadi vested, maka dia tidak akan bisa menutup pajak yang dia bayar berdasarkan harga saham yang lebih tinggi pada tanggal pemberian. Keuntungan Saham Terbatas Saham terbatas menawarkan beberapa keuntungan dibandingkan opsi opsi saham tradisional. Beberapa keuntungan utama yang menyertai jenis saham ini antara lain: Full Value at Grant. Tidak seperti opsi saham tradisional, tidak mungkin saham yang dibatasi menjadi tidak berharga jika turun di bawah harga tertentu (kecuali, tentu saja, harga saham turun menjadi nol). Oleh karena itu, karyawan tidak dapat menjadi kekurangan air dalam persediaan terbatas mereka dan tidak perlu membayar sebagian hasil penjualan untuk membayar kembali jumlah yang diberikan. Meningkatkan Motivasi dan Kepemilikan Karyawan. Karyawan yang tahu bahwa mereka akan segera masuk ke nilai penuh dari saham setelah mereka menjadi vested akan lebih cenderung tinggal dengan perusahaan dan tampil pada tingkat tinggi. Hak suara Tidak seperti sepupu RSU mereka, pemegang saham terbatas menerima hak untuk memilih jumlah saham yang mereka berikan. Hak istimewa ini ada terlepas dari apakah jadwal vesting sudah selesai. Dividen. Saham yang dibatasi biasanya membayar dividen langsung (atau jumlah uang tunai sama dengan mereka sebelum dipinjamkan) kepada pemegang saham sebelum dan sesudah vesting. Kekurangan Stok Terbatas Beberapa kekurangan yang menyertai stock terbatas meliputi: Persyaratan Vesting. Karyawan tidak dapat segera mengambil alih saham, namun harus menunggu ketentuan vesting tertentu untuk dipuaskan. Kelebihan Pajak. Karyawan mungkin harus melakukan pembayaran pajak yang tidak perlu menurut Bagian 83 (b) pemilihan jika harga saham turun. Perpajakan yang lebih tinggi. Tidak ada perawatan capital gain yang tersedia pada latihan ndash hanya untuk apresiasi antara harga pada vesting dan penjualan. Lebih Sedikit Saham Ditempatkan. Karena mereka memiliki nilai mutlak, perusahaan biasanya menerbitkan lebih sedikit saham (mungkin sepertiga dari seperempat) saham terbatas dibandingkan opsi saham. Waktu pajak Karyawan harus membayar pajak pemotongan pada saat latihan terlepas dari kapan saham dijual ndash no deferral tersedia sampai dijual. Apa yang Dibatasi Unit Saham (RSUs) Meskipun unit saham terbatas serupa dengan saham biasa yang dibatasi penggunaannya dalam banyak hal, instrumen serbaguna ini sering dikeluarkan oleh pengusaha sebagai pengganti saham terbatas. RSU menawarkan banyak keuntungan yang sama seperti saham biasa, namun memiliki beberapa karakteristik unik yang membuat mereka lebih menyukai saham aktual dalam beberapa kasus. Unit saham terbatas merupakan janji oleh majikan untuk membayar karyawan tersebut sejumlah saham perusahaan di masa depan setelah menyelesaikan jadwal vesting. Karyawan diberi sejumlah ldquounitsququo yang sesuai yang mewakili minatnya terhadap saham, namun tidak ada dana aktual sampai vesting selesai ndash penugasan unit-unit ini hanyalah sebuah entri pembukuan yang tidak memiliki nilai nyata dalam bentuk apapun. RSU biasanya memiliki jadwal vesting yang serupa atau identik dengan hibah dari saham yang dibatasi penggunaannya. Mereka tidak membayar dividen secara langsung, tapi mungkin membayar setara dengan dividen yang dapat disalurkan ke rekening escrow untuk membantu membayar pajak pemotongan, atau diinvestasikan kembali ke pembelian lebih banyak saham. Perpajakan RSU Unit-unit saham yang dibatasi dibatasi dengan cara yang sama seperti saham yang dibatasi penggunaannya. Karyawan harus membayar pajak penghasilan dan pemotongan atas jumlah yang diterima pada tanggal vesting, berdasarkan harga penutupan pasar dari harga saham. Mereka umumnya memiliki pilihan yang sama untuk dipilih untuk membayar pajak pemotongan yang dapat mereka bayar dari pajak, atau menjual jumlah unit yang dibutuhkan untuk menutupi jumlah ini. Harga penutupan saham pada saat vesting kemudian menjadi dasar perhitungan keuntungan atau kerugian saat saham terjual. Bagian 83 (b) pemilihan tidak tersedia bagi karyawan yang menerima RSU. Hal ini karena ketentuan ini hanya berlaku untuk properti berwujud, dan tidak ada properti yang sebenarnya diberikan kepada mereka karena saham tersebut merupakan saham yang dibatasi penggunaannya. Namun, RSU tidak dikenai pajak sampai jadwal vesting selesai dan karyawan secara konstruktif menerima saham aktual yang dijanjikan. Tentu saja, kedua peristiwa ini biasanya terjadi pada saat bersamaan, namun karyawan dapat menunda perpajakan dalam beberapa kasus (kecuali pajak Jaminan Sosial dan Meditasi, yang harus selalu dibayar saat vesting) dengan memilih untuk menerima saham di kemudian hari. . Keuntungan RSUs RSU menawarkan banyak kelebihan dan kekurangan yang sama dengan sepupu bekal mereka yang dibatasi. Perbedaan utama berikut berlaku: Kemungkinan Pajak yang Lebih Rendah. Karena tidak adanya Bagian 83 (b) ketentuan, tidak ada kemungkinan kelebihan pembayaran pajak. Penundaan Penerbitan Saham. Pengusaha dapat mengeluarkan RSU tanpa menipiskan dasar saham (menunda penerbitan saham perusahaan). Ini adalah keuntungan substansial tidak hanya pada saham yang dibatasi, namun bentuk rencana saham lainnya, seperti rencana pembelian saham karyawan dan rencana opsi saham wajib dan non-undang-undang. Murah Pengusaha dikenakan biaya administrasi yang lebih rendah, karena tidak ada saham aktual yang harus dimiliki, dicatat, dan dilacak. Penangguhan Pajak Hal ini dimungkinkan untuk menunda perpajakan di luar tanggal vesting dengan menunda penerbitan saham kepada karyawan. Pajak Luar Biasa. Penerbitan RSU kepada karyawan yang bekerja di luar A.S. dapat mempermudah perpajakan karena perbedaan waktu dan bagaimana opsi saham dikenai pajak. Kekurangan RSU Tidak Ada Hak Voting. RSU tidak menawarkan hak suara sampai saham sebenarnya dikeluarkan saat vesting. Tidak Dividen. RSU tidak dapat membayar dividen, karena tidak ada saham aktual yang digunakan (pengusaha dapat membayar dividen tunai setara jika mereka memilih). Tidak ada Bagian 83 (b) Pemilihan. RSU tidak menawarkan Bagian 83 (b) pemilihan karena unit tersebut tidak dianggap sebagai properti nyata menurut definisi Internal Revenue Code. Jenis pemilihan ini hanya bisa digunakan dengan properti berwujud. Dari perspektif employeersquos, secara realistis tidak banyak perbedaan antara menerima saham terbatas versus unit saham terbatas, kecuali bahwa tidak ada 83 (b) pemilihan yang tersedia untuk RSU. Majikan biasanya mendapatkan keuntungan lebih dari penggunaan RSU karena memungkinkan mereka menunda penerbitan saham perusahaan sampai jadwal vesting selesai, yang kemudian menunda pengenceran basis saham. Final Word Saham terbatas dan RSU adalah bentuk kompensasi kompensasi tangguhan pajak yang lebih fleksibel yang tidak menyajikan beberapa batasan yang sering dihadapi atasan dengan rencana opsi saham konvensional, seperti dilusi saham perusahaan. Meskipun kedua jenis rencana menjadi lebih populer di kalangan pengusaha, RSU mulai gerhana rekan-rekan mereka karena kesederhanaan dan penundaan penerbitan saham mereka lebih besar. Untuk informasi lebih lanjut mengenai bentuk kompensasi ekuitas ini, hubungi perwakilan SDM atau penasihat keuangan Anda. Pajak atas Rencana Pembelian Saham Karyawan (ESPP) memiliki dua komponen: perbedaan antara harga penawaran dan nilai pasar wajar (FMV) saham adalah Diperlakukan sebagai pendapatan kerja dan selisih antara FMV dan harga jual diperlakukan sebagai keuntungan atau kerugian modal. Sebagai contoh, katakanlah bahwa saham ABCer atasan Anda ditawarkan kepada Anda pada harga 10 pada tanggal 15 September dan pada hari itu, saham tersebut ditutup pada tanggal 12. Seperti yang telah Anda kontribusikan 5.000 terhadap pembelian saham perusahaan, 500 saham (500010 per saham) disetorkan ke akun broker Anda. Manfaat 1.000 (500 saham x (12 8211 10)) diperlakukan sebagai pendapatan pekerjaan dan akan dikenakan pajak dengan tarif pajak marjinal. Mulai tahun 2011, Badan Pendapatan Kanada mewajibkan pengusaha untuk menahan dan mengirimkan pajak penghasilan atas imbalan saham karyawan. Oleh karena itu, ABC Corp akan menahan 460 sebagai pajak penghasilan dan mengirimkannya ke CRA. Pada akhir tahun buku, ABC Corp akan memasukkan 1.000 di Kotak 14 (Penghasilan Ketenagakerjaan) dan 460 di Kotak 22 (potongan pajak penghasilan) slip T4 Anda. Karyawan diharuskan untuk mencatat dasar biaya yang disesuaikan dari saham yang diterbitkan berdasarkan program Pembelian Saham Karyawan. Jika kami berasumsi bahwa Anda sebelumnya tidak memiliki saham di perusahaan Anda dan Anda memutuskan untuk menjual saham ESPP yang dikeluarkan untuk Anda, Anda juga harus mengumumkan keuntungan atau kerugian modal pada Jadwal 3 (keuntungan atau kerugian Modal) pada tahun di mana Saham dilepas. Dalam contoh kita, mari kita katakan ABC Corp keluar dengan kejutan pendapatan segera setelah saham ESPP disimpan di akun Anda. Stok diperdagangkan pada 15 dan Anda memutuskan untuk menjual. Anda akan memperoleh modal sebesar 1.500 (500 saham x (15 8211 12)) yang harus Anda sampaikan dalam Jadwal 3 pengembalian pajak Anda untuk tahun tersebut. Keganjilan perlakuan pajak atas ESPPs menggarisbawahi risiko yang melekat pada kepemilikan perusahaan. Jika Anda ditawarkan saham pada 2 ketika saham perusahaan diperdagangkan pada 20, Anda berada di hook untuk pajak penghasilan atas selisihnya, terlepas dari apa yang akhirnya Anda jual sahamnya. Jika sahamnya terpuruk dan akhirnya Anda berhasil menjualnya pada harga 2, Anda akan memiliki kerugian modal 18 yang hanya bisa digunakan untuk mengimbangi keuntungan modal di tempat lain dalam portofolio Anda, bukan keuntungan kerja asli. Pos ini telah diupdate pada tanggal 23 Mei 2012 untuk mencerminkan perubahan terbaru dalam perpajakan manfaat ESPP. Informasi pajak yang disajikan dalam posting ini berlaku untuk kedua rencana pembelian saham yang ditawarkan oleh pengusaha Kanada dan program ESPP yang biasanya ditawarkan oleh pengusaha AS. Pos tersebut diperbaharui lagi pada 29 Oktober 2013 dengan grafik yang menjelaskan bagaimana Rencana Pembelian Saham Karyawan dikenai pajak. Artikel ini memiliki 49 komentar 8220Jika Anda ditawarkan saham pada 2 saat saham perusahaan diperdagangkan pada 208221 It8217s benar dengan variasi kecil karena Anda dapat menjual saham pada hari yang sama mereka muncul di akun Anda. Misalnya, perusahaan saya membeli ESPP setiap 6 bulan dan harga penawarannya adalah yang terendah (hari pertama, hari terakhir). Dalam kasus terburuk, jika Anda menjual hari yang sama, Anda mendapatkan keuntungan dari imbalan kerja (-taksi). Tentu saja, bahayanya adalah Anda memegang saham dan jika turun, skenario yang Anda jelaskan terjadi: Anda akan dikenai pajak atas keuntungan pada hari penawaran. Hanya untuk menambahkan pengingat penting bahwa Anda sebagai karyawan bertanggung jawab untuk mencatat pajak Anda. Manfaat kerja akan dikurangkan dari sumbernya, namun Anda bisa mendapatkan bentuk lain, terutama jika rencana Anda ditangani oleh pihak ketiga. Anda harus memvalidasi informasi tentang formulir tersebut. Dulu saya bekerja untuk perusahaan yang memiliki ESPP (perusahaan SDM Kanada yang besar) dan mereka mengacaukan dokumen yang dikirim ke penyedia ESPP. Hasilnya adalah slip pajak yang berasal dari pihak ketiga menunjukkan capital gain yang termasuk keuntungan kerja, berarti kita dikenai pajak dua kali. Saya hanya memperhatikannya setelah tahun kedua atau ketiga saya dalam rencana tersebut, dan perusahaan tersebut tidak akan membantu saya mengetahuinya. Setelah berbicara dengan banyak orang di CRA dan penyedia ESPP, saya menemukan jawaban sebenarnya (bahwa kami telah mendapatkan pajak dua kali lipat), mengajukan penyesuaian pajak dan mengembalikan sekitar 3.000. Bahkan setelah semua itu departemen HR menolak untuk mengirimkan email yang menjelaskan masalahnya. Mereka akhirnya mengirimkan sebuah email yang cukup samar yang memberitahu orang untuk berkonsultasi dengan profesional pajak. LUC 8211 Saya memiliki pengaturan yang sama kecuali ada jendela 5 hari sejak saya menerima saham (dari atasan saya) saat mereka muncul di akun saya untuk menjual. Setiap fluktuasi harga saham dalam 5 hari tersebut merupakan capital gainloss. Sean: terima kasih atas komentarnya Itu terjadi sekali bagiku saat akuntan lupa menambahkan manfaat ESPP ke slip T4. Saya menunggu sampai mereka mengirim yang baru dengan informasi yang benar sebelum netfiling tapi banyak rekan kerja meneruskan dan mengajukan pajak mereka dan harus segera melakukan penyesuaian. Traciatim: Ya. Matematika anda benar Manfaat kerja (100 8211 90) 10 100 Keuntungan modal (125 8211 100) 10 250 Manfaat kerja biasanya akan secara otomatis ditambahkan ke T4 Anda (pajak mungkin atau mungkin tidak dikurangkan pada sumbernya) dan dilaporkan pada tahun berjalan. Keuntungan modal dinyatakan dalam SPT 5 tahun kemudian. Jika Anda membuat kesalahan dalam pengembalian pajak tahun lalu, Anda bisa mengajukan amandemen. Calvin: Saya tidak tahu bagaimana unit saham terbatas dikenai pajak. Saya tahu banyak perusahaan yang berbasis di AS tidak menawarkannya di Kanada dan terus menawarkan opsi saham. CC, Dalam semua kasus opsi saham, Anda dapat menunda keuntungan dari pendapatan yang disertakan. Pergilah ke situs CRA (cra.gc.ca) dan dapatkan formulir T1212. Anda dapat menunda masuknya opsi opsi saham dalam pendapatan sampai Anda melepaskan sahamnya. Calvin 8211 Unit Saham Terbatas tidak dikenali di Kanada dengan cara yang sama seperti di Amerika Serikat. Di Kanada, saham dikenai pajak dengan cara yang sama dengan ESPP.282. Manfaat kena pajak termasuk dalam pendapatan (sebagai pendapatan kerja) pada tahun Unit diberikan dan keuntungan modal dimasukkan dalam pendapatan saat hal tersebut direalisasikan. Dengan Unit Saham yang Dibatasi, Anda memiliki periode vesting (dengan demikian dibatasi oleh unit saham terbatas). Anda perlu memegang saham selama periode waktu ATAU sampai mencapai nilai tertentu8230. Ini tergantung pada persyaratan yang ditetapkan dalam perjanjian dengan atasan Anda. Di sinilah Anda harus berhati-hati. Jika Anda tidak memenuhi persyaratan periode vesting, Anda tidak dapat mengklaim apapun terhadap pendapatan pekerjaan Anda. Dengan Unit Saham yang Dibatasi, Anda tidak punya pilihan selain memegangnya sampai mereka rompi. Contoh yang terbaik. Pada bulan November 2005 Anda menerima 100 Unit Saham Terbatas untuk 8.00share dan FMV 10.00. Periode vesting adalah 2 tahun. Anda akan melaporkan 200 (2X100) sebagai penghasilan kena pajak atas pengembalian pajak tahun 2005 Anda di nomor 101. Jika Anda berhenti dari pekerjaan Anda di tahun 2006, atau tidak memenuhi persyaratan vesting, Anda kurang beruntung. 200 termasuk dalam pendapatan pada tahun 2005 dan tidak ada deduksi yang sesuai yang dapat Anda klaim pada tahun 2006. Jika Anda berhasil melewati periode vesting, pada bulan November 2007 Anda dapat menjual saham tersebut. Jika Anda menjualnya dengan keuntungan, Anda bisa mengklaim keuntungan modal di bursa. Jika tidak, Anda akan mengalami kerugian. Terima kasih atas bantuan kalian semua. Pemahaman saya bahwa dengan unit saham terbatas, semua saham yang rompinya dianggap capital gain (berbeda dari opsi saham dimana keuntungannya adalah selisih antara harga strike dan harga jual). Inilah situasi saya: Pada akhir November, 125 saham akan rampung dan nilai pasar saat ini adalah 50share. IPS17m menebak jumlah penuh akan dianggap capital gain dan saya akan dikenai pajak sesuai dengan itu. Sebelum diperkenalkannya Anggaran Federal 2010 (4 Mar 2010) saat Anda memegang saham ESPP (tanggal latihan) dan Nilai Pasar Wajar (FMV) dari Saham tersebut, pada tanggal tersebut, melebihi BIAYA BIAYA YANG disesuaikan (ACB) atas saham tersebut, maka Anda akan dianggap telah memperoleh manfaat kena pajak setara dengan tanggal pelaksanaan ekuitas FMV dikurangi ACB. Terlepas dari apakah, atau tidak Anda benar-benar menjualnya nanti dengan kerugian. Ketika pasar saham Hi-Tech BOOM pergi BUST pada bulan Juli 2000, ribuan pembayar pajak Kanada yang jujur ​​dan pekerja keras terjebak dalam perangkap pajak yang tidak jelas ini dan mengenakan pajak atas keuntungan kertas yang tidak pernah benar-benar terwujud, yaitu pendapatan hantu. Masalah ini ditangani Dalam anggaran federal 2010 dan perubahan sedang dalam pekerjaan tapi persis bagaimana anggaran akan memperlakukan berbagai jenis korban pajak atas penghasilan hantu tidak diketahui sampai anggarannya diloloskan dan menjadi undang-undang. Di komputer saya, dokumen ini menampilkan dua jenis rujukan halaman, yaitu (1) Setiap halaman dokumen memiliki nomor (berwarna biru) yang dapat dilihat di bagian bawah halaman DAN layar di bagian bawah layar menampilkan Nomor halaman pdf yang berjalan dari 1 sampai 424. Untuk memberi petunjuk terbaik, saya akan mengutip kedua nomor tersebut. Referensi peraturan Perpajakan pada ESO8217s (ESPP8217s) dimulai pada halaman dokumen No. 353 dan berlanjut melalui halaman dokumen No. 358. (nomor biru) Halaman PDF yang ditampilkan di bagian bawah layar komputer saya menunjukkan halaman 328 dari 424 sampai halaman 333 dari 424. untuk halaman yang sama. Bagaimana peraturan pajak baru yang diusulkan akan terlihat setelah anggaran selesai melalui proses Review and Approval adalah anyones guess. Strategi terbaik Anda adalah menunggu sampai anggaran dimasukkan ke dalam undang-undang dan peraturan perpajakan di tahun 2010, panduan pajak T1 Umum. Saya juga, seperti Leo dan JC Newgrad, berpartisipasi dalam ESPP di saham AS untuk perusahaan Kanada yang merupakan anak perusahaan yang sepenuhnya dimiliki oleh perusahaan AS. Sebagai warga negara Kanada, saya mengerti bahwa saya harus mengajukan pengembalian pajak AS. Pertanyaan saya adalah, bagaimana saya memperlakukan tunjangan karyawan yang ditambahkan dalam T4 saya di US US saya? Saya menjual saham saya dan ketika saya melakukannya, apakah saya akan dikenai pajak dua kali atas imbalan kerja yang sama atas pengembalian pajak AS Sejak Manfaatnya termasuk dalam pendapatan kotor saya, saya tidak mengurangi jumlah manfaat dari pendapatan saya saat saya mengklaim pengecualian untuk pendapatan luar negeri. Apakah saya melakukan hal yang salah pada tahun ini? Kembali ke AS Kembali ke zad886 Ada dua kelompok AS yang saling bekerjasama satu sama lain dan melobi pemerintah AS untuk mengubah undang-undang legislatif Minimum 8.220Alternative Minimum Tax8221 (AMT) mereka untuk menghentikan pajak warga AS atas pendapatan hantu ditambah Memberikan kompensasi yang adil secara retroaktif kepada mereka yang telah membayar pajak pajak tersebut. Coba hubungi reformamt.org dan fair-iso.org. Salah satu dari mereka harus bisa menjawab pertanyaan Anda. Sejauh ini orang Kanada tidak mendapatkan perlakuan pajak pajak yang sama atau serupa, yang dikenakan pada pendapatan hantu mereka. Hai, Perusahaan saya diakuisisi oleh perusahaan besar lain tahun lalu. Saya memiliki opsi saham yang belum dimiliki tapi belum dieksekusi (tidak dijual). Mereka memutuskan untuk membatalkan opsi saham vested dan membayar jumlah yang setara. Mereka memberi kami FMV pada hari itu tapi itu dibayarkan sebagai bonus sehingga sebagai pendapatan kerja normal. Jelas tarif pajaknya sangat tinggi (tingkat marjinal) dan karena tidak dibayar sebagai opsi saham, saya tidak dapat menggunakan deduksi yang relevan (50 federal dan 25 di provinsi saya, Quebec). Saya memperkirakan saya membayar hampir 18 pajak lagi. Perusahaan seharusnya memberi tahu kami informasi ini (kami adalah beberapa karyawan dalam situasi itu) sebelum membatalkan opsi saham kami. Jika kita tahu hal ini sebelum kita semua telah menjual opsi saham kita untuk mendapatkan keuntungan dari deduksi tersebut. Apakah Anda tahu apakah ini benar untuk melakukan ini dari atasan saya dan apakah Anda tahu jika saya dapat melakukan sesuatu dengan agen CRA dan dengan pemerintah provinsi saya Singkatnya, apakah ada cara untuk mendapatkan uang saya kembali Terima kasih atas bantuan Anda Apakah perpajakan Kanada terhadap ESPP mempertimbangkan disposisi sama sekali Informasi yang ditemukan mengenai syarat vs kualifikasi yang mendiskualifikasi tampaknya sangat rumit, tetapi juga terdengar seperti Anda berpotensi menghemat banyak pajak jika Anda menanganinya dengan benar. Tinggalkan komentar Cancel8220 Hari ini, saya lebih suka mempersiapkan kolonoskopi daripada menerbitkan saham Berkshire.8221 Sabtu terakhir di bulan Februari telah menjadi ritual bagi pemegang saham Berkshire Hathaway dan juga banyak pengamat lain yang tertarik. Beberapa telah menyamakannya dengan 8220Natal pagi8221 untuk kaum kapitalis. Meskipun ini seperti nuansa klasik, pelepasan surat tahunan Warren Buffett8217 ke pemegang saham Berkshire Hathaway dianggap sebagai acara besar bagi siapa pun yang tertarik dengan bisnis. Hal ini terutama karena Mr. Buffett tidak membatasi ruang lingkup komentarnya terhadap hasil Berkshire8217 tetapi juga menentang beragam topik yang diminati. Dalam format yang memberi pinjaman lebih mendalam daripada wawancara televisi, kami ditawari kesempatan untuk melihat Mr. Buffett mengungkapkan beberapa kartunya. Artikel ini menyajikan kutipan dan komentar yang dipilih pada beberapa topik penting yang berhubungan langsung dengan Berkshire namun bukan merupakan tinjauan menyeluruh mengenai surat tersebut, terutama karena berkaitan dengan komentar mengenai kondisi bisnis umum di Amerika Serikat. Semua orang akan mengambil sesuatu yang berbeda dari membaca surat itu dan penting untuk meluangkan waktu melihat dokumen yang sebenarnya sebelum membaca pendapat orang lain, atau bahkan membaca kutipan yang dipilih. Hal ini terutama berlaku bagi pemegang saham yang harus melihat hasil bisnis dengan mata yang segar daripada membiarkan orang lain mengarahkan mereka ke hal yang penting. Nilai Intrinsik Berkshire8217 Pengamat lama Berkshire Hathaway tahu bahwa Mr. Buffett tidak berkomentar secara khusus mengenai nilai intrinsik perusahaan itu. Ini sepenuhnya sesuai untuk beberapa alasan. Jika Anda mengambil dua orang yang diinformasikan dan meminta mereka untuk menilai nilai intrinsik dari bisnis apa pun, sangat tidak mungkin perkiraan tersebut sesuai persis. Yang kita inginkan dari CEO adalah penilaian fundamental. Sebagai pemegang saham, kita bertanggung jawab untuk menentukan perkiraan nilai intrinsik kita sendiri. Yang sedang berkata, Mr Buffett memberikan beberapa komentar penting mengenai nilai intrinsik serta indikasi yang jelas dari pandangannya tentang nilai intrinsik relatif terhadap nilai buku. Pada awal surat tersebut, Buffett berkomentar tentang bagaimana nilai buku Berkshire8217s adalah perkiraan yang cukup dekat untuk nilai intrinsik selama paruh pertama masa jabatan 52 tahunnya. Hal ini karena Berkshire didominasi oleh surat berharga yang diperdagangkan di market8221 di neraca Berkshire8217s. Namun, pada awal 1990an, Berkshire mengalihkan fokusnya pada kepemilikan perusahaan secara langsung. Goodwill ekonomi dari bisnis yang diakuisisi yang menunjukkan hasil yang buruk harus ditulis berdasarkan akuntansi GAAP. Sebaliknya, niat baik ekonomi dari akuisisi yang sukses tidak pernah digarisbawahi di neraca. Hal ini menyebabkan semakin banyak kesenjangan antara nilai buku dan nilai intrinsik mengingat sebagian besar, namun tidak semua, akuisisi Berkshire8217s telah berjalan dengan baik: Weve mengalami kedua hasil tersebut: Seperti halnya perkawinan, akuisisi bisnis sering memberikan kejutan setelah saya dos. Saya telah melakukan beberapa pembelian bodoh, membayar terlalu banyak untuk kebaikan ekonomi perusahaan yang kami dapatkan. Hal itu kemudian menyebabkan goodwill write-off dan akibatnya pengurangan nilai buku Berkshires. Weve juga memiliki beberapa pemenang di antara bisnis yang telah membeli beberapa pemenang dengan sangat besar namun belum menuliskannya dengan sepeser pun. Kami tidak bertengkar dengan akuntansi asimetris yang berlaku di sini. Tapi, seiring berjalannya waktu, hal itu harus memperbesar jarak antara nilai intrinsik Berkshires dan nilai bukunya. Saat ini, keuntungan besar dan berkembang yang tidak tercatat pada pemenang kami menghasilkan nilai intrinsik untuk saham Berkshires yang nilainya jauh melebihi nilai bukunya. Kelebihannya benar-benar besar dalam bisnis asuransi propertycasualty kami dan signifikan juga di banyak operasi lainnya. Apa yang dapat kita ambil dari diskusi singkat ini adalah bahwa kesenjangan antara nilai buku Berkshire dan nilai intrinsik telah berkembang dari waktu ke waktu dan, dengan perolehan sukses tambahan, harus terus tumbuh di masa depan. Untuk menjadi jelas, aspek penting dari hasil Berkshire8217s akan muncul dalam nilai buku di masa depan. Pendapatan tetap Berkshire8217 tercermin sepenuhnya dalam nilai buku. Selain itu, perubahan nilai surat - surat berharga (dengan beberapa pengecualian) juga tercermin dalam nilai buku, setelah dikurangi pajak tangguhan. Namun, sejauh mana goodwill ekonomi dari anak perusahaan Berkshire8217 yang dimiliki sepenuhnya terus meningkat, kesenjangan antara nilai buku dan nilai intrinsik akan terus meningkat. Pembelian Kembali dan Nilai Intrinsik Pembahasan nilai intrinsik, dan meningkatnya kesenjangan antara nilai buku dan nilai intrinsik, mengemukakan hal yang menarik yang telah kita identifikasi beberapa kali di masa lalu. Berkshire Hathaway memiliki kebijakan yang tidak biasa untuk mengumumkan, di awal, harga maksimum yang bersedia dibayarkan untuk membeli kembali saham. Ketika program pembelian kembali awalnya dibuat pada bulan September 2011, nilainya 110 persen dari nilai buku. Pada bulan Desember 2012, batas tersebut meningkat menjadi 120 persen dari nilai buku untuk memfasilitasi pembelian kembali 9.200 saham Kelas A dari pemilik saham lama. Batas pembelian kembali tetap konstan sejak itu dan Berkshire belum dapat membeli kembali sejumlah saham material meskipun beberapa saat dimana harga sahamnya hampir mencapai 120 persen dari nilai buku. Buffett terus mempertahankan batas pembelian kembali sambil mengakui bahwa pembelian kembali saham sulit dilakukan: Sampai saat ini, pembelian kembali saham kami telah terbukti sulit dilakukan. Itu mungkin karena kita telah jelas dalam menggambarkan kebijakan pembelian kembali kita dan dengan demikian telah memberi sinyal pandangan kita bahwa Berkshires nilai intrinsik secara signifikan lebih tinggi dari 120 nilai buku. Jika ya, itu bagus. Charlie dan saya lebih suka melihat saham Berkshire menjual dalam kisaran yang cukup sempit seputar nilai intrinsik, tidak mengharapkan mereka untuk menjual dengan harga tinggi yang tidak beralasan, tidak menyenangkan memiliki pemilik yang kecewa dengan pembelian mereka atau yang terlalu rendah. Selanjutnya, pembelian mitra kami dengan harga diskon bukanlah cara yang sangat memuaskan untuk menghasilkan uang. Namun, keadaan pasar bisa menciptakan situasi di mana pembelian kembali akan menguntungkan pemegang saham yang terus berlanjut dan keluar. Jika demikian, kita akan siap untuk bertindak. Efek pensinyalan dari Berkshire yang menetapkan batas pembelian kembali sebesar 120 persen dari nilai buku telah membatasi kesempatan untuk benar-benar membeli kembali saham dan telah membuat banyak pemegang saham, termasuk beberapa manajer hedge fund terkemuka, melihat tingkat ini sebagai lantai yang merupakan sesuatu yang secara konsisten Tidak setuju dengan Buffett sekali lagi mengulangi bahwa pemegang saham seharusnya tidak salah menafsirkan tujuan dari batas pembelian kembali: Kuasa yang diberikan kepada saya tidak berarti bahwa kita akan memberi harga saham kita pada rasio 120. Jika tingkat itu tercapai, kita malah akan berusaha untuk memadukan keinginan untuk melakukan pembelian yang berarti dengan harga yang menciptakan nilai dengan tujuan yang terkait untuk tidak terlalu memengaruhi pasar. Jelas bahwa Mr. Buffett menganggap nilai intrinsik Berkshire8217 jauh melebihi batas nilai buku 120 persen dan dia telah berkali-kali mengatakannya. Menariknya, dia juga memberi kami petunjuk mengenai apa yang dia anggap di atas nilai intrinsik Berkshire8217: 200 persen dari nilai buku. Kutipan berikut diambil dari surat Mr Buffett8217s kepada pemegang saham: Jika masuknya investor ke saham Berkshire sangat tinggi harganya, katakanlah, mendekati nilai buku ganda, yang saham Berkshire sesekali sampai di sana mungkin sudah bertahun-tahun sebelum Investor bisa merealisasikan keuntungannya Dengan kata lain, investasi yang masuk akal bisa berubah menjadi spekulasi ruam jika dibeli dengan harga tinggi. Berkshire tidak dikecualikan dari kebenaran ini. Pembelian Berkshire yang dibuat oleh para investor dengan harga yang rendah di atas tingkat di mana perusahaan akan membeli kembali sahamnya, bagaimanapun, harus menghasilkan keuntungan dalam jangka waktu yang wajar. Direktur Berkshires hanya akan memberi otorisasi pembelian kembali dengan harga yang mereka yakini jauh di bawah nilai intrinsik. (Dalam pandangan kami, itu adalah kriteria penting untuk pembelian kembali yang sering diabaikan oleh manajemen lainnya.) Jadi, di situlah kita memilikinya: Buffett mempertimbangkan 120 persen nilai buku, dan tingkat di atasnya sedikit, cenderung menghasilkan keuntungan. Untuk pembeli dalam jangka waktu yang wajar (tapi masih beberapa tahun) sedangkan pembelian pada tingkat tinggi seperti 200 persen nilai buku bisa mengakibatkan periode waktu yang sangat lama sebelum keuntungan dapat direalisasikan. Pada tanggal 31 Desember 2016, nilai buku Berkshire8217s per saham Kelas A adalah 172.108. Saham kelas A ditutup pada 255.040 pada hari Jumat, 24 Februari. Hal ini mengindikasikan bahwa saham saat ini diperdagangkan sebesar 148 persen dari nilai buku. Hal ini tampaknya lebih dari 8220modest di atas angka pembelian kembali Berkshire8217s, namun jauh di bawah tingkat bahaya 200 persen buku yang jelas. Apakah 148 persen nilai buku merupakan perkiraan nilai intrinsik yang dekat. Tingkat yang baik untuk membeli saham Atau tingkat penjualan yang baik Pemegang saham tidak dapat mengharapkan untuk diberi sendok makan jawaban oleh Mr. Buffett dan harus memutuskan sendiri. Berkshire 21217s Transformasi Abad 21 Pemegang saham mempertimbangkan Berkshire Hathaway sebagai peluang investasi saat ini menghadapi perusahaan yang sangat berbeda dari yang ada pada pergantian abad ini. Seperti yang telah dicatat oleh Mr. Buffett di awal surat, paruh kedua masa jabatannya ditandai oleh semakin pentingnya perusahaan-perusahaan yang dikendalikan. Efek dari transformasi ini dapat dilihat dengan jelas dalam bagan pendapatan setelah pajak sejak tahun 1999: Terkadang, tren jangka panjang tidak mudah terlihat bagi mereka yang mengamati perubahan pada basis tahun-ke-tahun. Yang jelas, jika melihat tabel di atas adalah bahwa Berkshire adalah perusahaan yang jauh berbeda dari tahun 1999. Selanjutnya, tren ini cenderung meningkat secara signifikan di masa depan, terutama jika Berkshire bermaksud mempertahankan semua atau sebagian besar pendapatannya. . Seperti yang telah kita bahas tahun lalu, Berkshire pada tahun 2026 akan terlihat sangat berbeda dari sekarang. Namun, kita tidak tahu bentuk apa yang akan diambilnya, selain untuk mencatat bahwa resesi besar cenderung membantu Berkshire secara substansial dalam hal alokasi modal: Setiap dekade atau lebih, awan gelap akan memenuhi langit ekonomi, dan mereka akan Sebentar hujan emas Saat hujan deras terjadi, perintahnya bahwa kita buru-buru di luar rumah membawa bak cuci, bukan sendok teh. Dan itu akan kami lakukan. Apa yang Buffett percaya sebagai keuntungan bagi investor perorangan dengan temperamen yang tepat bahkan lebih merupakan keuntungan bagi Berkshire mengingat kemampuan perusahaan untuk mencapai transaksi yang sangat besar dengan cepat pada masa-masa sulit ekonomi: Selama masa-masa yang menyeramkan seperti itu, Anda seharusnya tidak melupakan dua hal. Hal-hal: Pertama, ketakutan yang meluas adalah teman Anda sebagai investor, karena ini merupakan pembelian bargain. Kedua, ketakutan pribadi adalah musuhmu. Ini juga akan tidak beralasan. Investor yang menghindari biaya tinggi dan tidak perlu dan hanya duduk untuk jangka waktu lama dengan koleksi bisnis Amerika yang besar dan konservatif pasti akan berhasil dengan baik. Berkshire hari ini memiliki kelebihan modal yang signifikan untuk penempatan namun tingkat kegembiraan di pasar modal cukup tinggi sehingga kita telah melihat arus kas terus meningkat. Buffett berusia 86 tahun dan tampaknya tidak memiliki rencana untuk pensiun dalam waktu dekat. Dengan nasib baik, dia mungkin masih memimpin selama penurunan ekonomi utama berikutnya. Dari perspektif pemegang saham Berkshire Hathaway, terus mempertahankan pendapatan dan membangun uang tunai masuk akal terutama karena kita meningkatkan pilihan yang tersedia bagi Mr. Buffett jika peluang muncul selama tahun-tahun yang tersisa menjalankan Berkshire. Wartawan yang mencari cerita 8220gotcha8221 kadang-kadang mengidentifikasi pengobatan amortisasi aset tak berwujud Berkshire8217 sebagai lahan subur untuk tuduhan kemunafikan. Ini karena Mr. Buffett sering mengkritik penggunaan tindakan akuntansi non-GAAP di perusahaan lain. Dalam presentasi Berkshire8217 tentang hasil anak perusahaan yang beroperasi tertentu, amortisasi aset tak berwujud tidak termasuk dan disajikan sebagai angka keseluruhan. Hal ini tampaknya dilakukan karena dua alasan utama: Pertama, adanya amortisasi tak berwujud adalah fungsi dari keputusan alokasi modal Mr Buffett8217 daripada kemampuan manajer anak perusahaan yang mendasari untuk menghasilkan pengembalian modal nyata aktual yang mereka tangani. Kedua, sebagian besar amortisasi tak berwujud sebenarnya bukan biaya ekonomi dari perspektif Mr. Buffett8217. Memang, beberapa barang tak berwujud cenderung menghargai nilai dari waktu ke waktu daripada depresiasi. Selama beberapa tahun saya telah memberi tahu Anda bahwa data pendapatan dan biaya yang ditunjukkan di bagian ini tidak sesuai dengan GAAP. Saya telah menjelaskan bahwa divergensi ini terjadi terutama karena peraturan yang disusun GAAP mengenai penyesuaian akuntansi pembelian yang memerlukan amortisasi penuh dari barang tak berwujud tertentu selama periode rata-rata sekitar 19 tahun. Menurut pendapat kami, sebagian besar biaya amortisasi tersebut sebenarnya bukan biaya ekonomi. Tujuan kami divergen dari GAAP di bagian ini adalah untuk menyajikan gambar kepada Anda dengan cara yang mencerminkan cara Charlie dan saya melihat dan menganalisisnya. Pada halaman 54 kami merinci 15,4 miliar barang tak berwujud yang harus diamortisasi dengan biaya tahunan untuk penghasilan. (Lebih berwujud untuk diamortisasi akan dibuat saat kami melakukan akuisisi baru.) Pada halaman tersebut, kami menunjukkan bahwa biaya amortisasi 2016 untuk pendapatan GAAP adalah 1,5 miliar, naik 384 juta dari tahun 2015. Penghakiman saya adalah sekitar 20 dari biaya 2016 Adalah biaya nyata Akhirnya biaya amortisasi sepenuhnya menghapus aset terkait. Bila itu terjadi paling sering pada tanda 15 tahun, penghasilan GAAP yang kami laporkan akan meningkat tanpa adanya peningkatan yang sebenarnya dalam ekonomi bisnis Berkshires yang mendasarinya. (Hadiah saya kepada penerus saya.) Mr. Buffett melanjutkan dengan menunjukkan bahwa, dalam beberapa kasus, laba GAAP melebih-lebihkan hasil ekonomi. Misalnya, depresiasi di industri kereta api secara teratur mengecilkan biaya belanja modal perawatan yang sebenarnya diperlukan untuk mencegah kemunduran sistem. Apakah tuntutan kemunafikan itu berlaku Kami harus meminta manajer untuk mempresentasikan hasil sesuai dengan GAAP (yang dilakukan Berkshire dalam laporan keuangannya) dan juga menunjukkan faktor penting yang mungkin menyebabkan investor melakukan penyesuaian yang sesuai. Hal ini membutuhkan kepercayaan pada kejujuran manajemen dan kemampuan investor untuk menghasilkan kemampuan analisis yang tepat untuk menilai situasi bagi diri mereka sendiri. Kita tidak perlu secara buta mempercayai pernyataan Mr. Buffett8217 tentang hal-hal tak berwujud. Kita dapat melihat hasil operasi bisnis dari waktu ke waktu dan mencoba untuk mengevaluasi apakah amortisasi tidak berwujud masuk akal dalam hal hasil. Dilihat dengan cara ini, presentasi tambahan Berkshire8217s tampaknya bermanfaat bagi pemegang saham dan mencerminkan realitas ekonomi. Sebaliknya, banyak perusahaan menggunakan tindakan non-GAAP untuk tujuan melayani diri sendiri, seperti yang oleh Mr. Buffett menjelaskan secara terperinci: Terlalu banyak manajemen dan jumlahnya nampaknya tumbuh setiap tahun mencari cara untuk melaporkannya, dan memang Fitur, penghasilan disesuaikan yang lebih tinggi dari pendapatan GAAP perusahaan mereka. Ada banyak cara bagi praktisi untuk melakukan legerdemain ini. Dua dari favorit mereka adalah penghilangan biaya restrukturisasi dan kompensasi berbasis saham sebagai biaya. Charlie dan saya ingin manajemen, dalam komentar mereka, untuk menggambarkan barang-barang yang tidak biasa baik atau buruk yang mempengaruhi nomor GAAP. Lagi pula, alasan kita melihat angka-angka masa lalu ini adalah membuat perkiraan masa depan. Tapi manajemen yang secara teratur mencoba untuk menghilangkan biaya yang sangat nyata dengan menyoroti pendapatan per saham yang serasi membuat kami gugup. Itu karena perilaku buruk menular: CEO yang terang-terangan mencari cara untuk melaporkan angka tinggi cenderung menumbuhkan budaya di mana bawahan berusaha untuk membantu juga. Sasaran seperti itu bisa mengarah, misalnya kepada perusahaan asuransi yang meremehkan cadangan kerugian mereka, sebuah praktik yang telah menghancurkan banyak pelaku industri. Charlie dan saya merasa ngeri saat mendengar analis berbicara kagum dengan manajemen yang selalu membuat angka. Sebenarnya, bisnis terlalu tak terduga karena jumlahnya selalu harus dipenuhi. Tak pelak, kejutan terjadi. Ketika mereka melakukannya, seorang CEO yang fokusnya terpusat di Wall Street akan tergoda untuk menghitung jumlahnya. Bagi kita yang membaca hasil earning secara rutin mengetahui bahwa tipe 8220adjustments8221 Mr. Buffett mengacu pada norma lebih dari sekedar pengecualian. Gagasan bahwa barang yang kambuh setiap kuartal harus dikecualikan dari pendapatan jelas tidak masuk akal, namun begitulah cara manajer dievaluasi oleh komunitas investasi. Kompensasi berbasis saham hampir selalu dikecualikan dari 8220adjusted8221 angka seolah-olah pengenceran tidak relevan (atau lebih buruk lagi, masalahnya karena perusahaan membabi buta membeli kembali saham dengan harga berapa pun untuk mengimbangi pengenceran tersebut). Banyak perusahaan, termasuk beberapa perusahaan Berkshire, mengumumkan kegiatan restrukturisasi secara rutin dan mengecualikannya seluruhnya dari nomor non-GAAP atau melaporkan biaya ini sebagai item lini perusahaan terpisah yang tidak dapat dialokasikan ke hasil segmen bisnis. Apakah nasihat Mr. Buffett8217 memiliki efek apa pun terhadap perilaku manajer atau kemauan buta dari komunitas analis untuk menerima nomor non-GAAP pada nilai nominal Jawabannya mungkin tidak. Meskipun Buffett tidak membahas portofolio investasi ekuitas Berkshire secara signifikan, ada beberapa item penting yang patut mendapat perhatian investor: Investasi Berkshire8217 di Kraft Heinz dicatat dengan metode ekuitas dan tidak dilakukan pada neraca Berkshire8217 pada nilai pasar. , Tidak seperti kebanyakan investasi ekuitas yang secara teratur ditandai ke pasar. Akibatnya, saham Berkshire Kraft Heinz ditanggung oleh Berkshire sebesar 15,3 miliar, namun memiliki nilai pasar 28,4 miliar pada akhir 2016. Nilai pasar sebesar 13,1 miliar pada nilai pasar yang tidak tercatat ini bernilai lebih dari 8,5 miliar untuk nilai buku Berkshire setelah Akuntansi untuk pajak tangguhan dengan perkiraan tarif pajak 35 persen. Mungkin ide bagus untuk menyesuaikan nilai buku Berkshire8217s dengan menambahkan angka 8,5 miliar ini. Berkshire memiliki 7,1 miliar saham Apple pada akhir 2016. Ada banyak spekulasi mengenai apakah posisi ini dibeli oleh Mr. Buffett atau oleh dua manajer investasi Berkshire Todd Combs dan Ted Weschler. Buffett memberi petunjuk: Mr. Combs dan Mr. Weschler mengelola total 21 miliar untuk Berkshire yang mencakup 7,6 miliar aset pensiun yang tidak termasuk dalam angka yang dilaporkan untuk Berkshire. Accordingly, they control about 13.4 billion of Berkshire8217s portfolio reported in the letter and annual report. While it is not impossible that the entire Apple position can be attributed to Mr. Combs and Mr. Weschler, it would have to account for more than half of their combined portfolio. This seems unlikely. We would infer that Mr. Buffett is responsible for at least part of Berkshire8217s position in Apple. Are Berkshire8217s positions in marketable securities 8220permanent8221 Many are held with no predefined 8220exit8221 date, but Berkshire reserves the right to sell any security at any time: Sometimes the comments of shareholders or media imply that we will own certain stocks forever. It is true that we own some stocks that I have no intention of selling for as far as the eye can see (and were talking 2020 vision). But we have made no commitment that Berkshire will hold any of its marketable securities forever. Confusion about this point may have resulted from a too-casual reading of Economic Principle 11 on pages 110 8211 111, which has been included in our annual reports since 1983. That principle covers controlled businesses, not marketable securities. This year Ive added a final sentence to 11 to ensure that our owners understand that we regard any marketable security as available for sale, however unlikely such a sale now seems. While it is best to not read too much into this statement, we should keep it in mind the next time media reports appear regarding Berkshire8217s 8220permanent8221 ownership of stocks like Coca-Cola and Wells Fargo. Indeed, the lack of any mention of the recent Wells Fargo scandal in Mr. Buffett8217s letter coupled with this very clear statement could be viewed as a message to managers of portfolio companies. There are many other important topics in the letter including a lengthy discourse on the merits of passive investment for the vast majority of individuals and institutions. Readers are encouraged to review the entire letter in full and to view the excerpts and commentary in this article as only a starting point. Disclosure: Individuals associated with The Rational Walk LLC own shares of Berkshire Hathaway. In this series. we suggest worthwhile reading material on a variety of topics of general interest. Daily Journal Corporation Annual Meeting 8211 February 15, 2017. Charlie Munger spoke for nearly two hours at the Daily Journal annual meeting in Los Angeles. There are a number of unofficial transcripts available. The notes linked to above were provided by Adam Blum via Mohnish Pabrai8217s Twitter account. In addition, a good video of the event has been posted on YouTube by another attendee. The notes are a great way to get up to speed quickly but those who have a couple of hours to spare might prefer the video. At age 93, Mr. Munger appears to be in good health and as is obviously as sharp as ever. Topics ranged from the Daily Journal8217s business operations to investments to life advice. Mr. Munger8217s only book recommendation was Edward Thorp8217s A Man For All Markets which we plan to review in the near future. Readers may also be interested in our recent analysis of Daily Journal as well as the company8217s fiscal first quarter 10-Q . Apple: The Greatest Cash Machine in History 8211 Musings on Markets, February 9, 2017. Professor Aswath Damodaran updates his thoughts regarding Apple and revisits his previous valuation work. There is a great deal that has been written on Apple since the company8217s latest earnings release, much of which has focused on very short term factors such as the upcoming 10th anniversary iPhone release. This article is different because it is an update of valuation work on the company that dates back to 2010. Apple is increasingly attracting value investors who typically are not attracted to technology stocks. The most notable recent example can be found in Berkshire Hathaway8217s recent 13-F filing which revealed a very significant increase. (As an aside, Prof. Damodaran has recently published a new book, Narrative and Numbers . which is on our list to read and possibly review.) Snap8217s Apple Strategy 8211 Stratechery, February 13, 2017. Snap8217s upcoming initial public offering has been widely discussed over the past few weeks. Is the company the next Facebook, the next Twitter, or something entirely different Ben Thompson believes that there are similarities between Apple8217s historical strategy and Snap8217s vision: 8220Not only is Snap not promising a traditional moat, it is in fact selling its humanity as a company. That the company and its Steve Jobs-admiring CEO in fact do understand users better than everyone else, that that will result in sustainable differentiation, and that the prize will be the top end of the advertising market.8221 Readers may also be interested in our recent analysis of the Snap S-1 filing and Professor Damodaran8217s much more rigorous valuation article . Should You Always Keep Stocks for a Full 5 Years 8211 Gannon on Investing, February 15, 2017. Where do you draw the line between a 8220trade8221 and an 8220investment8221 Is this a matter of the amount of time an investment is held, or based on the investment thesis playing out irrespective of how long that process takes If we take Warren Buffett8217s advice seriously, we should think of stocks as partial interests in an actual business. Just as we would not buy a gas station and sell it a couple of months later, we probably should buy stocks with a view of holding for at least several years. Geoff Gannon provides his thoughts on holding stocks for a minimum of five years and when it might make sense to bend that rule if a clearly superior opportunity comes up. This link is to a twelve minute podcast but the text of the discussion is also available. Six Sigma Buffett, Taxes, Fund Returns etc. 8211 The Brooklyn Investor, February 14, 2017. This article attempts to analyze the level of outperformance of various famous managers and to compare the difficulty of compiling track records of various lengths. While that analysis is interesting, a short digression on Warren Buffett8217s views of the 1986 tax reform law might be even more interesting for readers who are trying to evaluate how current tax reform proposals might impact their investments or their personal finances. Larry Cunningham on Kraft-Heinz Bid for Unilever 8211 Latticework, February 18, 2017. Larry Cunningham shares his concerns regarding the Kraft-Heinz bid for Unilever and what Berkshire Hathaway8217s partnership with 3G might mean for Berkshire8217s culture in the long run. Observers of Berkshire8217s partnership with 3G have frequently noticed that Warren Buffett8217s traditional style of acquisitions (friendly, no hostile actions, no bidding wars, leaving management in place) is almost the exact opposite of 3G8217s standard procedure (sometimes unfriendly, haggling over price, significant restructuring). So far, the partnership has worked well but perhaps not without risking Mr. Buffett8217s legacy. (Read our review of Larry Cunningham8217s latest book, The Buffett Essays . covering the famous 1996 symposium with Warren Buffett and Charlie Munger). The Happy City and our 20 Trillion Opportunity 8211 Mr. Money Mustache, February 10, 2017. Although this is ostensibly a book review of Happy City by Charles Montgomery, it is really more of a general discussion regarding the less than optimal choices society has made over the years when it comes to infrastructure spending. The cost of modern American style infrastructure 8211 wide roads, expansive parking lots, and unwalkable sprawling suburbs 8211 is extremely high and may not provide good value for the money or result in any increase in happiness. With talk of a massive new federal infrastructure spending initiative, perhaps this is the right time to think about whether the traditional approach is the best use of our scarce resources. New Website: The Spartan Spendthrift . The Spartan Spendthrift is a 8220sister site8221 of The Rational Walk which launched in January. The Rational Walk is focused on investment commentary and security analysis for 8220enterprising investors8221 as well as those who just have an interest in thinking about business. The Spartan Spendthrift is a site dedicated to personal finance and related lifestyle topics. At this point, there are only a few articles on The Spartan Spendthrift but there will be more in the future. Interested readers are invited to subscribe to the site via RSS feed, email, or following on Twitter (links are provided on the site). The Rational Walk will also continue to have new content. There is no set publishing schedule for either site and both are expected to remain free for readers. Many aspects of life seem to have asymmetrical qualities. One obvious example involves the amount of time and effort required to build a reputation, both from a personal and professional perspective. It can take many years to earn the confidence needed to be considered trustworthy by friends and family, and the same is even more true in a professional setting. However, it only takes one serious breach of confidence to ruin a reputation, no matter how much time was spent building it. As Warren Buffett has often said, it can take twenty years to build a reputation but only five minutes to lose it. What is true for individuals is also true for a business, particularly those that are built on brand loyalty. It is even more true for a business that we entrust with our personal health and well being. Although we do not think about it until there is a well publicized problem, consuming food prepared by others requires trust, and trust is based on reputation. Perfection is impossible and it is inevitable that a restaurant company operating thousands of locations will make mistakes leading to occasional food poisoning. This has always been the case. However, prior to the era of social media, news about such incidents traveled more slowly and never 8220went viral8221 as it does today in Facebook and Twitter feeds. Social media has created an even greater asymmetry between the work required to build a reputation and the lapses sufficient to ruin it. Well publicized cases of food poisoning at certain Chipotle restaurants in late 2015 took a major toll on the company8217s reputation and financial results in 2016 reflected significant damage to the brand. We discussed Chipotle8217s difficulties in an article last October in some detail, with a focus on the initial outbreak and the financial impact over the first half of 2016. We also examined Chipotle8217s previously attractive expansion economics and overall track record. The key question at the time was whether the damage to the brand was temporary or permanent. Chipotle released full year results for 2016 last week and it seems like an opportune time to revisit the situation. As investors, we seek out asymmetry when making decisions regarding where to commit capital. We are looking for situations where there is a significant amount of upside and where enough downside protection exists to limit permanent loss of capital if things go wrong. An open question at this point is whether the significant decline in Chipotle8217s stock price has provided enough downside protection for shareholders if the brand does not fully recover. The related question is what kind of upside might exist if management8217s turnaround succeeds. Evaluating Chipotle8217s Financial Performance In our prior article. we presented quite a bit of financial data for Chipotle over the past decade and readers might want to take a look at that information before proceeding. In this section, we will first take a brief look at key metrics for 2016 as they relate to prior year results. However, due to the rapidly changing situation at the company, looking at full year results is not really sufficient to get a picture of the progress that has been made dealing with the crisis over the past year. In order to do that, we must look at quarterly results. Finally, we need to decide whether management8217s guidance for 2017 makes sense given recent trends. Full Year 2016 Results Chipotle8217s full year results were dismal, as expected, with comparable restaurant sales declining 20.4 percent and overall revenue declining 13.3 percent. Operating metrics collapsed with gross margin declining from 26.1 percent to 12.8 percent. Average sales per restaurant declined to 1.8 million from 2.4 million in 2015. Profitability all but vanished, as reflected by an operating margin under 1 percent, down from 17 percent in 2015. However, management did not slow expansion activity. 240 stores were added bringing the total restaurant count to 2,250, and there are plans to open between 195 to 210 restaurants in 2017. The exhibit below provides a long term view of Chipotle8217s income statement as well as the key operating metrics that drive profitability (click on the exhibit for a larger view): We can see the 30,000 foot view of the effects of the crisis here and quickly spot the reasons for the deterioration in profitability: Food, beverage and packing costs increased from 33.4 percent of revenue to 35 percent of revenue primarily because of the costs associated with improved food safety procedures, some of which generated additional waste and inefficiency. Labor costs increased from 23.2 percent of revenue to 28.3 percent of revenue primarily due to sales deleveraging. As revenue per restaurant declined, the company suffered from lower productivity. In addition, employee costs associated with sales promotions and staffing for new restaurants inflated overall spending. Occupancy costs are basically fixed in nature and increased as a percentage of diminished revenue. As a result, occupancy rose from 5.6 percent of revenue in 2015 to 7.1 percent of revenue in 2016. Other operating costs increased dramatically primarily due to higher marketing and promotional expenses. Management spent 103 million on advertising and marketing in 2016 compared to 69.3 million in 2015. As a result, other operating costs rose to 16.4 percent of revenue in 2016 from 11.4 percent of revenue in 2015. The past year probably seemed like an eternity for Chipotle8217s management team and looking at year-over-year results really isn8217t very useful for analysts either given the circumstances. What we really should care about is how the trends played out over the course of 2016. Was there significant improvement as the year progressed A More Granular View The exhibit that appears below is essentially the same as what we presented above but rather than looking at annual results, we have provided the relevant statistics for the past eight quarters. The food safety crisis began partway through the fourth quarter of 2015 (click on the image for a larger view) : We should view the first three quarters of 2015 as the 8220steady-state8221 prior to the crisis, with the fourth quarter of 2015 as the transitional month and all of 2016 as the recovery. All of the elements of gross margin, discussed above, can be analyzed accordingly, and we won8217t repeat all of the quarter-to-quarter narrative provided in the company8217s quarterly earnings releases. If our goal is to gauge the overall state of the recovery, the key metrics to focus on are the changes in comparable restaurant sales and restaurant level operating margin: Comparable restaurant sales represent our best way of understanding the damage to Chipotle8217s brand among existing customers because it removes the effect of new restaurant openings that might bias analysis of overall changes in revenue. We can see that the sequential trend has shown some improvement. The effects of the crisis were immediately apparent with a 14.6 percent decline in Q4 2015 and a nearly thirty percent decline in Q1 2016, but since that point, we have seen some improvement. We should bear in mind the fact that the 4.8 percent decline in Q4 2016 was compared to an already weakening result for Q4 2015. Restaurant level operating margin is different from overall operating margin. It represents total revenue less restaurant level operating costs, expressed as a percentage of revenue. It is effectively a measure of store profitability excluding corporate overhead. Prior to the crisis, restaurant level operating margin was in the 27-28 percent range. After a particularly weak first quarter, this measure has recovered but was still roughly half of pre-crisis levels, at 13.5 percent in Q4 2016. Management has provided a number of forecasts regarding operating results for 2017, both in the company8217s recent 10-K filing and in the latest conference call. Although best taken with a grain of salt, the key forecasts are as follows: Comparable restaurant sales are forecast to increase in the 8220high single digits8221 for the full year. Restaurant operating costs as a percentage of revenue are expected to decline for the full year, with food, beverage and packaging costs decreasing to the 8220low 34 percent range8221 due to more favorable food management and lower avocado prices. Advertising and marketing spending is expected to decline to about 3 percent of sales for the full year compared to 4.7 percent of sales in Q4 2016. Occupancy costs are expected to decline to 8220just over 7 percent of sales8221. Restaurant operating margin in the 20 percent range was characterized as a 8220stretch goal8221 that is achievable based on current sales volume. Management believes that if average sales per restaurant can return to the 2.5 million range that prevailed prior to the crisis, restaurant operating margin could return to the 26-27 percent range, or higher, implying that restoration of pre-crisis economics is not out of the question but unlikely to occur in 2017. Earnings per share of 10 as a 8220stretch goal8221. Are these goals realistic Well, that is the million dollar question at the moment and it is difficult to know based on an extrapolation of the recovery seen up to this point. During the conference call, CFO John Hartung provided some insight into trends that were seen in January 2017 and the overall news seems to be positive: During December, we recorded positive monthly comp of 14.7, which includes a 60 basis point benefit for deferred revenue related to Chiptopia. The sales comparisons ease in January as we8217re comparing to a down 36 versus a down 30 in December of 2015. But the dollar sales trends continued from December into January, and the January preliminary comp improved to 24.6, which included a negative trading day of over 100 basis points, slightly offset by 20 basis points positive related to Chiptopia. For the first 28 days in January, the comp was 26. But in the last three days of January, we traded a Friday and Saturday from last year, two of our highest volume days, for a Monday and Tuesday this year, two of our lowest volume days of the week. Of course winter weather in January often results in choppy trends day-to-day and week-to-week, but when we analyze the underlying comp trends, the January sales held up well, especially considering January had the lowest promotional activity of the past 12 months. We8217ll compare against a comp of down 26 in February and March, so expect the comp will ease accordingly during the rest of the quarter. In order to achieve the 8220stretch8221 goal of restaurant level operating margin of 20 percent and earnings per share of 10, it seems like management must execute on all cylinders throughout the year. Earnings per share of 10 implies net income of close to 300 million and pre-tax income of around 500 million. Management has not provided a total revenue forecast for 2017, but they have indicated that comparable restaurant sales should increase in the high single digit range and there are plans to open around 200 restaurants during the year. If this results in total revenue in the 4.3 billion range, 500 million of operating income implies an operating margin of around 11.6 percent. This would be far below the pre-crisis operating margin in the 17 percent range but a big improvement over the 3 percent operating margin posted in Q4 2016. As investors, the asymmetrical deal we are looking for is uncapped upside potential with limited risk of permanent loss of capital. Does Chipotle represent such an opportunity Is there a reasonable margin of safety for those who purchase shares around 410 Chipotle has always traded as a 8220growth stock8221 with a very high market capitalization relative to trailing earnings. Investors have been willing to pay up for the shares due to the attractive expansion economics demonstrated over many years (which we described more fully in our previous article ). Expansion was made possible due to the power of the Chipotle brand coupled with the capabilities of management to grow the business efficiently. While management8217s capability is not in question, the resiliency of the brand is very much in doubt. It is not so much a question of whether the brand will survive. Recent sales trends demonstrate that the company has the ability to remain profitable. Key metrics have shown improvement. Memories do not last forever and customers will return. The major question for investors is instead whether the pre-crisis economics can be restored for existing stores and whether sufficient expansion opportunities exist to keep the growth going in the future. Management has set a 8220stretch8221 goal implying the possibility of earnings per share in the 10 range for 2017. Shares are trading at over 41 times that stretch goal. The goal itself is highly questionable given that the implied operating margin required to achieve it is far higher than what has been demonstrated in the recent past. Management has not increased prices in three years and currently has no plans to do so. As a result, all of the margin improvement is going to have to be delivered through various forms of cost efficiencies. This is a tall order, and it doesn8217t even get the company back to pre-crisis economics. At the same time, the company might be running out of good expansion opportunities. With a presence in most metropolitan areas, Chipotle might have to select poorer locations in the future that could fail to deliver the unit economics of existing locations. International expansion is in its infancy and attempts to expand the Chipotle operating model to other brands has not gained traction, as evidenced by management8217s abandonment of the ShopHouse concept. The company8217s foray into 8220better burgers8221 with the Tasty Made concept has generated lukewarm reviews at its first location which opened last year. Chipotle8217s management could very well turn around the Chipotle brand and restore pre-crisis economics, continue expansion of the brand, and even extend its operating model to other concepts. However, it is also very possible that Chipotle never regains the economics of the past. Market participants appear to have priced in a significant amount of recovery potential into the shares already. It is not difficult to project scenarios where 2017 earnings could be less than half of the stretch goal that management has set. If that ends up happening, the market could lose confidence in management8217s ability to engineer a recovery and resume growth. If investors end the year looking at a company that has earned only 5 per share (as an example), and has less exciting prospects for growth, a share price of 400 would be untenable. It is easy to see downside in excess of fifty percent if things do not go well this year while upside is more modest because the market has already given management the benefit of the doubt. From a value investing standpoint, it seems better to observe from the sidelines and remain ready to act if the market does mark down the shares substantially. Of course, there are plenty of successful investors who completely disagree with this assessment. Bill Ackman8217s Pershing Square Capital Management has maintained its large investment in Chipotle and now is represented by two members of the company8217s board of directors. Disclosure: No position in Chipotle. Snap Inc. the parent company of the popular Snapchat app, has officially filed the paperwork required to go public in an offering expected to raise up to 3 billion. Characterizing itself as a 8220camera company8221 that has reinvented the way in which people will live and communicate, the S-1 filing provides a great deal of information regarding Snapchat8217s five year history and meteoric rise in active daily users. From a standing start, the company has reached an average daily user base of 158 million people who create over 2.5 billion pictures or videos called 8220snaps8221 every day. The company8217s success in attracting users was accomplished initially by providing a social network where people could share pictures for a very limited amount of time after which point they would disappear. This reduced the friction usually involved in sharing photos because people did not have to worry about potentially unflattering (or compromising) pictures remaining alive for years or decades. Predictably, young people were attracted to the platform. To build the user base further, the company added video capabilities, enabled 8220filters8221 and other features that allowed for playful renditions of images, implemented 8220stories8221 to encourage viewing of multiple photos, and allowed for 8220memories8221 to be persistently stored by users who wanted to keep their photos and videos for posterity. With 158 million users worldwide, Snapchat clearly has quite a bit of room to grow, although management notes that the rate of growth is likely to slow from the very rapid increases in recent years. The business model generates revenue through creative forms of advertising, and management sees significant opportunities to tap into a growing pool of advertising spending targeting mobile devices. The filing estimates that worldwide advertising spending is projected to grow from 652 billion in 2016 to 767 billion in 2020, with mobile advertising expected to nearly triple from 66 billion in 2016 to 196 billion in 2020. The business summary of the S-1 provides many insights into the history of the company and management8217s philosophy regarding how to develop products and address user needs. In this article, we will not spend much more time discussing the product or business model but instead focus our attention on what the offering might suggest in terms of overall market sentiment. Specifically, we will look at corporate governance issues, particularly related to the fact that Snap plans to issue non-voting shares to the public. What we will not do is attempt to actually value Snap8217s business or predict how the shares might perform. As The Pendulum Swings 8230 In The Most Important Thing . Howard Marks devotes quite a bit of space to developing his idea of viewing shifts in market sentiment as the swings of a pendulum: The mood swings of the securities markets resemble the movement of a pendulum. Although the midpoint of its arc best describes the location of the pendulum 8220on average,8221 it actually spends very little of its time there. Instead, it is almost always swinging toward or away from the extremes of its arc. But whenever the pendulum is near either extreme, it is inevitable that it will move back toward the midpoint sooner or later. In fact, it is the movement toward an extreme itself that supplies the energy for the swing back. Depending on the mood of the market, conditions are either unfavorable or ripe for companies with short track records to offer shares to the public. During times of unfavorable sentiment, most private companies will try to remain private until conditions improve. Profitable private firms with adequate free cash flow can remain private indefinitely, although outside funds might be desirable for expansion or to provide liquidity for investors of employees. Unprofitable early stage companies could look to the private equity and venture capital markets for liquidity and cash flow to fund operations and growth. From the viewpoint of existing management of an early stage company, going public offers liquidity and potential capital for future growth, but carries a number of burdens that can often outweigh the benefits. Elon Musk8217s email to SpaceX employees regarding the downside of going public is a good summary of the pitfalls (for more on Elon Musk, please read this article ). Given the downside, the continuing FounderCEO of a private company would want to ensure that shareholders are receiving full value or more. Snap is expected to raise approximately 3 billion from the initial public offering and the value of the company, based on year-end estimated value of 16.33 per share is about 21 billion. However, the valuation assigned by the market once shares start trading could be significantly higher if investor enthusiasm translates into high demand for the shares. Companies offering shares typically want to leave some room beyond the offering price for shares to 8220pop8221 on the first day of trading. This also allows the investment bank that controls allocation of the offering to reward chosen customers with the opportunity to purchase shares at the IPO price and then flip them to the general public one the prices pops up in trading. This has nothing to do with 8220value8221 but is pretty typical for IPOs. As a result, we should probably assume that Snap8217s valuation will be at least 25 billion once shares start trading. As is the case with most technology companies, the 25 billion valuation cannot be justified by traditional valuation metrics. Snap is not profitable and has been investing aggressively in expansion over the last several years which has resulted in impressive growth of active users, as we can see from the charts below: The name of the game in social networks is scale. Once you achieve a certain scale, network effects build momentum and the platform becomes essential for the targeted user base (which in Snap8217s case is mostly younger people). In order to build that user base, the product was offered free of charge. However, management started to experience escalating costs of doing business and, quite naturally, decided that there was a need to monetize the platform to make the growth phase of the company8217s development at least partially self-sustaining. The initial attempt at monetizing the platform was to adopt a 8220freemium8221 model where users were asked to pay for special features such as new 8220filters8221, which are amusing overlays that are applied to photos. However, results were disappointing and few users were willing to pay for this additional functionality. This makes sense given the fact that most competing social networks are free of charge to the user. So management turned its attention to many creative ways of showing advertisements without alienating the user base (the S-1 contains some very interesting information regarding how they went about this). No doubt, the urgency to monetize also was driven by Snap8217s desire to prove that the business model can be profitable eventually. The following charts demonstrate that management has been successful in rapidly increasing average quarterly revenue per user, especially in North America: Although average revenue per North American user of 2.15 in Q4 2016 was impressive relative to prior quarters, it is still far below Facebook8217s average revenue per user of 19.81 in Q4 2016 for the U.S. and Canada. Nevertheless, the trends for Snapchat in recent quarters provide the following reasons for optimism: Rapidly increasing number of active daily users, although the percentage rate of increase is slowing. Proven ability to begin monetizing users, especially in North America with the same model, presumably, being something that management will deploy in Europe and other developed economies. Significant headroom in terms of revenue per active user relative to Facebook. The company is far from profitable, but we can clearly see the increase in revenue driven by the favorable trends in active users and revenue per user: The company has gone from a standing start in 2015 to generating significant revenue by the end of 2016, albeit on an unprofitable basis. Investors who are comfortable evaluating early stage technology companies might, at this point, begin developing financial models and attempt to project when the company will become profitable and what margins might eventually look like. Obviously, it would be simple enough to create a number of spreadsheets forecasting the number of users over time, the average revenue per user, the resulting aggregate revenues, and then making yet more assumptions about the cost structure. This is precisely what the investment banks do and what management will discuss with investors during road shows. It is easy to come up with models that have the aura of precision, but the truth is that no one really knows if or when the company will become profitable or if profitability will ever occur at all. Lacking any means of estimating profitability of the company, it is difficult to even contemplate valuation. One can look at more mature social media companies that are public, such as Twitter or Facebook, and try to figure out what the market might value Snap at in five years but much of this is just speculative. We will make no attempt to value Snap in this article but wanted to at least take a quick look at the drivers of revenue and recent rapid growth to understand the mindset of investors who will be bidding for shares once the company is public. Clearly, very nice castles in the air can be constructed if estimates are justified based on hopes and dreams. The 8220pendulum8221 is on the upswing for a 25 billion valuation to even be in the realm of possibility for Snap. Although a 25 billion valuation itself is clearly very high, what makes it clear that the pendulum is swinging toward an extreme involves Snap8217s corporate governance and the voting rights of the shares being offered to investors. Snap has three classes of common stock. Class A common stock, which will be offered to investors, has no voting rights whatsoever. Class B stock is entitled to one vote per share. Class C stock is entitled to ten votes per share. The following exhibit shows the current ownership base of 5 percent stockholders and selling stockholders: Founders Evan Spiegel and Robert Murphy own Class C super-voting shares and, as a result, control the overwhelming majority of the voting power in the company. What is remarkable about this situation is that the founders were able to maintain this level of control throughout the time the company was funded by venture capital. This was accomplished through the issuance of Class B shares to venture investors. In October 2016, the company issued a dividend of one share of Class A non-voting common stock for each Class B and Class C share outstanding. This will further consolidate voting power with the founders in the future as it creates a currency that can be used for further issuance of shares to the public and to employees via equity compensation without diluting voting control. Effectively, the founders have the ability to retain their overwhelming voting control while giving up economic interests in the company over time. The use of dual-class stock is not new and has been used frequently to ensure that the founders of technology companies can retain enough control to ensure that their vision is implemented and to encourage long term thinking. In fact, Google implemented a dual class voting structure when the company went public, as described in the Founder8217s 2004 IPO letter. In the case of Google, the Class A shares offered to the public had one vote per share while the Class B shares held predominantly by the founders had ten votes per share. What is new in Snap8217s case is the fact that the shares being offered to the public have no voting power whatsoever. As the S-1 warns readers, no doubt driven by legal requirements, this attempt to push the envelope in terms of voting control has been untested in prior IPOs and may result in shares not being valued as highly by the general public. We have no way of knowing whether that will be the case until shares start trading. A Half Century of Control Without Accountability The founders of Snap are still in their 20s and the share structure they have put in place effectively gives them a lifetime of control over the resources of the corporation without being accountable to other shareholders. There are provisions in the offering that will trigger an automatic conversion of the Class C stock to Class B in the event that either founder dies or their Class C common stock held falls to less than 30 percent of the Class C common stock. However, should either event occur, voting power would be further consolidated with the remaining founder. From an economic standpoint, all classes of shares have the same rights but we need to remember that the founders are in a position to control the management of the company as well as influence their own compensation. The S-1 provides insufficient information regarding the structure of the board of directors in the future, specifically their level of compensation on an ongoing basis. However, we can see what non-employee board members were paid just in 2016 and the level seems egregiously high for a money-losing start-up: What is even more egregious is the employment agreement with Evan Spiegel: In October 2016, we entered into an amended and restated offer letter agreement with Evan Spiegel, our co-founder and Chief Executive Officer, with respect to his continuing employment with us. The offer letter provides for an annual base salary of 500,000, which will be reduced to 1 on the effective date of the registration statement in connection with this offering, and an annual cash bonus of 1,000,000 based on achievement of performance criteria to be mutually agreed on by Mr. Spiegel and our board of directors, provided that, after our initial public offering, Mr. Spiegel will not be entitled to any bonus except as may be determined by our board of directors. Under the terms of his offer letter, Mr. Spiegel will be granted an award of RSUs for shares of Series FP preferred stock representing 3.0 of our outstanding capital stock on an as-converted basis on the closing of this offering, which will be fully vested on the closing of this offering and such shares will be delivered to Mr. Spiegel in equal quarterly installments over three years beginning in the third full calendar quarter following this offering. For the purposes of Mr. Spiegels offer letter, outstanding capital stock includes shares sold by us in this offering and all shares subject to outstanding restricted stock units that, on the closing of this offering, have met the performance condition and service-based vesting condition. Our board of directors approved the award to Mr. Spiegel in July 2015 to motivate him to continue growing our business and improving our financial results so that we could undertake an initial public offering, which we regard as an important milestone that will provide liquidity to our stockholders and employees. (emphasis added) It is unclear why it would be necessary to provide a large award of RSUs to one of the co-founders of the company who will continue to have every incentive to remain 8220motivated8221 to grow the business over time given his level of ownership in the business. Compensation over the past two fiscal years hasn8217t exactly been modest, especially for Chief Strategy Officer Imran Khan who was awarded stock with fair value of over 145 million when he was recruited to join the company in 2015. Mr. Khan was previously a Managing Director in the Investment Banking Division at Credit Suisse which happens to be one of the underwriters for the offering. Snap has made remarkable progress in building a social media platform over the past five years and has a large established base of young users which represents a favorable demographic for targeted advertising. Recent trends show that the user base continues to grow while management has successfully begun to monetize that growth. Investors who feel comfortable making longer term projections can make various assumptions regarding the key variables and attempt to justify the likely 25 billion valuation. Snap certainly could 8220grow into8221 a company that fully justifies a 25 billion valuation based on fundamentals but, at the moment, that valuation can only be justified based on hopes and dreams. It would be one thing to truly partner with a management team that was committed to expanding the reach of the platform and the financial results of the company over the long run. However, providing funding to a company while having no influence whatsoever in how the company is run is not a true partnership. Furthermore, the need for a founder to receive high levels of compensation to provide additional 8220motivation8221 to lead the company is troubling, as is the high level of director and executive compensation for a money-losing firm. As Benjamin Graham often said, there is nothing necessarily wrong or immoral about speculation provided that you recognize what you are doing and that the speculation is intelligent. At the very least, one would have to demand that an intelligent speculation include having some say in the governance of the company, especially if things go wrong in the future. Intelligent speculation does not involve handing a check to a 20-something founder of a technology start up and also acceding to dictatorial powers over the affairs of the corporation, possibly for decades to come. These concerns might not be relevant to someone interested in buying shares in the IPO and flipping them shortly after, but are certainly relevant to a prospective long term investor. 8220The compensation committee relies on its own good judgment in carrying out its duties and does not waste shareholder money on compensation consultants.8221 Reading primary sources of information remains the single most important activity that investors should focus on in their daily work. Although the financial news media often produces valuable content, we should always remember that the current business model of the vast majority of news outlets centers on building a broad readership base that is attractive to potential advertisers. By necessity, the mainstream financial media attempts to cover a wide range of companies. Even the most competent reporter who intends to offer an objective view of a given topic has numerous constraints, and not all reporters are informed or objective. Furthermore, as investors, we cannot expect to gain the special insights needed to outperform a passive index fund simply by reading what everyone else is reading. The Rational Walk recently published an article on how to read a 10-K annual report effectively and, perhaps surprisingly, the number of people who read that article and commented on it via social media far exceeded recent articles on specific companies. This led to a question regarding whether readers would want to see a similar article on proxy statements: This was surprisingly popular. Should I write 8220How to Read a Proxy8221 How to Read a 10-K Annual Report Efficiently t.coPlYkKeC6Hm The Rational Walk (rationalwalk) February 1, 2017 The article on 10-K reports focused on steps that an investor can take to achieve basic understanding of a company in a short period of time in order to be exposed to as many companies as possible. The investment process can be visualized as a funnel, with very few companies that go into the top emerging from the bottom as potential candidates for further study. However, once a company passes an initial step, one must dig deeper. The 10-K needs to be reviewed again, this time with a fine toothed comb rather than taking shortcuts, and not just a single 10-K but reports going back a reasonable number of years. Additionally, recent quarterly results, conference calls, and presentations are important to review. Taking a step back, let8217s consider a case when a 10-K report is reviewed and there is some interest but the investor does not yet know whether significant additional time is justified. In such cases, one important step that can provide a great deal of clarification is a basic review of the company8217s annual proxy statement. Stated simply, a proxy statement is a document that a company8217s management is required to send to shareholders prior to an annual or special meeting where owners will be asked to approve corporate actions. Reading a Proxy Statement Proxy statements contain a wealth of information that is completely absent from annual reports. Specifically, in order to learn about the compensation provided to directors and management, as well as the governing incentive systems, one must review the proxy statement. Unfortunately, the deadline for proxy statements is usually a couple of weeks after the 10-K deadline and, except for very large companies, proxy statements are rarely covered in the mainstream financial media. Even in the case of large companies, reporters tend to ignore proxies unless the level of pay is egregious or some major change in corporate governance is taking place. For example, reporting on the departure of Gary Cohn from Goldman Sachs to join the Trump Administration necessarily drew information from the company8217s proxy. But usually the proxy statement flies well under the radar. Shareholders receive proxy statements either in the mail or electronically and many individual investors do not even bother to vote. Institutional investors often take their cues from proxy advisory firms. Just as voting in elections is the responsibility of the citizen, we would insist that reviewing a proxy statement and voting is a core duty of an informed shareholder (at least one who cares about his or her net worth). A company with a shareholder base that doesn8217t care about executive and director compensation invites an exacerbation of the already ever-present agency problem. When things get bad enough, an activist may enter the picture to force changes, but not usually before shareholders are harmed. Any potential investor thinking about allocating funds to a company must put himself in the shoes of existing investors and the only way to determine whether an agency problem is likely to negatively impact results is to review the proxy. Finding Proxy Statements In this article, we will use the 2016 proxy statement filed by America8217s Car-Mart which we discussed in an article last month. Car-Mart is a relatively simple small-cap company and the proxy statement is quite straight forward and mostly free of much of the superfluous marketing that is very common in larger companies that employ public relations firms. In general, the size of a proxy, and the amount of public relations marketing, is highly correlated with the size of a company. To keep this article to a reasonable length, we picked a simple proxy, yet not one that is as simple as the proxy filed by Charlie Munger8217s Daily Journal Corporation which is a model for intelligent corporate governance. Proxy reports can either be found on the company8217s website or retrieved via the SEC8217s Edgar search tool. Although Car-Mart does provide convenient access to the proxy in PDF format, not all companies do so. The SEC search screen is shown below: Submitting this query using the ticker symbol for Car-Mart yields the following results: We can see several of the company8217s recent filings in the results screen, including the company8217s latest 10-Q quarterly report as well as other types of reports. However, we do not see the proxy statement in this list. A proxy statement is known in the SEC system as a Form DEF 14A filing so we need to filter on that type of document, as shown in search field highlighted in red below: We are now presented with a list of all of the proxy statements that the company has filed over the years. For purposes of our review, we would like to review the latest proxy statement which was filed on July 22, 2016, so we would click on the Documents button for the first entry to bring up the actual report, or alternatively, we can review the PDF file available on Car-Mart8217s website. Since the PDF file is more readable and has a nicer presentation, that is where the subsequent screen shots in this article were taken from. The file is 32 pages long which compares favorably to more complex proxies (Goldman8217s 2016 proxy is 104 pages). Notice of Annual Meeting of Shareholders The proxy typically begins with a letter from either the Chairman or CEO of the company providing information on the annual meeting, where and when it will occur, and the purpose of the meeting. The main elements of an annual meeting usually involves a short presentation by management followed by a vote to elect directors and approve the company8217s auditors. The Dodd-Frank financial reform law of 2010 also mandated that shareholders have an opportunity to vote on executive compensation on an advisory basis . meaning that it is rather toothless and non-binding (this is akin to an employee setting her own pay and giving the boss an advisory vote, feeling free to disregard that vote when desired 8212 give that a try at your next annual review) Car-Mart8217s annual meeting was scheduled for August 31, 2016 for the purpose of electing seven directors and to vote on executive compensation and the selection of Grant Thornton as the company8217s independent auditor. The letter is signed by William Henderson, the company8217s CEO. At the time of the proxy, Car-Mart did not have a Chairman, although one has been appointed since that time. Following the letter, shareholders are given information on how to vote. Shareholders not attending in person are instructed to vote by proxy . which is a form that comes with a physical proxy statement and is mailed back to the company8217s transfer agent or entered online. Rules regarding the actual voting procedures, including the definition of a quorum, is provided. Most of this section is self explanatory. Security Ownership of 5 Owners and DirectorsOfficers The section on beneficial ownership of securities is where the proxy statement goes from dull to very interesting. Any owner or potential owner of a company should be very interested in the composition of the major shareholders and whether directors and officers have meaningful financial states, or 8220skin in the game8221. The Car-Mart table of security ownership appears below: The first three entries representing the company8217s largest shareholders are financial institutions. Invesco and BlackRock are very large institutions that should be immediately recognizable to most readers. For most companies, it is normal to see a list of large institutions in the shareholder list, and this is often even more true for small companies. With a 337 million market capitalization, it doesn8217t take a huge investment for a large institution to wind up with a large percentage of shares outstanding. The company8217s second largest shareholder is Bares Capital Management which is run by Brian Bares. This institution is not a household name but we recognized it immediately because Mr. Bares is someone who has been interviewed in The Manual of Ideas in the past and has also appeared in videos explaining aspects of his investment philosophy incorporating the ideas of Warren Buffett and Charlie Munger. As of September 30, Bares Capital Management owned 1,133,217 shares of Car-Mart which indicates that part of the position held at the time of the proxy filing was sold at some point between July 12 and September 30, 2016. Knowing that a 18.9 percent shareholder reduced his stake in the company is valuable information and can be easily discovered by searching for 13-F filings. Turning our attention to management and directors, we must exercise more caution when looking at the numbers in the tables. 8220Beneficial ownership8221 includes options that are exercisable within 60 days of the filing date. Holding options to purchase shares is not the same thing as actually owning shares, yet the SEC allows the two types of holdings to be conflated in the table. For example, CEO William Henderson beneficially owns 466,734 shares representing 5.7 percent of shares outstanding. However, let8217s take a look at the small print in footnote 5: Of the 466,734 shares 8220beneficially owned8221, 389,000 represent exercisable options which means that 77,734 shares were owned outright on the date of the report. Although option grants represent upside to Mr. Henderson, they have no downside risk (other than potentially expiring worthless). In terms of 8220skin in the game8221, he has 77,734 shares which are worth around 3.3 million currently. If we took the number presented in the table at face value without looking at the footnote, we would incorrectly consider his 8220skin in the game8221 to be nearly 20 million, obviously a huge difference. The use of stock options is common and this type of situation will exist in the presentation for most companies. There is a good case to be made that the distinction between options and outright ownership should be visible in the table rather than only in the footnotes but unless that change is mandated by the SEC, investors simply have to be sure to examine the footnotes carefully. Election of Directors The next section deals with the election of directors. Readers should focus on the frequency of elections for directors and the length of a director8217s term. In the case of Car-Mart, directors are elected to serve for one year until standing for re-election at the following annual meeting. This is a good practice. Many companies have staggered boards where directors are elected for longer terms, typically three years, and not all directors face re-election at the same time. This can impede potential changes in control and effectively protect incumbent directors and management from the concerns of owners. Although having staggered terms is not an automatic disqualification, companies that have both staggered terms for directors and very low insider ownership should be examined very closely when it comes to other aspects of corporate governance. Generally, readers should attempt to determine whether directors are likely to be interested in the operations of the company, have necessary business background, and have incentives aligned with shareholders through a reasonable amount of ownership, as specified in the ownership information described above. Many larger companies have elaborate presentations in this section where all kinds of information that is tangential to the key factors are discussed such as the ethnic and gender make-up of the board. Investors can differ in terms of their opinion regarding such factors and there is obviously some social benefit in a diverse board, but the primary factors should involve whether a director8217s biography and ownership show that he or she can actually contribute meaningfully to oversight of management. Board Structure, Organization, and Compensation The proxy contains a discussion regarding the board8217s structure and organization including a description of the manner in which the board goes about conducting its business. We learn that the board held nine meetings in its last fiscal year and that each incumbent director attended at least 75 percent of the aggregate number of meetings held by the full board and committees on which the director serves. This isn8217t really that insightful but at least validates that there are no totally disengaged directors seeking re-election. Further description of the leadership structure, including the company8217s separation of the CEO, Chairman, and Lead Director roles is provided. Car-Mart separates the CEO and Lead Director roles, and subsequent to the proxy, named a Chairman. The separation of the CEO and Chairman roles is a critical factor. Unless a CEO is either a founder of the company or a very significant stockholder, the Chairman role should almost always be held by someone else. The Chairman8217s biography also must demonstrate that the individual has both the necessary business experience and the gravitas to influence the CEO8217s conduct. The various committees of the board are discussed in some detail, including the members who serve on each committee and the frequency of meetings. In the case of Car-Mart, there are committees charged with audit, compensation, compliance, and board nominations. Generally, there is limited to no insight to be gained from committee membership and it is questionable whether functions such as the audit committee are really equipped to oversee a complicated company8217s financial statements over the course of a few meetings. Nevertheless, it is good to verify that committee members are plausibly qualified for the roles in which they serve. The proxy goes from dull to interesting again with the discussion of director compensation. Only outside directors, that is, those who are not on the management team, are compensated for serving on the board. Typically, companies provide board members with a cash retainer that can vary based on their committee assignments along with some form of equity compensation. The director compensation for Car-Mart appears below: The cash retainer varies from 40,000 to 50,000 per year and is pro-rated for partial year service. In addition, each director who served the full term received an award valued at 87,690. The footnotes provide information regarding the total number of options held by each director. Evaluating director compensation is not a simple task. The goal should be to fairly compensate directors but we would also prefer to see directors whose real 8220compensation8221 comes from capably executing their duties as directors because they are also major shareholders. However, it is quite rare to see directors with large shareholdings that are not provided by companies in the form of options or restricted stock. Ultimately, directors need to be individuals with strong personalities and a financial stake in the success of the business. Standing up to a CEO is not for the faint of heart in most companies and there is usually no shortage of egos in a boardroom. The compensation at Car-Mart appears to be generous but not set at an egregious level. A more thorough understanding of how the compensation might influence individual directors would involve examination of how an individual director might feel about losing their compensation. For example, is a director dependent on the director fees to fund a majority of his or her personal expenses However, that type of analysis is beyond the scope of an initial review of a proxy statement. We now get to the heart of the proxy when discussion turns to executive compensation and the rationale behind it. Pretty much every company will include language indicating that they hope to align incentives of management with shareholders but obviously the details need to be read with some sense of informed skepticism. Here are the stated goals of Car-Mart8217s executive compensation program: Only the 8220named executive officers8221 of the company are included in this review. In the case of Car-Mart, the officers are CEO William H. Henderson and CFO Jeffrey A. Williams. It should be noted that there could be executives who are paid more than the named officers at certain companies (although not likely at Car-Mart). For example, at Berkshire Hathaway, executive pay for subsidiary management is known to be far higher than the compensation of the named officers. Car-Mart has employment agreements with Mr. Henderson and Mr. Williams that govern their base salary and incentive compensation, as well as benefits they will receive due to any potential change in control of the company that results in loss of employment. Many companies use compensation consultants to develop elaborate pay schemes along with lengthy explanations that appear in the proxy, but Car-Mart has a more concise presentation. The board attempted to set base salary at a level that would attract qualified management along with incentives based on a simple performance metric: GAAP fully diluted earnings per share. Short term cash incentive compensation is based on the degree to which management achieves 8220projected8221 diluted GAAP earnings per share. Target payments range from 15 to 29 percent of base salary depending on the extent to which projected GAAP earnings are met or exceeded. Long term incentives are comprised of both stock options and restricted stock and are awarded on a periodic basis rather than annually. The latest option grant was made at the 2015 annual meeting and will vest, depending on performance, at the end of fiscal 2020. A portion of the options are time vested while the remainder are performance based. The table shown below provides a summary of the compensation of Mr. Henderson and Mr. Williams for the past three fiscal years: To the company8217s credit, neither executive has earned short-term bonus payments over the past three fiscal years because the projected GAAP earnings per share metric was not satisfied. Many companies will still grant bonus payments to executives even when performance falls short, citing 8220retention8221 or other factors as a justification, so it is good to see a company that actually does what it says it is going to do. We also can see that salary increases have been relatively restrained. The fair value of the stock option grant made at the 2015 annual meeting appears in the table but no cash will be received by either executive until the options vest, if they vest at all, at the end of fiscal 2020. Although management earns a healthy base salary, overall compensation does not appear egregious compared to many other similarly sized companies and long term compensation seems reasonably well aligned with shareholder interest. Here are the terms under which the performance-based portion of the options will vest: For the performance-based option, if the Companys cumulative consolidated net income growth, calculated on a compound basis, for the five fiscal years ending April 30, 2020 is equal to 10 or more, the option will vest in full (20,000 shares) on April 30, 2020. If the Companys cumulative consolidated net income growth, calculated on a compound basis, for the five fiscal years ending April 30, 2020 is equal to 5 or more but less than 10, one half of the option (10,000 shares) will vest on April 30, 2020. If the Companys cumulative consolidated net income growth, calculated on a compound basis, for the five fiscal years ending April 30, 2020 is less than 5, the option will be forfeited. Of the 30,000 options granted to each executive, 20,000 are performance vested based on the criteria above while 10,000 are time vested, meaning that they will vest on April 30, 2020 if the executives remain with the company until that time. The proxy contains a table of outstanding equity awards that shows the overall number of options outstanding for each executive: Here we can see that in addition to the recent option grant, both executives have significant grants that are already fully vested and exercisable. Incidentally, the total number of exercisable options in this table should tie to the footnotes provided in the beneficial ownership table discussed earlier. For example, we can see the 389,000 vested options that Mr. Henderson owns in this table which ties to the options reported in the beneficial ownership table. Also, we can see that the vested options are significantly 8220in the money8221 with a strike price well below the recent share price of 42. This is important because options that are significantly out of the money can either lack incentive value or cause executives to take desperate steps to increase the stock price before the options expire. In this article, we have attempted to highlight the areas of a proxy statement that intelligent investors should carefully study as part of their due diligence process. An annual review of the proxy for existing shareholders is critical as well. In the case of Car-Mart, the proxy is quite simple and obviously has not been afflicted by the work of public relations firms. Additionally, all things considered, compensation for both directors and executive officers seems to be reasonable and incentive systems seem to be aligned with shareholder interests. There isn8217t any way to fully gauge the quality of board oversight from the outside looking in. The best we can do as minority shareholders without sitting on the board ourselves is to critically examine the proxy statement and look out for potential pitfalls. We ideally also need to examine past proxies to see if the criteria has changed, which has not been done in this exercise. While the annual report and 10-K rightfully take priority when an investor is getting to know a business, the proxy should never be ignored when a company becomes a more serious investment candidate. Knowing the people running the business and the incentives they operate under is a big part of the investment process. Disclosure: No position in America8217s Car-Mart. Tulisan Terbaru
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