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1.) KCI records Foreign Currency Losses and Gains. Do I just include these in expenses or do I need to re-calculate taxes? Right now, I determine the effective tax rate (taxes/total revenue), add or subtract the Foreign Currency loss/gain to net revenue, and recalculate the income taxes.

I think this is a non-cash charge, so I am not really sure what to do.

2.) Do I include the current installment of LT Debt and Current installment of Capital Lease obligations in the calculation of working capital investment? If not, can someone give me some idea why not?

3.) What about unusual charges or revenue, like Initial public offering expenses, recapitalization expenses, or Litigation settlements?

The litigation is not that unusual, there have been three cases, 2002, 2003 which resulted in awards, and 2005 which resulted in a charge.

Thanks to anyone who can advise me on this.

Dot
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1.) KCI records Foreign Currency Losses and Gains. Do I just include these in expenses or do I need to re-calculate taxes? Right now, I determine the effective tax rate (taxes/total revenue), add or subtract the Foreign Currency loss/gain to net revenue, and recalculate the income taxes.

I look at FX but exclude from both alternate income statement, as it is nonoperating. Also, one day the dollar is weak, the next it is strong.


2.) Do I include the current installment of LT Debt and Current installment of Capital Lease obligations in the calculation of working capital investment? If not, can someone give me some idea why not?

No. It is debt, not a WC liability.

3.) What about unusual charges or revenue, like Initial public offering expenses, recapitalization expenses, or Litigation settlements?

You need to use some judgment here. If the charge is one-time, then I would exclude. But if these expenses seem to appear on the IS with metronomic regularity, include.


Hewitt
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Thanks Mr. Heiserman!

I am puzzled by the current portion entries, I think. I understand that it's important to know if the company can meet its current debt obligation, which is why that is broken out.

But since the current portion of LT Debt and Capital leases represents money that will flow out the door this year (just like accounts payable), doesn't this make the defensive profits higher than they should be?

I'm not disagreeing, just seeking enlightenment.

Thanks so much for all your help. I deeply appreciate it!

Dot
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Miss Fizzdot,

Later in IETC you'll find a ratio called the debt repayment period. DRP is equal to a firm's total debt divided by its free cash flow. This is the period of time, in years, that a firm need to pay off its indebtedness. The longer the DRP, the more speculative the firm's capitalization. I avoid companies with DRP's over 5 years.

If you include the current portion of long-term debt as a working capital liability, then you are mixing operating and financing elements of the balance sheet. I prefer to keep them separate.



Hewitt
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Heh heh, you have a subtle wit... I guess I should call you Hewitt?

Thanks for your help, so very much. I appreciate it! That makes sense.

I wish I could pay some of this help back. Would you be interested in a FAQ from a rank beginner like me? The current one is good, but left me with many questions, as you can see.

I am finding the Enterprising statement much easier, but have a question about that too. I'll leave it in another message.

Thanks again!
Miss Fizzdot
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