Company Research Assignment III

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Texas Christian University *

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Finance

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Apr 3, 2024

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1. When a company repurchases shares of its own stock, both the assets and stockholder’s equity sections of the balance sheet are affected in a certain way. Under assets, cash and treasury stock have an inverse relationship. There is an outflow of the company’s cash as it is used to purchase back its own shares and an increase to treasury stock, classified as a contra-equity account under the asset section of the balance sheet. It is important to note that treasury stock consists of shares that have been reacquired, but not yet retired. Acting as a contra-equity account, treasury stock has a negative impact on stockholder’s equity. When a company acquires treasury stock, its issued common stock reduces and if the price the company paid for the repurchasing of its stock exceeds the shares’ original issuance price, additional paid-in-capital will be affected. The difference between the repurchase price and the issuance price determines whether the additional paid-in-capital amount will increase or decrease. Note 15 informs us that in fiscal year 2022, NVIDIA retired its existing 349 million treasury shares. Upon retirement, the treasury shares assumed the status of the company’s authorized and unissued shares. Circling back to what was mentioned in the previous paragraph regarding the connection between additional paid-in-capital and the repurchase price of shares, the excess of repurchase price over par value was allocated between additional paid-in-capital and retained earnings. This resulted in a reduction of the company’s additional paid-in-capital account by $20 million and a reduction of $12.0 billion to retained earnings. Under Note 15, NVIDIA also states it repurchased 63 million of its shares for $10.04 billion. Through January 29, 2023, the company has repurchased an aggregate of 1.10 billion shares under its share repurchase program. All of this for a total cost of $17.12 billion. A key takeaway from Learning Objective 20-3 is the importance of properly tracking the price of issuances and repurchases because you cannot take more out of an account than what you put into it. 2. There is a number of instruments that directly contribute to the dilution of net income per share. Some of these instruments include convertible securities, stock-based compensation plans, stock awards, along with several others. Nevertheless, all of these tools share the ability of causing a diluted net income. In the case that all potential common shares of a company are exercised, all of the previously mentioned instruments can cause a potential decrease in earnings per share. For example, stock grants and awards. Stock grants and stock awards consist of issuing additional shares to a company’s employees as an incentive to act in the interest of shareholders. Stock awards may become outstanding if certain conditions are not met. Some of these include if an employee were to leave the company prior to the vesting period, the right to the awarded shares would be forfeited. Based on the statement under Note 5, the primary instrument impacting the denominator is the number of outstanding equity awards. However, From the information stated under Note 5, there was a particular instrument excluded from diluted earnings per share. NVIDIA states that equity awards were excluded from diluted net income per share because their effect would have been anti-dilutive.
3. Overall, there is not one thing I have learned and experienced throughout the course of FR II that I do not believe will serve me useful beyond college. After having taken Fundamentals of Accounting and FR I, I am convinced that Financial Reporting II has been the accounting course that has brought the most value to my personal and professional life. If I were to select one specific topic that I believe will serve me the most useful, I would say taxes. Because it was the most challenging chapter of all is that I believe it is the one there is the most to learn from. Taxes are a constant force in every individual’s life, regardless of your age, status, or occupation. You see taxes when you go to the store, when you receive a paycheck, filing taxes is something you dedicate time out of your personal life to do. It is easy to conclude that taxes will follow me long after I leave TCU. Throughout this upcoming summer, I will be interning at Ernst & Young under their Audit internship program. Understanding taxes is closely related to auditing. As I will be working alongside the team in charge of verifying a company’s financial statements to ensure accuracy and compliance, being able to identify tax-related accounts and their direct impact on financial statement is crucial to ensuring all is accurate. Not only has FR II taught me how to identify accounts directly correlated with taxes, but it has also helped me familiarize myself with the different scenarios that impact tax accounting. For example, temporary and permanent differences and their impact on the tax rate. being able to navigate my way through the small components that make up the world of taxes has and will continue to prove valuable as I step into the real world. I believe my knowledge on taxes will serve me useful when it comes to making informed financial decisions as I begin to build a life of my own. My understanding of taxes has the ability to positively impact my financial well-being both short and long term.
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