Basis of Company accounting practices
Notably, a majority of the accounting principles adopted by ITT Educational services exist within the GAAP specifications. Non-GAAP specifications that have been used during the presentation of reports have always been considered alongside compliant reports, and not as a substitute of the same. This implies that all amounts represented as factual make reference to historical results of the firm. This implies that all considerations, including conservatism and materiality, are factored in by the accountants when preparing monetary reports for specified time frames (Griffin & Demand Media).
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The basic assumptions of an economic entity, monetary unit, and time period are also factored in when processing the reports. Therefore, all transactions are reported in one currency, with all personal transactions separated from business transactions. Since reports are issued quarterly, a distinct time frame is considered (Griffin & Demand Media).
Items within footnotes that are non-GAAP compliant
Operating cash flow modified for constrained capital and cash outlay is termed actual free cash flow in the records. This is the only non-GAAP practice perpetrated by the company since GAAP specifications lack a provision for free cash flow. It is noteworthy that Free Cash Flows are the major items present in the footnotes which do not constitute ordinary cash flow reports. They are used in the company reports as a determinant of finances accruing from operations. They constitute a crucial segment of the report since they enlighten investors as regards particular dealings and the financial returns of the particular ventures. Consequently, footnotes are the most convenient method of reconciling footnotes with other consolidated statements during the relevant fiscal periods.
Company auditor, their opinion, and exceptional audit items within the records
The company has an auditing oversight committee chosen internally by board members. They watch over financial reporting procedures in the place of company management and association of directors. Oversight of disclosure control systems also counts among their responsibilities. This is a responsibility undertaken in collaboration with Price Waterhouse Coopers, which serves as the official accounting and auditing firm. Consequently, they settle upon most decisions after extensive consultations among themselves.
These individuals form the audit committee, which is guided by several laws formulated by the company. It is noteworthy that these individuals operate following legally acceptable practices that govern auditing and other accounting procedures. Please note that membership to this and any other committee within the firm is not permanent, since members are appointed and dropped based upon the recommendation of the nominating and governance committee. This comes after a review of yearly performance and consideration of the advantages derived from the continuity of service against those posed by diversity.
To serve as an auditing director, one needs to be deemed independent by the company’s auditing charter and the New York Stock Exchange rules. Eligible candidates should show proof of adequate qualification, including certificates and awards from accredited institutions and other legally acceptable entities. Most importantly, the committee ensures that all fiscal reports issued by the firm are GAAP compliant. This ensures accountability and above-board operations by firm employees (ITT Educational Services). The team also enforces internal quality control measures and monitors all forms of communication from the accounts section to any other department within the firm, including management.
Suitability of the firm as an investment option
This is a conservative stock. Such is the case since stock prices have maintained relative stability over the previous trading quarters. A case analysis of market trends on the 25th February 2011 by the Bloomberg Business week reveals relative stability during the trading period. The stock opened for trading posted at $ 74.87. This marked a modest increase from the previous closing price of $ 74.64. Markets during the trading session reached a low of $74.58, which was significantly higher than $ 50.00, which was the lowest trading price for the previous financial year. Share prices had risen to a high of $121.98 during the same trading period. Summarily, company stocks had a market capitalization of 2.3 billion shares. This implies that an average volume of 844000 shares was moved during this period (Bloomberg Businessweek).
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A look at the NASDAQ prices for the same period reveals a similar trend. For a similar trading period, shares closed trading at an average of $75.45 per share, slightly above the day’s target of $75.00 per share. Figures revealed a trading high of $76.33 and a low of $74.58. A shared volume of 665,949 shares was traded, implying a market volume of $2.3 million (NASDAQ).
These figures reveal stability in market trends and patterns. This guarantees security for investors and healthy fiscal life for the organization. The resultant security creates a safe atmosphere for investors, providing a guarantee for positive returns on their finances in the event they buy into the company. Consequently, ITT Educational Services is a safe venture to invest in.
As an investor, ITT Educational Services would be an ideal investment. It is commonplace that education is an integral cog of human life, a fact that guarantees continued profitability and sustainability of the business. A continued increase in the human population guarantees continued profitability. This is because many students will enroll in the program, with the aim of maintaining a competitive edge in the present times.
Technological advancement guarantees an abundance of students too. This is because many employed persons will resume school in order to refresh their knowledge. This will ensure they maintain their competitive edge at their places of work. Consequently, efficiency becomes guaranteed, hence continued profitability for most of the firms.
Most importantly, the company carries out all its operations within the confines of the law. This provides an insurance against inconveniences occasioned by numerous lawsuits. Consequently, recurrent expenditure arising from unending lawsuits is thus avoided. In addition, the complex structure of its constituent schools provides for a centralized auditing program, which guarantees easy monitoring of financial procedures. Errant practices and other instances of fraud are thus monitored easily, saving time and monetary resources.
A look at the company’s consolidated earnings for the year 2010 prior to auditing revealed a net income of $97.5 million. This implied a diluted share earning of $3.14 per share for the year 2010. Internal analysts predicted an increase in the earnings to an average of $8.50 to $10.50 for the year 2011. ITT recorded revenues of $410.1 million, with an operating income of $162.4 million. This attracted a provisional tax of $162.5 million, hence a net income of $97.5 as reported above. Similar trends had been posted for the previous years, albeit with slight variations as regards figures and volumes.
Bloomberg Businessweek. ITT Educational Services INC. Investing Business Week. 2011. Web.
Griffin, Dana & Demand Media. GAAP Basics. Small Business Chronicle. 2011. Web.
ITT Educational Services. Non-GAAP Measures. ITT ESI. 2011. Web.
NASDAQ. ESI Stock Quote & Summary Data. NASDAQ. 2011. Web.