Question

chapter 17 deals with 2 types of Accounting--Managerial and Financial, You will write 500 words on the upcoming IPO of a company named PINTEREST. It is due to go public this Thursday, April 18. I would like you to identify which type of Accounting is being used for this company--One or the other or both and why. Make sure you substantiate your answer as well as give your own personal opinion.  

Answer 1

Pinterest is an image sharing and an image board which allows users to create image boards and categorise them according to a filtration systems called tags. The company monetises its pins using promoted boards as well as offering a buy button on pinned boards . The image board attracted over 123,626,970 users every month. Pinterest is already a public company as of todays date and is valued at 12 $ Billion. Since Pinterest is a publicly listed company, based on SEC regulations it has to follow he following financials reporting standards. Pinterest is part of a new wave of startups like Lyft which went public despite of its negative profit, following a new trajectory of trading profits for increased revenues growth and market share. While this wasn't the norm for most public companies, an increase in private capital has soured growth in the technology sector. The image board website is currently trading at 34.26 $ a share , which is up by almost 14.77 %.

This follows GAAP standards or Generally Accepted Accounting Principles which involve using a 3 statement financial sheets which involve

Income Statement (Revenues , P&L, COGS or Cost of Goods , Capex & Operating Expenses)

Balance Sheet (Assets, Liabilities, Debt, Shareholders Equity, Current Assets , Non Current Assets, Current Liabilities and Non Current Liabilities, Property Plant and Equipment)

Cashflows (net inflow an outflow of cashflow from operating activities, investing activities, and cashflows from financing actives.

The reason why Pinterest uses GAAP account standards is because this gives a much more broader view of the company financials and help derive key financial ratios that determine the financial health of a company

P/E Ratio : Price to Equity Ratio is a ratio that reflects the value of a share by dividing the price of a share with it's annual earnings. A higher P/E ratio is indicative that investors are relatively bullish about a stock

Price to Sales : This financial ratio compared a stock price to it's revenue. This can be calculated by dividing total market capitalisation with it's annual revenue. A lower P/S Ratio is indicative of poor financial performance.

Price to Cash Flow : This financial ratio compared a stock price to it's total cashflow s

Price to Free Cash Flow

Price to Book

Price to Tangible Book