April 2024 Newsletter

Dear friends,

The first quarter of the year brought some positive equity returns with the S&P 500 gaining 10.72%, the best first quarter return since 2019. The Dow advanced 5.6% and the Nasdaq ended with a 9.1% gain. Yield on the U.S. 2 Year Treasury rose .378% to 4.628% while the U.S. 10 Year Treasury rose .34% to 4.206%. Gold continues to break record highs, finishing the quarter with an 8.04% gain to $2,238.40 per ounce. Crude oil ended the quarter at $83 a barrel, a 16.07% gain, on continued OPEC+ production cuts and expectations for increased demand.

By, Jaysen Bohrod, CFA

What Is EPS And How Can It Be Manipulated?

Earnings per share, also known as EPS, is a financial ratio that measures a companies profitability on a per share basis. It is calculated by taking the net income a company earns and dividing it by the number of outstanding shares. While EPS is a valuable ratio used in financial analysis, it is open to manipulation and the underlying variables that are included in the calculation should be analyzed thoroughly.

There are many ways EPS can be affected. The most basic way is seen just by looking at how the ratio is calculated: Net Income/Total Shares Outstanding. Companies buy back shares from the open market constantly, some more than others. As they continue to buy shares, the total number of shares outstanding will decrease. This will make the denominator of the ratio smaller, increasing the total earnings per share, even if Net income doesn't rise. This is a particular concern because many executives are compensated through earnings based programs, so they can directly drive profitability ratios without actually increasing the companies profitability.

Another way the denominator can be affected is through the process of share based compensation. Companies often issue stock options as a form of compensation to employees. These options allow the employee to purchase a set amount of shares at a specific price, resulting in the issuance of new shares. The creation of new shares then increases the denominator of the ratio and decreases the EPS.

Revenue recognition techniques can be used to inflate revenues to make the company appear more profitable than it actually is. One method is called “Channel Stuffing”. This involves incentivizing distributors to purchase more inventory near the end of a reporting period to create an illusion of strong demand and higher revenue growth in the short term. The goal with this method is to increase the companies net income, which will increase the earnings per share. The issue is this can lead to higher rates of returns or cancellations of orders in the future, which will result in lower revenue and profits. Along the same lines as “Channel Stuffing”, companies can use a technique called “Bill and Hold Arrangements”. These arrangements allow the company to bill customers for goods without delivering them immediately so they can recognize revenue earlier than they normally would, resulting in inflated earnings.

NUMBERS TALK

Number of initial public offerings in the US in 2024….………………………………………45
Credit card balances at end of 2023……………………………………………………………………$1.13T
US national Debt………………………………………………………………………………….......….…....$34.6T
US Population on Jan 1, 2024………………………………………………………………….............335,893,238
Average rate on a 30-year mortgage…………………………………………………………………6.91%

Taxes and Retirement Accounts

Please make tax payment requests by the first week in April 2024 to guarantee the payment is made on time. Charles Schwab cannot send tax payment checks via UPS to a P.O. Box.
- All 2023 retirement account contributions should be made by the first week in April 2024. Make checks payable to your account name and number and write the contribution year in the memo line. Use the Schwab Mobile App to electronically deposit your contribution check immediately. For electronic transfers, be sure to code the contribution for the correct year.
- Annual IRA & ROTH IRA combined contributions for
2023: $6,500 per year if under age 50;

$7,500 if 50 years old or older.

2024: $7,000 per year if under age 50;

$8,000 if 50 years old or older.

The total can’t be more than your taxable compensation for the year.
- Tax Forms 1099 & 1099-R are issued by Charles Schwab. For a copy of your tax forms visit:
www.schwaballiance.com

Click the ‘Accounts’ tab
Click the ‘Statements’ tab
Click the ‘1099 Dashboard’

Beneficiaries

Annually review and update your account beneficiaries to confirm accuracy, especially after major life events such as marriage, divorce, death, or having a baby. The new SECURE Act rules can affect Trusts as beneficiaries. Be sure to review your Trust with your Estate attorney.

To update your beneficiaries online, go to:

www.schwaballiance.com
Click the ‘Profile’ tab at top right
Click ‘Beneficiaries’ in drop down menu
Review and update all accounts

Stock Market Holiday Calendar

The stock market, bond market and/or our office will be closed on the following days:

Monday, May 27-Memorial Day

Wednesday, June 19-Juneteenth

Thursday, July 4-Independence Day

Schwab Alliance

schwaballiance.com/
Schwab Mobile App
1-800-515-2157

Secure, online access to your accounts is easy, visit the Schwab Alliance website or Schwab Mobile App to view account balances & transactions, access tax documents, open new accounts, and more.

Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Pegasus Asset Management, Inc. [“Pegasus]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Pegasus. No amount of prior experience or success should not be construed that a certain level of results or satisfaction if Pegasus is engaged, or continues to be engaged, to provide investment advisory services. Pegasus is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of the Pegasus’ current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.pegasusassetmgt.com. Please Remember: If you are a Pegasus client, please contact Pegasus, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

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