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Annual Report & IR Glossary

Financial Indicators

DOE (Dividend on equity)

One of the indictors used by investors, DOE shows how much of its shareholders’ equity a company returns to its shareholders. It is commonly calculated using one of the two formulas listed below.

1. DOE = Total dividend payment ÷ Shareholders’ equity*
2. DOE = ROE (Return on equity) × Dividend payout ratio
* It is common for a company to use the average of the value of shareholders’ equity at the start and at the end of the fiscal year.

DOE increases in correspondence with increases in ROE or dividend payments.

EBITDA (Earnings before interest, taxes, depreciation, and amortization)

EBITDA is an indicator of income that adds back interest expense as well as depreciation and amortization to income before income taxes. It allows for a simple comparison of the amount of cash flow that was generated in comparison to total capital including debt capital. It is also used as an indicator to show income in a manner that minimizes the effects of differing interest rates and tax rates between countries.

EPS (Earnings per share)

EPS is an indictor used to analyze the profitability of a company. It displays the net income per share of common stock at the end of any given fiscal year.

EPS = Net income ÷ Total number of shares of common stock issued

FCF (Free cash flow)

FCF is operating cash flow adjusted to reflect changes in income taxes, the amount of capital investment, and the amount of working capital. It is a good indicator of the constitution of a company’s cash flows. It also represents the cash flows belonging to creditors and shareholders, or the amount of capital that can be returned to these capital providers in the form of interest payments, liquidation payments, or dividends.

FCF = Operating income × (1 − Effective tax rate) + Depreciation and amortization − Capital investment ± Change in working capital

PBR (Price to book value ratio)

Calculated by dividing the stock price by BPS (book value per share), PBR is an indicator that shows the ratio between the market capitalization value and the liquidation value (shareholders’ equity) listed on the financial statements. It is used to compare a company’s stock price with its book value.

ROA (Return on assets)

ROA is a financial indicator that shows overall profitability by dividing an income figure by total capital (assets). It represents how efficiently the capital (assets) invested by the company were used to generate income. Operating income, ordinary income, and net income are often used as the numerator, producing operating return on assets, ordinary return on assets, and net return on assets, respectively. Return on assets can also be calculated by using the formula operating margin × total asset turnover. (Operating margin is an indicator that shows profitability and total asset turnover is an indicator that shows efficiency. ROA, however, shows both profitability and efficiency.)

ROA = Income ÷ Total assets × 100

ROE (Return on equity)

ROE is an indicator used to analyze profitability. It is the ratio between equity capital (shareholders’ equity) and net income.

ROE = EPS (Earning per share) ÷ BPS (Book value per share)

Securities and Accounting Terminology

IASB (International Accounting Standards Board)

The International Accounting Standards Board (IASB) was established in April 2001 as the successor of the International Accounting Standards Committee (IASC) after undergoing a structural reorganization. It is an independent, privately funded non-profit organization responsible for developing accounting standards. The parent entity of the IASB is the International Accounting Standards Committee Foundation (IASCF). The goal of the board is to contribute to the public good, while helping investors and other users of financial information make appropriate economic decisions. There is a great demand for companies to create financial statements and other financial reports that are high in quality, transparent, and very comparable. To this end, the IASB is working to develop a high-quality set of international accounting standards that are easily understood and highly enforceable.

IFRS (International Financial Reporting Standards)

The International Financial Reporting Standards (IFRS) are the accounting standards developed and promoted by the IASB. These standards are used throughout the European Union, and their use is expected to spread to Japan in the near future. The goal of these standards is to identify the risks hidden in various sections of financial statements and make them clearly visible to allow ease of comparison. This will subsequently make it easier for investors and other stakeholders of a company to get a clear picture of the company. The IFRS succeeded the International Accounting Standards (IAS) developed by the IASB’s predecessor, the International Accounting Standards Committee (IASC).

ADR (American Depository Receipt)

ADRs are receipts issued by non-U.S. companies to smooth out the process of listing and trading their stock on the U.S. market. They represent the ownership of marketable securities issued by non-U.S. companies and governments as well as certain foreign subsidiaries of U.S. companies. They can be bought and sold in U.S. dollars. ADRs were developed in 1928 for the purpose of making it easier for investors in the United States to invest in the stock of non-U.S. companies. They can be used for any securities not traded in U.S. dollars. These receipts are very appealing for the fact that they can be traded in U.S. dollars and that they allow dividends to be paid in U.S. dollars. Taking advantage of this benefit, many large Japanese companies currently list their stock the United States by employing this system and issuing ADRs. Further, companies issuing ADRs are held to the same disclosure requirements as are U.S companies.

SEC (Securities and Exchange Commission)

The U.S. SEC is a federal government organization that was established in 1934 to monitor and control securities transactions, such as the trading of stocks and corporate bonds, in the United States. It fulfills the same function as Japan’s Securities and Exchange Surveillance Commission and Certified Public Accountants and Auditing Oversight Board combined. The SEC oversees laws and regulations regarding securities transactions to protect investors.

U.S. GAAP (United States Generally Accepted Accounting Principles)

U.S. GAAP are the accounting standards applied to financial accounting in the United States. They are the generally accepted accounting principles in the United States, and are often contracted as U.S. GAAP. In order to be listed in the United States, it is necessary for a company to compile and disclose their financial statements in accordance with these standards.

Mark-to-market accounting

Mark-to-market accounting is a method of accounting in which the value of certain financial assets (stocks, real estate, etc.) is recalculated at the end of the fiscal year based on the market value. The difference between the market value and the book value is then recorded as a gain or loss on valuation on the company’s balance sheet and income statement. Under conventional accounting methods, the value of assets displayed on the balance sheet was generally the original transaction value, and accordingly fluctuations in value were not always apparent from the financial statements. This led to some cases in which it was not easy to understand the current condition of a company. In recent years, there has been an increasing trend toward companies possessing a large number of financial instruments for which the value as an asset fluctuates constantly. Further, the use of mark-to-market accounting has become prevalent under the IFRS. Amidst this change, Japanese companies have increasingly been conducting business overseas. For this reason, mark-to-market accounting was introduced throughout Japan starting at the same time as Japanese companies filed their financial statements for the fiscal year ended March 31, 2001.

Comprehensive income

Comprehensive income is based on the idea that the income or loss resulting from certain items recorded directly on the balance sheet, such as unrealized gain on investments in securities, foreign currency translation adjustments, and revaluation reserve for land, also represent income or loss from the company’s business activities. It is a value for income that takes net income, the figure that represents a company’s overall income, and adjusts it to reflect changes in the valuation of assets. This standard, however, does not exist in Japan. Use of comprehensive income makes it more difficult for companies to manipulate financial statements, and therefore contributes to increased transparency. Conversely, though, it carries with it such issues as making it harder to determine how much income was generated from a company’s business activities and increasing the influence that the market trends of stock prices and foreign exchange rates have on a company’s business performance.

Impairment accounting

Impairment accounting is an accounting procedure in which the book value of fixed assets with decreased value, those assets that are unlikely to recover their original investment value, can have their book value reduced under certain circumstances. This is also refereed to as the revaluation of fixed assets. The Business Accounting Council of Japan has required all listed company in Japan to practice asset impairment accounting since the fiscal year ended March 31, 2006.

Pension liabilities

The future payouts for pensions that a company with a pension plan is legally liable to make are recorded on the balance sheet as pension liabilities. They can be offset by pension assets and other such items. Recently, the deposits of many companies into their pension plans have been insufficient due to lackluster performance resulting from the difficult operating environment. Accordingly, pension liabilities now have a large influence on the business performance and the financial stability of companies. In Japan, companies generally divide pension fund insufficiencies over a spread of many years, recording them over the long term. Conversely, international accounting standards are progressively shifting toward recording such insufficiencies collectively in the fiscal year in which the funds were insufficient.


Goodwill is the excess of the amount paid to purchase a company in an acquisition or merger over the market value of that company. In consolidation accounting, it is the difference between the amount of investment and a portion of the value of the purchased company’s assets, at market value, equivalent to the portion of equity held by the purchasing company. Under previous accounting standards, goodwill was recorded on the balance sheets as an intangible asset. It was then amortized over a predetermined period of years. While it was previously possible to record the amortization of goodwill as a single expense, the new regulations imposed by the Accounting Standards Board of Japan in April 2006 prohibited this. Further, the current international accounting standards no longer call for the amortization of goodwill, rather they have established the regulation of revaluating goodwill following drops in corporate value.

Lease accounting

In lease accounting, leases are divided into two types: financial leases and operating leases. Contracts for financial leases cannot be broken during the period of the contract and are generally recorded in a similar manner to sales in the financial statements. Leases other than financial leases are called operating leases. These are generally treated as lease payments under lease accounting. A company can, however, choose not to record leases as assets on the balance sheet, which in turn can help improve the company’s ROA. However, if this type of off-balance-sheet accounting is employed, a note must be included detailing that fact. Leases are used as a means to procure capital, and also have benefits in areas such as calculating taxes and reducing the burden of ownership of the leased assets. These standards have become a central part of accounting in Japan since the Accounting Standards Board of Japan released the “Accounting Standard for Lease Transactions” (Statement No. 13) and the “Guidance on Accounting Standard for Lease Transactions” (Guidance No. 16) on March 30, 2007.

Information Disclosure Terminology

Web-based annual report

As opposed to the traditional printed form of annual reports, web-based annual reports are digital reports available on a company’s website. In Japan, these are primarily in the PDF format. Meanwhile, companies in the United States are increasingly providing web-based annual reports in HTML and video formats, as well as those that offer a variety of interactive features. However, companies are increasingly viewing publishing an annual report as more than simply a decision between selecting either one of these two choices. Rather, they select the format based on the characteristics of the medium and their target reader group.

10-K / 20-F wrap annual report

This is a form of reporting, offered in place of a traditional annual report, in which a copy of the Form 10-K or Form 20-F submitted by the company to the U.S. SEC is used in place of the financial section. In recent years, these types of annual report have come to be commonly used among companies in the United States as a way to reduce costs. However, for shareholders, these are often seen as being difficult to understand as all information legally required to be disclosed is included in full.

Form 10-K

Form 10-K is a yearly report that is submitted to the U.S. SEC by U.S. companies listed in the United States. It is similar to the Yuho securities report in Japan in that it is a document that companies use to disclose their financial statements and other pertinent information. A similar form, Form 20-F, is required of non-U.S. companies listed in the United States. Information recorded in this document includes details on such items as the company’s business operations, its principal financial statements, and the compensation paid to management.

Form 20-F

Form 20-F is a yearly report that is submitted to the U.S. SEC by non-U.S. companies listed in the United States. It is similar to the Yuho securities report for Japan in that it is a document that companies use to disclose their financial statements and other pertinent information. A similar form, Form 10-K, is required of U.S. companies listed in the United States. Information recorded in this document includes details on such items as the company’s business operations, its principal financial statements, and the compensation paid to management.

Segment information

Segment information is information regarding the income and other important details of specific sections, or segments, of a company. The grouping of these segments can be determined by such factors as business type or region. In Japan, companies are required to disclose information on the following three segments in the Yuho securities report in accordance with the comment papers on disclosure of segment information. Further, information on these segments must be disclosed on a consolidated basis.

1. Business segments
2. Geographical segments
3. Overseas sales

Corporate Value Terminology

Enterprise value

Enterprise value is the overall value of a company, the sum of its business and its non-business assets. The stock price of a listed company is generally seen as an accurate representation of enterprise value, and accordingly enterprise value is often calculated by adding the net value of interest-bearing debt to the market capitalization.

Shareholders’ value

Shareholders’ value is the worth of a company to its shareholders, which is calculated by subtracting the debt of a company from its enterprise value. It is the amount left over when the value of the company’s debts (debt capital) is subtracted from the value of its business. The shareholders’ value of a listed company often refers to its market capitalization value.

Fair value

Fair value is the appropriate or reasonable value of a company’s stock. The goal of IR activities is to guide the price of a company’s stock to this value. When a stock is either overvalued or undervalued, it is often the result of a discrepancy in perception of a company’s worth between the company and the market. By resolving these discrepancies through IR activities, the stock price of a company will approach its fair value.

Intangible assets

Intangible assets are those assets that have intrinsic value but are not generally recorded on the balance sheet, which only displays the assets of a company that have a market value. It is a term used to refer to the assets of a company for which the value cannot be clearly identified, such as intellectual property, brand value, customer value, and human capital. These are recognized as strategic assets and are used as factors to consider when purchasing a company or in the securitization of its assets.

ESG (Environmental, social, governance) information

This information can greatly affect the sustainability of a company and play an important role in determining its corporate value. The issues that this information refers to are as follows.

Environmental: Initiatives addressing environmental issues, such as recycling as well as reducing CO2 emissions.

Social: Factors affecting the company’s relationship with society, such as compliance, consideration of the workplace environment, and contribution to local communities.

Governance: Clarification of the powers and responsibilities of management, employees, and shareholders through such efforts as reinforcement of internal monitoring systems and prevention of malpractice

Corporate governance

Corporate governance refers to the systems through which management is monitored to ensure that it is acting in the best interests of its shareholders. These systems also serve the purpose of preventing malpractice within the company and maintaining the appropriateness of its business activities. Currently, the two main goals of corporate governance are to prevent corporate malpractice and improve corporate profitability.


If a company practices good compliance, it means that it abides by all relevant laws and regulations. It is one of the fundamental principles of corporate governance. It is a company’s efforts to follow basic rules, such as laws and regulations, as well as social norms when conducting management and business activities. Compliance of companies is sometimes called “business compliance” to distinguish it from the compliance of ordinary citizens.

IR Program Terminology

The Logical IR Solution

A tool used to make a company’s IR activities more effective and more strategic; it is the fastest path toward guiding the company’s stock price to its fair value. Primarily based on perception studies, these solutions are developed through the creation of growth scenarios and IR messages that incorporate the logic underpinning investor evaluations of companies. This allows for the development of both IR and communication strategies that are refined for specific target groups of investors, ranging from institutional investors to private investors.

Perception studies (Institutional investor perception studies)

One of the services offered by Edge International is to conduct investigations, collect information, and subsequently report our findings to the client. We offer this service with the goal of helping our clients better reflect the feedback (evaluations) of the market when conducting IR activities and planning their annual report. This service is highly effective in helping clients in correcting communications that have grown overly one-sided, and in developing IR programs based on the logic underpinning the evaluations of shareholders and other investors.

IR scenarios

These scenarios set a clear direction for the IR message that a company should communicate to its shareholders and serve as a roadmap for guiding the development of a company’s IR program.

Qualitative evaluation

Qualitative evaluation refers to the process through which investors analyze the assets and strengths of a company that cannot be identified or expressed by numerical values (intangible assets). These analyses are used when evaluating a company and considering investment decisions.

Quantitative evaluation

Quantitative evaluation refers to the process through which investors make comparative analyses of the quantitative aspects of a company, such as past business performance and current financial condition. These analyses are used when evaluating a company and considering investment decisions.

Regulation Fair Disclosure

Regulation Fair Disclosure refers to the rules on fair disclosure that were included in the SEC’s regulations. These are based on the principle that when a company discloses previously unreleased important information to specific members of the market (selective disclosure), it should also quickly disclose this information to the general investment community. Regulation Fair Disclosure is commonly referred to as Regulation FD.

Mailing lists

These lists are used to send annual reports directly to institutional investors dealing in Japanese stocks around the world. It is also possible to create semi-customized mailing lists by limiting recipients based on such factors as type of institution and region.