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Alan Cring Productions in association with the Emergent Light Studio presents

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the Illinois State Collegiate Compendium, Academic Lectures in Business and Economics.

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This is Business Finance, FIL 240 for spring semester 2024.

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Today, analysis of financial statements.

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Before we begin that, we have our usual look at the numbers, which, well, let me have you tell me what's going on here, as I should always do.

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Sir, is this a bull or a bear day?

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Bear day.

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It is a bear day. It's one of those that's, it's not a terrible bear day. It is going up and down.

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As you can see, by all of these, it had a drop off near the beginning, a pretty steep one, and then it just, in the mid morning, it began to recover.

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And as you can see, some of the indices almost got into positive territory, but then the bears had had enough of letting the bulls play, and they've pushed it down a little bit here in the, just after the midday.

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Now, remember, this is an hour later than us. This is on the East Coast. So it's past the midday there.

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And we're about 120, yeah, about 130 there.

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So as you can see, though, it's not pleasant, but it's not a terrible day. It's had its ups and downs. The swings are kind of dramatic.

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But as you can see, though, it's just a sour day. It's not some catastrophe.

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But like I said, there are some earnings concerns that are coming out. Some of the big companies have been posting earnings or are about to.

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And some of them are kind of disappointing. But overall, the markets are still in a fairly buoyant mood.

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We've got strong employment. Factory activity is still robust. But as you can see, the markets are just having a grouchy day.

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Now, oil, it actually got below that trading band that I keep talking about from $72 to $79 a barrel on the Brent Light Suite.

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It's down still near the bottom of that trading band right now. It's had a little bit of a rally, as you can see, right through there.

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But it's nothing spectacular. Interestingly enough, the concerns about oil supply disruptions because of the conflicts in the Middle East just aren't getting the markets worried.

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Their expectations are still looking at good oil supply throughout the world. So there you are.

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Now, going over here really quickly, well, I jumped to there. Here we go. The 10-year bonds, they have been, the yields are up, which means the prices are down.

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Now, that's interesting because gold is down too, as you can see. If you look over here, investors are shying away from stocks.

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So they're selling, and that would mean that there's money being freed up from that. But then those funds, usually if there's concerns about the economy,

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the flight to quality phenomenon, would say that that would mean that the money is being put into bonds. That should bring the bond prices up and the yields down.

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But as you can see, the yields are up, which means prices are down. So investors are selling stocks, they're selling bonds, and they're not going into gold at all.

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So where is that money going? Well, the answer to that would be probably cash. In other words, the heavies are staying, are getting out of some stocks, getting out of their bonds a little bit,

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certainly not putting that money into gold or silver. So they're most likely just putting it into highly liquid money market accounts, waiting to see the direction that the markets will go.

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I'm going to show you something here real quick. Volatility represents uncertainty. Stocks and bonds and things like that going up and down generally says,

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well, there isn't any consensus of where the markets are going to go. And so that volatility represents that uncertainty. Now volatility is risk, because when the markets are volatile,

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that's a reflection of more risk, more possible outcomes, which is a good way that we are going to define risk in general is that risk represents, a greater risk represents greater number of possible outcomes.

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So we've got a couple of indexes, as it were, that measure that you can play just for straight volatility. Here's one, the VIX, CBOE volatility index.

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Now that is going to give us a measure of how much volatility is going up or going down. And right now you can see that the volatility index has moved barely at all,

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which tends to tell us that, okay, there is not a lot of taste for volatility right now. It looks like there is, but there really isn't much. There is not a whole lot of risk in the markets right now.

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There's just an ups and downs of bulls and bears having their usual spats every day, every trading day of every week. So whatever we're worried about, apparently the CBOE volatility index

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isn't pointing to any increase in volatility, any increase in risk of the markets right now. But we do keep our finger on the pulse of this VIX just to see what kind of volatility is present in the markets at a given time.

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And as you can see here, there's a little tiny bit more volatility showing up, but it's nothing really to worry about at all. So there you are. Anyway, back to the main story, let me get back over here to the,

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we can look at the international markets. As you can see, the Nikkei was generally up. It had a little drop on the opening bell, but then it came back up, rallied, and then it just kind of floated along for the rest of the day.

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It was up, maybe not a trivial half a percent for the day. So everything was going okay when Tokyo, when the sun set in Tokyo. And then as the sun came rising across Eastern Europe, Western Europe, and then to London,

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as you can see, it was started out good, but there was that same drop there was in Nikkei, and then it recovered. But then the financial times 100 slid down, and the day ended right about flat from where it began.

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Now interestingly, that late trading drop off showed up over here. When the sun was setting over there in London, it came up over here, and it was still a concern, and you see the drop off show up here.

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It sort of, like it got exported from the London traders over to the US traders, and we had a drop off. But then, as you can see, the market has been striving to recover all day since then.

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The bears are still in the lead, but as you can see, the bulls are making a try, a run for their own chance to do it, their own chance. Now, a couple of stocks to look at just here for the day.

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I always like to beat up on Tesla, for those of you who are fans of he of the cloven hoof. As you can see, it's down 3.5% as I was talking about.

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High risk, overvalued, and it's sliding pretty much as we would expect. As you can see, it followed the pattern of the market today. Magnified, beta 2.43 is going to magnify the markets.

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It's over, generally speaking, will magnify what's happening in the overall market, world markets. As you can see, it did. It dropped off, and the bears just sold out big time, and then the bulls have bought back in, but they still haven't been able to recover all the losses from the drop off in the early trading today.

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Yeah, it's still well below. See, it was up here at the opening, dropped way down, and it's crawling back up, but it sort of surrendered right about here, and it's coming back down again. So there's that one.

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A couple of other ones just to show you that, try Google, well Alphabet, G-O-O-G, Alphabet Incorporated. It's up for the day, a percent. So in other words, it's bucking the trend. As you can see, it's a little riskier than the market, 1.06 on the beta.

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PE ratio indicates some undervaluation, not a lot, but a little undervalued. So Google has a good day, contrary to the market overall. Why? Well, the markets are still awfully star struck by the whole AI phenomenon, and Google is posing as the guru of AI

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with all of its stuff. So the markets are excited about it. They think Google will be a leading company in the artificial intelligence technologies. Now going over here, just to show you another company, Apple.

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Apple's up too, and it's up pretty darn good. Notice that its beta is higher at 1.31, more risk. It is about appropriately valued near its intrinsic value. The PE ratio is at 29.36, so it's neither overvalued nor undervalued, but it's certainly going to show the market, it's going to show more volatility.

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More ups and downs than the market itself will because of that beta. One last one, and this is the one that I'll use as my go-to for the day here. This will be the one I use for financial statement analysis. US Steel, United States Steel Corporation.

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Now we're going to keep an eye on, we're going to keep in mind the numbers we see here. High risk company, 2.04. Undervalued at 12.78. Profitable with $3.56 a share, and it even gives a little bit of a dividend.

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So it's kind of a mixed bag what this company's future is going to be. We're going to look at the financial statements of this company, and we are going to, from those financial statements, do analysis today and on Wednesday.

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And it's really important you write down steps that I do in here, and this is where you begin to use Excel in this class. Follow with me as I do different things.

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A lot of this would be Excel that you would become comfortable with as a casual user. I will step a few times into the kind of Excel that if you say I know Excel on your resume, you would be expected to be able to do these more advanced techniques and procedures that I will use a little bit today.

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Keep that in mind when you're putting I know Excel on your resume. If you're comfortable with everything I've done, and you would have done this yourself, you're in good shape.

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Okay, now to begin this, I'm going to just open up a site, sec.gov. Now as I said last week, Business 100, what you would take here as a freshman,

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should have had a rather serious segment on using sec.gov. Unfortunately, I can't assume that that's the case, and in fact, I know it's not the case for a number of you.

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I know the library research project, you had to go in and retrieve some information, but this becomes your sort of like your lifeblood in finance, but it also is highly useful in other majors as well, as well as in term papers and research assignments you'll have the rest of your time here at Illinois State.

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So sec.gov. Now I'm going to stop with that for a minute, and I'm going to write down some letters and numbers.

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You can find financial statements all kinds of places. They are almost always drawn from where I'm going to show you today. So this is what we call a primary source.

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If you were to use another, like let me show you here. See how Yahoo, I can get, Yahoo Finance, I can get the financials there. They get them from where I'm going to show you.

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Now the bad thing though is that if you go to a secondary source, you can run into two rather nasty problems. One is that sometimes the feed, as we call it, glitches and a number doesn't show up.

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That might be rather important to you. Yahoo had a real problem with that for some time with a couple of critical numbers in the financial statement that were just blanks. And I thought, no, they can be blanks.

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There's got to be a number there. It was just the feed glitched. Another bad thing that could happen, and I've seen it in a couple of sites, is where the feed will go through to the secondary source,

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but some of it won't, and so the secondary source will still be showing the last number that it got clean from the primary source.

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And so it will look like you've got a number there, but it will not be the right number because it wasn't updated. So those are the two problems you have.

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So going to the SEC is your best way to get data, and citation to the SEC's forms is very easy.

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Now, the Securities and Exchange Commission has one of its duties is to collect on a timely basis and a periodic basis all of the financial and a lot of other information

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that is of a financial nature from every public company in the United States, and if companies in other parts of the world want to trade on our stock exchanges,

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they have to also report on these forms as well. Back a long time ago, back before, I hate to say this, maybe even your parents were born, we filed these forms,

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these reports on paper in triplicate, and it was a big, big, it still is to this day, it's a big project, and you can tell when a company is coming up on a deadline

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to get forms filed because there will be all this bustling activity and the executives and the top managers will be busy in meetings and all that kind of stuff.

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Well, that's still there today. But back in the day, it was always on paper and in triplicate, and that was where as a, when I was a consultant many years ago

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in the early 80s, early to mid 80s, I could make a decent amount of money because not many companies really, they had computers, but they really weren't adept at doing all the tricks.

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And so I could create templates and then I could fill in the blanks in these templates and get the forms printed out for companies that needed someone who could do that kind of stuff.

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Then the SEC in the late 1980s, it began an experiment, it was like a beta, where companies could file their forms electronically through a system that was called EDGAR, E-D-G-A-R, EDGAR.

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And it was sort of, it was, what you file, the way you file them was in a language that, called SGML, yeah, Standard Generalized Markup Language.

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Eventually that evolved into HTML, which is how websites are written. In other words, you write this code and the browser interprets that code into a pretty page.

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Well, this SGML, you fill in these tags like, open a tag, say, title, then write the name of the corporation, then close the tag, slash title, all that.

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You fill out the form this way and you uploaded it through the predecessor of the internet.

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It got very common and eventually this EDGAR system took over. No more filings of paper forms. You did it all through electronic filings with EDGAR.

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Now, I'm telling you this history just so you know what you're about to see really is.

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Eventually the big accounting houses and heavy law firms got involved in doing EDGAR filings and they got the SEC to make it illegal for little dwarves like me to do it.

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But that's okay. I learned enough about it in the time that I did it and I made some money.

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Here's the upshot. A company, a public company may have to file a lot of different forms depending upon the types of activity it does.

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But there are some core forms that it must file. Now, among those are form 10Q and form 10K. We call these the Qs and Ks.

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These are quarterly reports of the financial condition and the numbers of a company. Do it every quarter.

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And then at the end of the company's fiscal year, all of those quarters are brought together for the annual form 10K.

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And like I said, it's one of those things that companies get all kinds of excited getting all the numbers together.

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And they usually have the accountants and the lawyers do the actual form filings.

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And then there's another one that you will see pretty commonly. This is called the form 8K.

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Now, the form 10s, the Qs and Ks of the 10 are periodic. They happen on a regular cycle. The 8K is different.

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This is a report of a non-recurring event. So whenever anything happens that's out of the ordinary, the company must file an 8K.

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So for example, you, madam, are the CFO of Megacorp International and you were abducted by aliens.

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Well, obviously, we file an 8K. That's not recurring. It just happened.

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Well, several weeks later, the aliens bring you back. They didn't want you. So they spit you back out.

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So I have to file another form 8K for that one. The CEO resigns. 8K. The COO is fired. That's an 8K.

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Back in my time as a consultant, I could make a lot of money doing this because these little companies, they would put out press releases all the time.

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We are on the verge of a disruptive technology. It's within our grasp. They just put it out there.

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And then I'd find out about it. I'd say, you've got to file an 8K for this. Why? It was just a press release.

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It's a non-recurring event. It's not periodic. So there has to be a notification of this.

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And they couldn't stand it. They'd keep releasing these so they could pump the stock up.

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And then when the insiders were in their Rule 144 period, they'd dump. It was just a pump and dump kind of thing.

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But they'd do it regularly. And like I said, back in that time, I had a template for it. So it was just up it went.

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And it was done. And I collected $40 for each one of those, which was a lot back then.

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But anyway, the 8Ks, we do want to keep an eye on these because these are a notification to investors.

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That something unusual has happened. Now these days, with the way the media is so instantaneous,

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you'll probably have already heard about it by the time the 8K pops up in the Edgar system.

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But it's still worth it for us to go through those because sometimes the devil is in the details.

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These 8Ks are just a little blurb usually. I can even show you one in Edgar.

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They just say something very tersely, well, this happened. And you can take it for what it's worth.

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Or you can kind of say, well, what are they saying here?

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So the 8Ks, even though you could probably see that information on the news before the 8K shows up,

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it's still worth it to have a look at them sometimes. So keep these in mind.

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Sometimes on a quiz, I'll say, what form would be filed for a non-recurring event with the SEC?

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And there will be the 8K. Easy points. So just to telegraph one of my favorite questions asked.

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Okay. Now, a little more about the background. And I think I already went through this a little bit.

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Back in the day, back in my time and before that, these forms were only as reliable as the company officials

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and the outside accountants and the lawyers were ethical. There were misstatements all over the place.

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There were a lot of games played with numbers and the like.

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Well, then a couple of scandals came about in the late 90s and the early 2000s.

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One was Enron, another was WorldCom, where those lies that they had been reporting

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and everyone believed them who read their K's and Q's, they all came home to roost and absolute catastrophes happened.

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Investors lost hundreds of millions, if not billions of dollars.

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The workers lost their pensions that they'd spent a lifetime building up.

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And finally, Congress cracked down and the legislation was called Sarbanes-Oxley. It's in your book as well.

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Informally, we call it SOX. SOX did this. And remember, the laws are passed and then the regulatory agency

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in charge of that industry creates regulations to make those laws have life for companies.

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Well, SOX, here's what it does, among a lot of other things.

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One thing it does is it requires that the officers and directors personally sign the K's and Q's.

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Auditors, lawyers, they are putting themselves at jeopardy. So here's what that means.

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If there is a material misstatement of fact, not only can the company be fined,

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but the SEC can also fine those officers and directors and everyone else who signed those documents.

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If the misstatements are egregious enough, the SEC can refer the matter to the Department of Justice

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for criminal prosecution of the officers and directors.

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You would be surprised at how ethical and honest these documents are anymore since SOX came in.

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Now, the old saying is that the honesty will be only as good as the officers and directors are in fear of the law.

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Hence, you will still have lies. They are not common at all, but they happen.

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For example, I won't mention his name, Elon Musk.

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The financial statements of Tesla had material misstatements of fact.

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The SEC finds the whoopee-doo out of that son of a bitch. So what does he do?

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He goes on Twitter and cusses out the SEC.

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Now, if I did that, my name would be Mrs. Bubba at a federal facility.

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But he does it, and the SEC cowers.

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So there is the reality that the rule of law applies not exactly uniformly.

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However, that becomes caveat emptor. Let the buyer beware.

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Are you in an investment with someone who is not trustworthy insofar as honesty goes,

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and doesn't have the normal fear of the law?

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That's a choice that they make, and then if you want to choose those investments, that is your play.

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However, in general, these financial statements are highly reliable.

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I'm going to spend more than a few minutes telling you how you can use these Qs and Ks

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in ways that the average Joe wouldn't even think of.

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As a matter of fact, the typical investor would not even think about going to the Edgar system to get information,

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even though that is the wellspring of all information they would get anywhere else.

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It's here, and there's a lot in there that will help you if you just know a little bit about how to look at these statements.

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Now here I'm going to go over here to the sec.gov.

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Now the first thing you do is go to the drop down at filings, filings right there, and you'll see company filings search.

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Now if I haven't done it already, I'll give you a link to this in the files folder in Canvas.

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It'll help you out.

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You're going to come to a window here that says name of the company, ticker symbol, or CIK.

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Now the one thing, okay, if you just type in a company name, that's the easiest way to do it, but it's also perilous.

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Let me show you what happens if I type in Sears.

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Look at all the different Sears options it gives you.

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You might choose the wrong, full disclosure, last year I thought I knew, I typed in a company,

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and I got the wrong one, and I put an investment into something that was much different from what I thought as a result.

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Surprisingly, I came out ahead, not much, but if I had done the right company I would have gotten my shirt taken off.

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But anyway, so you don't want to do it that way.

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The two good ways are to either use the trading symbol or there's a number called the CIK.

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The CIK is a unique identifier of a security.

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So the common stock of Apple would have a CIK.

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The preferred stock of, I don't know who has preferred, Netflix would have a CIK.

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So you could type in a CIK, but those numbers are long and I can't memorize them.

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So the trading symbol is your best way to do it.

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And so what I'm going to do is I'm going to type in the X, which is the trading symbol of United States deal.

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And I'm pretty sure that's what it's giving me the right one right off the bat because that's the trading symbol.

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So you click on it and here we go.

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Over here on the right, as you can see, the first is your 8Ks and the second will be your K, 10Ks.

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Those are also the Qs will be there too.

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Let me quickly go through.

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Look at all the 8Ks this company has filed.

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It's a fairly common process.

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There are always, especially a big corporation, there are always non-recurring events.

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And so for each one, look at that.

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There's your 8K.

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Let me just pull one up here.

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Let me look at the filing here.

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8K, there's the seminal.

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See how short it is?

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It's just something, a regulation, this one was a regulation FD disclosure.

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Honestly, I don't even know what that means, but they had to do it.

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They made a disclosure.

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That's a non-recurring event.

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So they have to report it on 8K.

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And some of these, I don't even know what some of them mean, but I always go through them just to see if there's something interesting in there,

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like an alien abduction or something like that.

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But usually I'm very disappointed by that.

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But anyway, let me get out of there.

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Okay, let's close this accordion and get to the, really?

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Okay, there we go.

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Now, see the Qs, the quarterlies, and they culminated, US Steel just two days ago, or yesterday it was,

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they filed their end of fiscal year.

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They have a calendar fiscal year.

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Now, they have until, if I'm remembering right, they have until March to file it.

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But good companies get it over with.

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It's sort of like doing your taxes before the April 15th deadline.

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So they've gotten it done.

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Now, see this link, see the text hyperlink, don't use it.

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Use the little box that says file it.

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I'm going to click on it.

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Now, this is, there are a couple of important things.

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The most important for us will be this on the left, just above center, it says interactive data.

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We're going to get to that in a minute here, but I want to show you.

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This down here, the top one is the 10K itself.

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Now, these are the hyperlinks that are called within the document.

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In other words, it's like a website.

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There's a website with all of this information, and then in it are links to graphs and tables and things like that.

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That's what all of these are, is just links to, these are just the documents that are linked in the 10K itself.

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So now here's a 10K.

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Now, first of all, back in the day, we weren't allowed to use pretty colors and little logos and stuff like that.

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I think they would have fired me back to the Stone Age if I tried that.

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Now, here is the length of this.

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Now, remember, this is what every public company has to do.

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And on and on and on and on and on.

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You can imagine what a nightmare this was.

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All done on paper in triplicate.

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There you go.

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Now, I want to show you a couple of things here.

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We're not going to use this too much here, but I just want you to see there are a couple of things that are useful.

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First of all, look at this.

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The electronic signatures of all president and chief executive officer, senior vice president, vice president, directors of the board of directors,

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chairman of the board, they all have to electronically sign it, putting themselves at personal risk if there is a material misstatement of fact.

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That gives you some assurance that these folks are not like in the old days.

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You just, the accountants did it all and the numbers were whatever and the executives and the board directors, they just, yeah, this is pretty cool.

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Throw it back.

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Yeah, okay.

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Send it out.

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That was the way it was done.

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That was the way I did it.

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I'd prepare them.

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I'd send them off to the executives of the company.

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And I knew they didn't read it, but it was my due diligence to make sure that they had it.

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But now they are signing.

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They have read this and they agree with it from beginning to end.

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That means every number, every valuation.

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Now they're obviously not going to do everything, but they're not going to be the kind of people who blow this off and say, oh, this is just for the bean counters.

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They're going to take it seriously.

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So that's a good thing for you to know.

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There is a case that is about to be adjudicated in court in New York where the chief executive officer claimed that he saw them, he knew what was in them, and the accountant said, this is what you told us, and all this kind of stuff.

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So it's here back and forth.

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Let me show you one section.

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Now, for heaven's sakes, maybe later when you're super big professional executives, you'll want to know more about all of this.

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But there's one section that is worth it for you to know now.

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This is item seven, management discussion and analysis of financial condition and results of operations.

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We call it MD and A, MD and percent A, management discussion and analysis.

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Now, here's why this is important.

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I'm going to click on the hyperlink from the table of contents down to it.

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This is where the company gets real with itself.

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It explains why the numbers are what they are, what the numbers have been before, why they've changed or if they haven't changed.

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They discuss their competitive environment.

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They're honest.

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Sometimes they're brutally honest about, well, we screwed up here or how the competition is going, how any lawsuits that look like they're going to be a real problem.

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Now, what else is nice in this is that they break down the heavy tables into pieces that they explain.

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Those are great for copying and pasting into your term paper to look like a hero.

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Of course, you cite your source and all that.

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They even provide little graphs.

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They show pictures.

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There should be a couple of pie charts in here, I think.

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Oh, yeah, there we go.

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A couple of little pie charts showing where capital spending has been and all that from 1922 to 1923.

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Copy those.

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You can just grab it right out of that document.

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Copy image and you can paste it into your term paper.

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Again, cite your source.

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It doesn't kill you to cite a source, but they just go through piece by piece and they explain it.

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You can copy blocks of text out of this and quote the company itself in term papers, research papers, that kind of thing.

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No one can question what you're saying because you are quoting the company itself.

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And again, cite your sources for heaven's sakes and all that good stuff.

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But I bring that one up because if you're going to be an analyst, great.

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If you're going to be a competitor, even better.

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If you're going to be someone looking for a job with this company, going through the MD&A to prep yourself for an interview

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makes you look like a freaking genius compared to the other candidates who are not going to do this.

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So it has practical use for you.

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I can't emphasize that enough.

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Now, let me get out of this scary giant document.

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I'm going to go back here to that little box for filing.

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See the interactive data, that blue button just above center on the left, file in detail.

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I'm going to click on that.

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The first thing it will do is if you go to the financial statements here on the left side,

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you can get a summary look at all of their financial statements, one after the other after the other.

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Balance sheet, income statement, statement of cash flow, statement of retained earnings.

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Well, that's pretty nice.

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And you'll see me do that.

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You might have already, I think I already did it once in here.

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Just go in here and grab a number.

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Wonderful stuff.

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But there's something even more wonderful in quotation marks.

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Every public company that files with the SEC must provide its financial statements in Excel format.

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There's a little red hyperlink near the top right above the box that says view Excel document.

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You click on that and you've got the entire financial statements of this company.

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And you can do that for any company there is.

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This is original source material from the company itself as reported to the Securities and Exchange Commission right here.

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It starts off, you ever get a term paper, what's the official address of this company?

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It's on the cover page right there.

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Now, here's the problem though.

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I want you to watch as I go through all of the financial statements that are provided to you.

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I'm just going to start scrolling here.

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These are all of the company's financial statements.

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See those little tabs?

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And we go on and on and on and on and on.

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Yeah, those are all financial statements.

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This is what's really behind the scenes.

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When we say financial statements, we usually mean the big four.

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But this has got everything.

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I mean, if you want to find out what lease payments they were making,

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you do a search and it could find a couple of different worksheets that have that.

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You notice that I haven't even taken my hand.

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Ah, finally we get to the end.

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That's all part of this filing with the SEC.

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So now I've got to go clear back to the beginning.

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I'm going to give you some best practices here.

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This is way too much like work.

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Going on and on and on.

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Come on.

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I really regret that I did what I did there.

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But we'll get back here eventually to the beginning.

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What I'm going to do now is what is done in any work environment,

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be it financial, be it human resources, be it operations.

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If you're even a worker in a factory, this is something that we all do.

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We rearrange the work environment so that what we want is altogether very close at hand.

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So I will want the income statement.

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Okay, I've found it.

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I'm also going to want the balance sheet and I'm going to want the statement of cash flows.

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00:45:27,000 --> 00:45:30,000
Well, I've got the, now they call it the income statement.

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I'm going to say something about that.

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So I'm going to look for the balance sheet next.

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Nope, that's not it.

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There it is.

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00:45:37,000 --> 00:45:38,000
Found the balance sheet.

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So I'm going to click and hold and I'm going to pull it over here

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so that it's right next to the income statement.

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I'm putting them together so we can jump very quickly and we're not scrolling back and forth.

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Now the last one we'll want is the statement of cash flows.

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00:45:56,000 --> 00:46:01,000
Statement of stocks, statement of, nope.

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Nature, did I miss it?

347
00:46:07,000 --> 00:46:09,000
Okay, I must have missed it.

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So I'll go back here.

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Statement of cash flows.

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00:46:13,000 --> 00:46:18,000
So now I'm going to grab and hold that one and I'm going to drag that over

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so that it's the next one from the balance sheet.

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00:46:22,000 --> 00:46:24,000
Statement of cash flows.

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So I've got the three that I'll need for working with this altogether.

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This is best practices.

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Now the next thing that I'm going to tell you is this.

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The one thing that you never want to do is mess with one of the primary,

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with one of the core statements.

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You don't want to do scratch work here on the income statement.

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There's going to be something I do maybe today where I'll have to do some calculations

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that come from the income statement.

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I don't want to do it on the income statement.

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00:46:59,000 --> 00:47:04,000
Don't mess with the original worksheets.

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00:47:04,000 --> 00:47:08,000
I'm going to go here between the balance sheet and the statement of cash flows.

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00:47:08,000 --> 00:47:11,000
Well, no, I think I'll do this over here.

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I'm going to put it between the income statement and the balance sheet.

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And I'm going to click right about there, right between them, right click.

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Nope, didn't do it.

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There we go.

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And I'm going to insert a worksheet.

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And I'm going to call it calculations.

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This is where I'll do my scratch work here.

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Now there are two reasons for that.

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One is I'm not messing with the actual document itself.

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And the second thing is that if you've got results,

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do you really want to put them in a worksheet where there's a pile of numbers flying around,

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parked, and farting at the observers?

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If you're in a meeting, you don't want them having to look through all those extra numbers.

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You want it clean.

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And that's what you can do.

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Matter of fact, I usually produce two worksheets, one where I do the scratch work,

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and then one where I pretty up what comes out of the scratch work.

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You don't necessarily have to be that detailed.

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But in any event, creating a separate worksheet for the actual containment of the calculations saves a lot of work.

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And a third thing is it saves questions.

385
00:48:46,000 --> 00:48:48,000
Can you go back to that?

386
00:48:48,000 --> 00:48:53,000
If you're in a meeting, you're trying to show them the results, and it's sitting there with the income statement,

387
00:48:53,000 --> 00:48:59,000
and someone starts asking you questions about the income statement instead of about your results,

388
00:48:59,000 --> 00:49:02,000
that's not something you really want to have happen.

389
00:49:02,000 --> 00:49:13,000
So this keeps curious eyes from wandering around and asking you questions that are off the point of your presentation.

390
00:49:13,000 --> 00:49:18,000
I've done this for a long time. It does happen.

391
00:49:18,000 --> 00:49:20,000
Anyway, enough of that.

392
00:49:20,000 --> 00:49:25,000
Now, the next thing I'm going to tell you...

393
00:49:25,000 --> 00:49:28,000
Oh, I put that in the wrong place. Let's put it over here.

394
00:49:28,000 --> 00:49:32,000
Okay. Come on. Get over there.

395
00:49:32,000 --> 00:49:34,000
I said get over there. There we go.

396
00:49:34,000 --> 00:49:42,000
Now, the next thing is, back not even that long ago,

397
00:49:42,000 --> 00:49:47,000
every line and every sheet had a defined name.

398
00:49:47,000 --> 00:49:52,000
You were expected to use that name and have that row or whatever.

399
00:49:52,000 --> 00:50:00,000
So back in the day, the consolidated statement of operations, we called it the income statement.

400
00:50:00,000 --> 00:50:03,000
But now companies can call it different things.

401
00:50:03,000 --> 00:50:08,000
I've even made the mistake of pulling up statements, and I didn't know what...

402
00:50:08,000 --> 00:50:13,000
They called the balance sheet something else, and it just drives you crazy.

403
00:50:13,000 --> 00:50:20,000
So do appreciate that it might not be called what you expected to be called, an entire sheet.

404
00:50:20,000 --> 00:50:29,000
Now, within a sheet, the next thing is that lines might not have the traditional name.

405
00:50:29,000 --> 00:50:35,000
It used to be you called the operating income the operating income.

406
00:50:35,000 --> 00:50:43,000
Now it could be called the operating income, the earnings before interest and taxes, the EBIT.

407
00:50:43,000 --> 00:50:49,000
It's almost like a Wild West, what they can be called these days.

408
00:50:49,000 --> 00:50:55,000
And sometimes you have to think, what the hell is that?

409
00:50:55,000 --> 00:51:05,000
Okay, now the next thing, there are lines that you might expect that aren't there.

410
00:51:05,000 --> 00:51:16,000
And I'm not expert enough to know when it became popular not to put in certain rows.

411
00:51:16,000 --> 00:51:22,000
Like here, you probably don't see it.

412
00:51:22,000 --> 00:51:27,000
I mean, when you first look at...let me get this bigger for you folks in the back here.

413
00:51:27,000 --> 00:51:35,000
Matter of fact, let me do this.

414
00:51:35,000 --> 00:51:40,000
I'm going to make all these sheets a little bigger for you.

415
00:51:40,000 --> 00:51:45,000
There we go.

416
00:51:45,000 --> 00:51:52,000
Get back to the income statement.

417
00:51:52,000 --> 00:51:55,000
Okay, let's look at this.

418
00:51:55,000 --> 00:51:59,000
You probably don't see it, but there's a line missing here.

419
00:51:59,000 --> 00:52:04,000
Now, in some it's there, in others it's not.

420
00:52:04,000 --> 00:52:08,000
For example, I was looking at the financials of Target a few weeks ago.

421
00:52:08,000 --> 00:52:10,000
They have this line.

422
00:52:10,000 --> 00:52:17,000
US Steel doesn't have this line. It's right here.

423
00:52:17,000 --> 00:52:20,000
I'm going to insert, I'm going to highlight row 7.

424
00:52:20,000 --> 00:52:31,000
I'm going to insert a line, gross income.

425
00:52:31,000 --> 00:52:44,000
And then in cell B7, I'm going to write that equals your revenue minus your cost of goods sold.

426
00:52:44,000 --> 00:52:51,000
And then I'm going to copy that, grab the little handle and drag it over.

427
00:52:51,000 --> 00:52:53,000
And we got that.

428
00:52:53,000 --> 00:53:04,000
Now, that's kind of an important line because that line is telling us how much money was left

429
00:53:04,000 --> 00:53:11,000
after wholesale costs had been covered for retail sales.

430
00:53:11,000 --> 00:53:15,000
In other words, it's your retail minus your wholesale.

431
00:53:15,000 --> 00:53:18,000
It is important. It's actually very important.

432
00:53:18,000 --> 00:53:26,000
In this company, as you're going to see here in just a little bit, this is a really important number.

433
00:53:26,000 --> 00:53:30,000
But some companies just don't report it anymore.

434
00:53:30,000 --> 00:53:32,000
They just jump over it.

435
00:53:32,000 --> 00:53:34,000
Now, it's there, but they just don't report it.

436
00:53:34,000 --> 00:53:43,000
As a matter of fact, this is unusual because usually you say operating expenses are what is after cost of goods sold.

437
00:53:43,000 --> 00:53:50,000
And this company says that's part of goods sold. That's part of your operating expenses.

438
00:53:50,000 --> 00:53:53,000
But one way or the other, we've got it in there now.

439
00:53:53,000 --> 00:54:05,000
Now, another line that this company has that most companies no longer put in is depreciation and amortization.

440
00:54:05,000 --> 00:54:10,000
They don't put it in.

441
00:54:10,000 --> 00:54:16,000
It's selling, probably they put it in selling general and administrative expenses.

442
00:54:16,000 --> 00:54:22,000
But it is a really important line when we want to calculate free cash flow.

443
00:54:22,000 --> 00:54:27,000
And if it's not there, then the only other place we can get it is off the statement of cash flows.

444
00:54:27,000 --> 00:54:34,000
But this company, US Steel, puts it in there, which is good news. That's great.

445
00:54:34,000 --> 00:54:36,000
Now, there's one other line.

446
00:54:36,000 --> 00:54:39,000
I'm going to put it in and then I'm going to take it out.

447
00:54:39,000 --> 00:54:44,000
Partly I'm going to show it to you because the book talks about it.

448
00:54:44,000 --> 00:54:50,000
And also because it seems to be kind of a fad in corporate America now.

449
00:54:50,000 --> 00:54:57,000
EBITDA, EBITDA, as some of them call it.

450
00:54:57,000 --> 00:55:05,000
It's earnings before taxes, interest in taxes, and before depreciation and amortization.

451
00:55:05,000 --> 00:55:13,000
So in other words, they calculate this operating income,

452
00:55:13,000 --> 00:55:18,000
but then they add back in the depreciation and amortization because they aren't real costs.

453
00:55:18,000 --> 00:55:21,000
Let me show you how you would do it.

454
00:55:21,000 --> 00:55:27,000
See this earnings, well first of all, earnings before interest in taxes.

455
00:55:27,000 --> 00:55:41,000
Other names for that are EBIT or operating income.

456
00:55:41,000 --> 00:55:47,000
Those are all three legit names for the same darn thing.

457
00:55:47,000 --> 00:55:49,000
Kind of drives you crazy.

458
00:55:49,000 --> 00:55:54,000
Especially someone who's neurodiverse like me.

459
00:55:54,000 --> 00:55:56,000
It should all be one thing, darn it.

460
00:55:56,000 --> 00:55:59,000
But let me show you how you do this.

461
00:55:59,000 --> 00:56:06,000
The EBITDA, insert.

462
00:56:06,000 --> 00:56:13,000
Earnings before interest, taxes, depreciation, and amortization.

463
00:56:13,000 --> 00:56:23,000
What you do is you just take the EBIT and you add back that depreciation line there.

464
00:56:23,000 --> 00:56:33,000
Oops, earnings before interest and taxes, plus you just add it back in.

465
00:56:33,000 --> 00:56:34,000
There you go.

466
00:56:34,000 --> 00:56:37,000
And I'll copy it across.

467
00:56:37,000 --> 00:56:45,000
Now professionally you're supposed to do everything with a keyboard, but it's a lot better.

468
00:56:45,000 --> 00:56:51,000
I'm being a bad example, but it is visually better if I do it with a mouse in a classroom,

469
00:56:51,000 --> 00:56:54,000
especially one this big.

470
00:56:54,000 --> 00:57:00,000
But like I said, this is kind of a love child of corporate America right now.

471
00:57:00,000 --> 00:57:03,000
Well what was the EBITDA?

472
00:57:03,000 --> 00:57:08,000
First time this guy said it at this company, I wasn't the one he was asking,

473
00:57:08,000 --> 00:57:10,000
but I was thinking what the hell is he talking about?

474
00:57:10,000 --> 00:57:13,000
Oh, EBITDA.

475
00:57:13,000 --> 00:57:19,000
Okay, you've seen it, and I'm going to take it back out now.

476
00:57:19,000 --> 00:57:24,000
Because we're already in enough difficulty right now.

477
00:57:24,000 --> 00:57:27,000
Okay, a little more terminology for you.

478
00:57:27,000 --> 00:57:32,000
And by the way, I haven't even touched the depth of Excel.

479
00:57:32,000 --> 00:57:39,000
If you're comfortable with what I've done so far, you're in decent shape,

480
00:57:39,000 --> 00:57:42,000
and it's going to get a little bit hairier here.

481
00:57:42,000 --> 00:57:49,000
So follow along with me, and we'll do these again, and you'll get the hang of it.

482
00:57:49,000 --> 00:57:53,000
And you will get better at Excel.

483
00:57:53,000 --> 00:57:58,000
Okay, now let me go down here.

484
00:57:58,000 --> 00:58:03,000
Let me get the earnings before taxes.

485
00:58:03,000 --> 00:58:14,000
Now, this is, you may have seen it, EBT, earnings before taxes.

486
00:58:14,000 --> 00:58:22,000
Now, in my world, you'll hear us call it pre-tax.

487
00:58:22,000 --> 00:58:25,000
Well, what was pre-tax?

488
00:58:25,000 --> 00:58:28,000
That's earnings before taxes.

489
00:58:28,000 --> 00:58:33,000
It's just our quick way of saying it.

490
00:58:33,000 --> 00:58:41,000
Okay, now, I got some flack for this,

491
00:58:41,000 --> 00:58:49,000
but net earnings is a fancy way of saying profit or net profit.

492
00:58:49,000 --> 00:58:55,000
Now, I had someone who is very keen in accounting eat my head

493
00:58:55,000 --> 00:58:59,000
that net earnings is not the same as profit.

494
00:58:59,000 --> 00:59:03,000
And then he went on to explain what he meant,

495
00:59:03,000 --> 00:59:11,000
and I didn't listen to a word he said.

496
00:59:11,000 --> 00:59:17,000
Earnings is profit for all intents and purposes, okay?

497
00:59:17,000 --> 00:59:21,000
So we've lived through that.

498
00:59:21,000 --> 00:59:32,000
Now, of course, we can talk about the balance sheet.

499
00:59:32,000 --> 00:59:36,000
And this is a very normal one.

500
00:59:36,000 --> 00:59:39,000
Remember, as I said in the last lecture,

501
00:59:39,000 --> 00:59:42,000
the balance sheet is the core.

502
00:59:42,000 --> 00:59:47,000
All of the others are rivers that flow into this reservoir

503
00:59:47,000 --> 00:59:52,000
that says what happened, what the state of the company was

504
00:59:52,000 --> 00:59:57,000
as of December 31, 2023,

505
00:59:57,000 --> 01:00:01,000
in the consolidated statement of cash flows.

506
01:00:01,000 --> 01:00:07,000
Now, I'm going to show you why we are not accountants.

507
01:00:07,000 --> 01:00:13,000
This is an information product produced by the accountants

508
01:00:13,000 --> 01:00:16,000
for different constituencies.

509
01:00:16,000 --> 01:00:22,000
We in finance use these, but we twist them all around.

510
01:00:22,000 --> 01:00:27,000
We add in, we take out, and something much more important

511
01:00:27,000 --> 01:00:33,000
is that we look at what we have here.

512
01:00:33,000 --> 01:00:38,000
This is what in my time in the service we would have called recon.

513
01:00:38,000 --> 01:00:44,000
Before you do any calculations, you grab that calculator

514
01:00:44,000 --> 01:00:47,000
or you whip out the Excel spreadsheets

515
01:00:47,000 --> 01:00:51,000
and start doing numbers and functions and all of that.

516
01:00:51,000 --> 01:00:53,000
Look at the sheets.

517
01:00:53,000 --> 01:00:55,000
Look at the numbers.

518
01:00:55,000 --> 01:01:00,000
And use your senses, your mind, to say,

519
01:01:00,000 --> 01:01:03,000
what is being told to us here?

520
01:01:03,000 --> 01:01:05,000
What's the story?

521
01:01:05,000 --> 01:01:08,000
Imagine that this is like a murder scene.

522
01:01:08,000 --> 01:01:10,000
They're not exactly at a murder yet,

523
01:01:10,000 --> 01:01:15,000
but you're trying to figure out how it happened and who done it.

524
01:01:15,000 --> 01:01:18,000
And you'll see what I mean as we go along.

525
01:01:18,000 --> 01:01:24,000
I don't mean this quite literally, but I don't care,

526
01:01:24,000 --> 01:01:29,000
kind of literally, I don't care how awesome you are at math.

527
01:01:29,000 --> 01:01:32,000
What I care about is can you look at the numbers

528
01:01:32,000 --> 01:01:35,000
and tell the story of what's going on here.

529
01:01:35,000 --> 01:01:37,000
Let's look at U.S. Steel.

530
01:01:37,000 --> 01:01:41,000
I'm going to go back here to the consolidated statement of operations,

531
01:01:41,000 --> 01:01:44,000
fancy word name for the income statement.

532
01:01:44,000 --> 01:01:53,000
Now, remember, left, traditionally the left column here is the most recent.

533
01:01:53,000 --> 01:02:02,000
It goes from left most recent to right farthest in the past.

534
01:02:02,000 --> 01:02:04,000
It's your turn.

535
01:02:04,000 --> 01:02:06,000
Your turn.

536
01:02:06,000 --> 01:02:09,000
Madam, talk to me.

537
01:02:09,000 --> 01:02:11,000
What do you see in the revenue?

538
01:02:11,000 --> 01:02:17,000
What's happening?

539
01:02:17,000 --> 01:02:19,000
I don't know.

540
01:02:19,000 --> 01:02:21,000
Okay, that's okay.

541
01:02:21,000 --> 01:02:23,000
Do you see anything?

542
01:02:23,000 --> 01:02:25,000
Say it loudly.

543
01:02:25,000 --> 01:02:26,000
You're right.

544
01:02:26,000 --> 01:02:28,000
I want you to say it with force.

545
01:02:28,000 --> 01:02:31,000
Show me who's boss.

546
01:02:31,000 --> 01:02:32,000
Does it go down a little?

547
01:02:32,000 --> 01:02:36,000
Yes, does it go down a little?

548
01:02:36,000 --> 01:02:37,000
Oh, it goes down.

549
01:02:37,000 --> 01:02:39,000
It took a toilet break.

550
01:02:39,000 --> 01:02:42,000
I mean, this thing took a crap.

551
01:02:42,000 --> 01:02:47,000
From December 31, 2021 to December 31, 2023,

552
01:02:47,000 --> 01:02:59,000
this company fell from 20.3 billion to 18 billion.

553
01:02:59,000 --> 01:03:02,000
That's a heavy, heavy loss.

554
01:03:02,000 --> 01:03:04,000
That is a loss of revenue.

555
01:03:04,000 --> 01:03:13,000
On the order, 2 out of 20, that's a 10% drop in revenue over a period of two years.

556
01:03:13,000 --> 01:03:17,000
That's a dramatic loss.

557
01:03:17,000 --> 01:03:22,000
So we are looking at a company that clearly has a problem.

558
01:03:22,000 --> 01:03:29,000
Now we look at the cost of goods sold.

559
01:03:29,000 --> 01:03:35,000
Cost of goods sold from 21 to 23 went up, and then it went back down.

560
01:03:35,000 --> 01:03:45,000
But from 16.78 to 15.8, that's not as much of a drop as their drop in sales.

561
01:03:45,000 --> 01:03:57,000
So relatively speaking, it looks to me as if they lost sales, but their wholesale cost went up disproportionately.

562
01:03:57,000 --> 01:03:58,000
Can't say that for sure.

563
01:03:58,000 --> 01:03:59,000
We can do that with the numbers.

564
01:03:59,000 --> 01:04:08,000
But it surely looks to me like they have lost, well, let's look at gross income.

565
01:04:08,000 --> 01:04:11,000
Sure enough, look at the gross income.

566
01:04:11,000 --> 01:04:16,000
That's what's left after wholesale costs from what came into the cash register.

567
01:04:16,000 --> 01:04:20,000
And if I look at this one, look at this right here.

568
01:04:20,000 --> 01:04:32,000
Their gross from 21 to 23 dropped by more than half.

569
01:04:32,000 --> 01:04:33,000
Yeah, there you go.

570
01:04:33,000 --> 01:04:37,000
That is a major problem.

571
01:04:37,000 --> 01:04:43,000
You have less operating money to pay your bills.

572
01:04:43,000 --> 01:04:46,000
And so we look at the SG&A.

573
01:04:46,000 --> 01:04:47,000
It went up.

574
01:04:47,000 --> 01:04:48,000
They didn't cut costs.

575
01:04:48,000 --> 01:04:50,000
Well, in a way, how can you?

576
01:04:50,000 --> 01:04:54,000
If you've been cost cutting for years, how much more can you cut?

577
01:04:54,000 --> 01:04:57,000
So they didn't bring their operating costs down.

578
01:04:57,000 --> 01:04:59,000
Their SG&A is selling general and administrative.

579
01:04:59,000 --> 01:05:01,000
They didn't bring that down.

580
01:05:01,000 --> 01:05:03,000
So where else can they save their bacon?

581
01:05:03,000 --> 01:05:07,000
Well, their depreciation expense went up.

582
01:05:07,000 --> 01:05:15,000
That would mean that they probably bought more capital equipment that's being depreciated now.

583
01:05:15,000 --> 01:05:21,000
But, I mean, that's not real, so we're not going to worry too much about that.

584
01:05:21,000 --> 01:05:23,000
These are piddly numbers.

585
01:05:23,000 --> 01:05:24,000
Usually don't worry about those.

586
01:05:24,000 --> 01:05:29,000
Let's get down here to operating income, EBIT.

587
01:05:29,000 --> 01:05:32,000
Absolute catastrophe.

588
01:05:32,000 --> 01:05:37,000
From almost their earnings before interest in taxes, operating income,

589
01:05:37,000 --> 01:05:44,000
went from $5 billion down to $800 million.

590
01:05:44,000 --> 01:05:49,000
We're looking at a – we're seeing a debris field here.

591
01:05:49,000 --> 01:05:51,000
That's what we're seeing.

592
01:05:51,000 --> 01:05:53,000
This is a catastrophe.

593
01:05:53,000 --> 01:05:55,000
I'm not even doing a calculator.

594
01:05:55,000 --> 01:05:56,000
I'm just looking.

595
01:05:56,000 --> 01:06:03,000
I'm reconning the platform, and it's looking nasty.

596
01:06:03,000 --> 01:06:09,000
Their interest expense, they've been paying off their long-term debts.

597
01:06:09,000 --> 01:06:13,000
So that saved them some capital – saved them some money right there.

598
01:06:13,000 --> 01:06:15,000
But has it?

599
01:06:15,000 --> 01:06:20,000
If they're paying off their debts, yeah, their interest expense will go down,

600
01:06:20,000 --> 01:06:24,000
but they must have used money to pay off those debts.

601
01:06:24,000 --> 01:06:28,000
On the one hand, yeah, it's great they don't have as much interest expense,

602
01:06:28,000 --> 01:06:35,000
but they must have spent some money to get rid of those old debts.

603
01:06:35,000 --> 01:06:38,000
You don't have a mortgage payment every month from now on,

604
01:06:38,000 --> 01:06:44,000
but you just wiped out $80,000 of your savings to get out from under the mortgage.

605
01:06:44,000 --> 01:06:48,000
That's essentially what you're seeing there.

606
01:06:48,000 --> 01:06:52,000
So now let's have a look here.

607
01:06:52,000 --> 01:06:55,000
Get it clear down here to net earnings.

608
01:06:55,000 --> 01:06:57,000
There you go.

609
01:06:57,000 --> 01:07:12,000
On paper, this company went from more than $4 billion down to net earnings of less than $900 million.

610
01:07:12,000 --> 01:07:21,000
And if we look back up here, none of these numbers really in this area changed all that much.

611
01:07:21,000 --> 01:07:25,000
We can take it right back up here to the top.

612
01:07:25,000 --> 01:07:33,000
Their revenues fell, and their costs did not fall proportionately.

613
01:07:33,000 --> 01:07:37,000
You can trace the problem right back up to the top.

614
01:07:37,000 --> 01:07:39,000
And I haven't even touched a calculator.

615
01:07:39,000 --> 01:07:41,000
I'm just looking at the numbers.

616
01:07:41,000 --> 01:07:44,000
Now, can you do this yet?

617
01:07:44,000 --> 01:07:46,000
I do not expect you to do this yet.

618
01:07:46,000 --> 01:07:52,000
So if you're saying, well, I'm kind of like, okay, don't worry about it.

619
01:07:52,000 --> 01:07:57,000
It takes time to be able to focus in and think about this.

620
01:07:57,000 --> 01:08:04,000
Very quickly here, look at the balance sheet.

621
01:08:04,000 --> 01:08:09,000
Their cash position came down, loss of liquidity.

622
01:08:09,000 --> 01:08:12,000
I see the same thing in their inventories.

623
01:08:12,000 --> 01:08:17,000
Their inventories actually fell, so that freed up some cash.

624
01:08:17,000 --> 01:08:20,000
They're not spending as much on inventory.

625
01:08:20,000 --> 01:08:31,000
And total current assets went from $7.9 billion to $6.9 billion.

626
01:08:31,000 --> 01:08:34,000
So they have lost current assets.

627
01:08:34,000 --> 01:08:41,000
If we look at their current liabilities, we can see that...

628
01:08:41,000 --> 01:08:45,000
Oh, by the way, in the long term, property, plant, and equipment...

629
01:08:45,000 --> 01:08:46,000
See that?

630
01:08:46,000 --> 01:08:48,000
That's why I had depreciation.

631
01:08:48,000 --> 01:08:49,000
Expense went up.

632
01:08:49,000 --> 01:08:52,000
They've spent money on capital equipment.

633
01:08:52,000 --> 01:08:56,000
See how their property, plant, and equipment went up?

634
01:08:56,000 --> 01:09:03,000
Okay, now, their total assets actually improved slightly.

635
01:09:03,000 --> 01:09:06,000
Good news.

636
01:09:06,000 --> 01:09:09,000
Payroll and benefits stayed pretty stable.

637
01:09:09,000 --> 01:09:15,000
Accrued taxes, accrued interest, current operating leases stayed...

638
01:09:15,000 --> 01:09:18,000
Oh, well, here's one, short-term debt.

639
01:09:18,000 --> 01:09:20,000
Well, they've got more.

640
01:09:20,000 --> 01:09:24,000
They're borrowing short-term, a lot more.

641
01:09:24,000 --> 01:09:30,000
They're shifting from long-term financing to short-term financing.

642
01:09:30,000 --> 01:09:33,000
That's not surprising.

643
01:09:33,000 --> 01:09:38,000
When interest rates go up in a high-interest rate environment,

644
01:09:38,000 --> 01:09:42,000
companies would be ridiculous to commit themselves to long-term borrowing

645
01:09:42,000 --> 01:09:43,000
at high-interest rates.

646
01:09:43,000 --> 01:09:47,000
What they'll do is they'll go for short-term borrowing

647
01:09:47,000 --> 01:09:50,000
because they could get out from under it when interest rates fall.

648
01:09:50,000 --> 01:09:54,000
That's what that's all about.

649
01:09:54,000 --> 01:10:01,000
Going down here, if we look at our retained earnings,

650
01:10:01,000 --> 01:10:04,000
they actually improved somewhat.

651
01:10:04,000 --> 01:10:09,000
Okay, so what we have here is a company that,

652
01:10:09,000 --> 01:10:13,000
through its income statement, we can see that it has problems.

653
01:10:13,000 --> 01:10:18,000
But its balance sheet is actually pretty darn stable.

654
01:10:18,000 --> 01:10:23,000
So I don't see this as a long-term catastrophe.

655
01:10:23,000 --> 01:10:27,000
If I see a few more years like this, then I'll start...

656
01:10:27,000 --> 01:10:29,000
my back leg will start itching.

657
01:10:29,000 --> 01:10:32,000
But right now, they've got problems.

658
01:10:32,000 --> 01:10:37,000
So this is one where I would give a qualified hold on the security

659
01:10:37,000 --> 01:10:41,000
to say, wait and see where they go from here.

660
01:10:41,000 --> 01:10:43,000
That's enough for you. That was a lot.

661
01:10:43,000 --> 01:10:46,000
And that's all I have for you, and we'll pick this back up on Wednesday.

662
01:10:46,000 --> 01:11:05,000
Thank you.