1 00:00:00,000 --> 00:00:08,000 Alan Cring Productions in association with the Emergent Light Studio presents 2 00:00:08,000 --> 00:00:17,000 the Illinois State Collegiate Compendium, Academic Lectures in Business and Economics. 3 00:00:17,000 --> 00:00:24,000 This is Business Finance, FIL 240 for spring semester 2024. 4 00:00:24,000 --> 00:00:36,000 Today, analysis of financial statements. As a preliminary, let's have a look at the markets. 5 00:00:36,000 --> 00:00:41,000 Start out with some basics here. Simple stuff. 6 00:00:41,000 --> 00:00:47,000 Is this a bull day or a bear day? Bear. That's right, it's a bear day. 7 00:00:47,000 --> 00:00:58,000 Is it a...or is it...no, it's not down that much. I mean, it is a bear day though, yeah. 8 00:00:58,000 --> 00:01:08,000 It's consistently all of the indices are down. I mean, though they really took a hit through the early morning. 9 00:01:08,000 --> 00:01:19,000 I put $400 into a call option and I was down at $1.90 and then it rollercoastered back up. 10 00:01:19,000 --> 00:01:23,000 I can't take this too much more. I'm getting too old for that aggravation. 11 00:01:23,000 --> 00:01:29,000 See how it took a...it just took a toilet break. All of the indices did there at the beginning. 12 00:01:29,000 --> 00:01:37,000 And then just before the midday, the bull started to come back up and started grabbing a hold. 13 00:01:37,000 --> 00:01:49,000 Now, it still hasn't come back to even with the start, but it's a slow rise back out of the depths of despair that it had been in. 14 00:01:49,000 --> 00:01:59,000 This is kind of an interesting day too because if you look, the Dow, which is supposed to be the calmest, the quietest, down a half percent. 15 00:01:59,000 --> 00:02:05,000 But the S&P 500, which is supposed to be a riskier portfolio, is down only 0.12 percent. 16 00:02:05,000 --> 00:02:11,000 And then the NASDAQ, which is supposed to be the riskiest, is down only 0.08 percent. 17 00:02:11,000 --> 00:02:16,000 So it's almost...it is definitely kind of an inversion of the typical day. 18 00:02:16,000 --> 00:02:22,000 The bad news hit the...the bigger the company, the bigger the bad news hit it. 19 00:02:22,000 --> 00:02:27,000 But they're all recovering now. May finish today. I don't know. 20 00:02:27,000 --> 00:02:32,000 It looks like, well, NASDAQ is about to break into positive territory. 21 00:02:32,000 --> 00:02:39,000 It may end up one way or the other. It looks like it's going to end up being almost a flat day. 22 00:02:39,000 --> 00:02:47,000 Now, crude oil, this one is the benchmark. It's been up and down. 23 00:02:47,000 --> 00:02:56,000 That trading arranged 72 to 79. It actually touched below that briefly here around the midday, 24 00:02:56,000 --> 00:03:00,000 but then it recovered back into the band, the lower end of the band. 25 00:03:00,000 --> 00:03:05,000 So no problem, no risk of higher gas prices. 26 00:03:05,000 --> 00:03:12,000 Matter of fact, we might over the next week or so see a little bit of a drop in prices of gasoline. 27 00:03:12,000 --> 00:03:17,000 Right now, they're about 309 around here. You may see them make it down to 299. 28 00:03:17,000 --> 00:03:24,000 And that means in Chicago they'll go below $10 a gallon. But that's just Chicago. 29 00:03:24,000 --> 00:03:30,000 Now, you notice that the gold, it had a bad day. But here's what's interesting. 30 00:03:30,000 --> 00:03:36,000 The 10-year bond yield was up today, which means the price was down. 31 00:03:36,000 --> 00:03:41,000 So investors were getting out of stocks. They were getting out of bonds. 32 00:03:41,000 --> 00:03:48,000 And as you can see, gold was down. They're not going to gold. So where in the heck is all that money going? 33 00:03:48,000 --> 00:03:56,000 They sold stocks. They sold bonds. They didn't use it to buy gold. So there's not really a flight to quality going on here. 34 00:03:56,000 --> 00:04:01,000 So what's the story? Where did the money go from the sales proceeds? 35 00:04:01,000 --> 00:04:05,000 Well, the answer would be it's probably in money markets, cash. 36 00:04:05,000 --> 00:04:16,000 In other words, it's being parked just for a while until a clearer view of what's coming next arrives. 37 00:04:16,000 --> 00:04:23,000 So it's one of those days where it's like wait and see what's going to happen. 38 00:04:23,000 --> 00:04:30,000 Now, really quickly here, what was I going to point out? Oh, let me show you something here. 39 00:04:30,000 --> 00:04:35,000 I've mentioned this before, the term volatility. 40 00:04:35,000 --> 00:04:45,000 Volatility is the ups and downs of a stock or of an index or a market, what we call vol. 41 00:04:45,000 --> 00:04:51,000 The volatility is more volatility means more risk. 42 00:04:51,000 --> 00:04:59,000 As I will tell you later, an informal definition of risk is the variety of outcomes that can occur. 43 00:04:59,000 --> 00:05:05,000 So in other words, volatility is a measure of risk in a market. 44 00:05:05,000 --> 00:05:08,000 The more volatility, the more risk a market has. 45 00:05:08,000 --> 00:05:13,000 The more risk a market has, the lower stock prices should be. 46 00:05:13,000 --> 00:05:18,000 Now, is there a way to measure volatility? Well, there are a couple as far as the market goes. 47 00:05:18,000 --> 00:05:27,000 There's actually an investment you can make that is a bet on volatility. 48 00:05:27,000 --> 00:05:29,000 Volatility goes up, you make money on it. 49 00:05:29,000 --> 00:05:32,000 Volatility goes down, you lose money on it. 50 00:05:32,000 --> 00:05:34,000 And one of them is VIX. 51 00:05:34,000 --> 00:05:42,000 And it used to be Yahoo reported that in that little summary panel, but they don't these days. 52 00:05:42,000 --> 00:05:51,000 But if you look at the VIX, the VIX vol is falling, which means risk is reducing. 53 00:05:51,000 --> 00:05:57,000 So that would indicate lower risk should elevate stock prices. 54 00:05:57,000 --> 00:06:00,000 I'll show you why that's true a little later in the course. 55 00:06:00,000 --> 00:06:05,000 But right now you can see this is measuring volatility. 56 00:06:05,000 --> 00:06:11,000 You see that spike earlier in the day, but then it's been skidding back down. 57 00:06:11,000 --> 00:06:14,000 So that's kind of an interesting situation. 58 00:06:14,000 --> 00:06:23,000 As volatility is lowering, that should get stock prices back up, which is what you're seeing here. 59 00:06:23,000 --> 00:06:27,000 See how the volatility was falling through a lot of the day? 60 00:06:27,000 --> 00:06:32,000 You see how the stock prices were recovering at the same time? 61 00:06:32,000 --> 00:06:34,000 That wasn't a coincidence. 62 00:06:34,000 --> 00:06:46,000 The uncertainty was sapping out of the market, which was giving the bulls reason to come back out of their bullpen and play a little more. 63 00:06:46,000 --> 00:06:51,000 And as that vol comes down, and we hope it will keep coming down, 64 00:06:51,000 --> 00:06:59,000 that should indicate more willingness of that cash and money markets to come off the sidelines and go into buying stocks. 65 00:06:59,000 --> 00:07:02,000 And you'll see prices of stocks go up. 66 00:07:02,000 --> 00:07:10,000 So that is sort of a basic forecasting of what's coming down the road. 67 00:07:10,000 --> 00:07:16,000 Now there are all these super, super complicated models to forecast, 68 00:07:16,000 --> 00:07:25,000 and they really don't do any better overall than just looking at some simple stuff and seeing what it's telling us. 69 00:07:25,000 --> 00:07:35,000 Coming over here, Tokyo last night, it started out up and had a little dip, and then it had a couple bull runs. 70 00:07:35,000 --> 00:07:39,000 So it was up a respectable half a percent today. 71 00:07:39,000 --> 00:07:47,000 Everyone was happy in Asia, and then the sun set over in Japan, and it rose across Europe and into London it came. 72 00:07:47,000 --> 00:07:54,000 And they started out in a chipper mood, but then there was a little dip like there had been in the Tokyo exchange. 73 00:07:54,000 --> 00:08:01,000 And then the bulls had a good fun, and then they sagged off, and it started coming down. 74 00:08:01,000 --> 00:08:06,000 By the end of trading, they were in negative territory. 75 00:08:06,000 --> 00:08:13,000 Now look over here. The sun went down in London, and it started rising on the East Coast, 76 00:08:13,000 --> 00:08:23,000 and you notice that that sourness that was just starting to set in in London picked up steam when we got to the East Coast of the United States. 77 00:08:23,000 --> 00:08:27,000 That right there, see that drop at the beginning of our trading? 78 00:08:27,000 --> 00:08:39,000 That was a continuation of the sour mood that had started to take hold clear over in London earlier. 79 00:08:39,000 --> 00:08:44,000 So you can kind of see that drop, that tail there in the red, 80 00:08:44,000 --> 00:08:52,000 that was the same tail that became the head going down here on the East Coast. 81 00:08:52,000 --> 00:08:59,000 And we went down for a while more, and finally the bulls said enough of this, let's start pulling back up. 82 00:08:59,000 --> 00:09:04,000 Still technically a bear day, but it's coming back from the dead. 83 00:09:04,000 --> 00:09:08,000 And so is my side bet. 84 00:09:08,000 --> 00:09:19,000 There you go. Now, a couple of stocks just to have my favorite whipping boy, Tesla. 85 00:09:19,000 --> 00:09:26,000 Oh ouch, down more. As I have predicted, it's going to ease back. 86 00:09:26,000 --> 00:09:29,000 It's not going to go. This is actually a pretty hard drop. 87 00:09:29,000 --> 00:09:35,000 The Dow is down just a little bit. Tesla is down a lot more. Why? 88 00:09:35,000 --> 00:09:43,000 Well, look at the beta. Beta says that there's a 2.43 risk, 89 00:09:43,000 --> 00:09:51,000 which means that whatever happened in the market overall is magnified quite a bit with this stock. 90 00:09:51,000 --> 00:09:58,000 And the earnings per share is indicating that it's overvalued, so it's still got room to move down. 91 00:09:58,000 --> 00:10:04,000 Not hard to forecast this kind of a process going on. 92 00:10:04,000 --> 00:10:13,000 Now let's go look at some happier things. Alphabet, Google, G-O-O-G. 93 00:10:13,000 --> 00:10:17,000 Nice little up today. See that volatility? 94 00:10:17,000 --> 00:10:26,000 It started out way up, and then bull run, bears, and then it floated, bull run, bears, bull run, 95 00:10:26,000 --> 00:10:29,000 and then the bears kind of grabbing it there at the end. 96 00:10:29,000 --> 00:10:37,000 So there's a little bit of volatility, but overall Google Alphabet is showing good strength. 97 00:10:37,000 --> 00:10:43,000 And notice that it's beta. It's just a little riskier than the market, undervalued, 98 00:10:43,000 --> 00:10:48,000 so we can expect some good news. There'll be bad days, and there'll be good days, 99 00:10:48,000 --> 00:10:53,000 and Google probably is a company that will have more good days than bad days. 100 00:10:53,000 --> 00:11:02,000 Going over here, Apple. Little riskier if I recall. 101 00:11:02,000 --> 00:11:13,000 Apple is up, nice, almost 1.5%, but of course it has a relatively higher beta, 1.31. 102 00:11:13,000 --> 00:11:25,000 Relatively valued, not undervalued or overvalued, but it's just going up because the market went up. 103 00:11:25,000 --> 00:11:31,000 It magnifies the market's trends, and it's also got its own peculiar trends as well. 104 00:11:31,000 --> 00:11:39,000 Apple is a company that's very popular, and they're doing their best to compete with the new phones 105 00:11:39,000 --> 00:11:49,000 pouring out from Google Pixel 8 and from Samsung and On1, or One, or something like that. 106 00:11:49,000 --> 00:11:57,000 So these are the kinds of things that you look at, and you can make judgments without listening to a lot of talking heads. 107 00:11:57,000 --> 00:12:03,000 You can think for yourself about what's going on out there in these markets. 108 00:12:03,000 --> 00:12:12,000 I'm going to do one last one, which will be my example for today's lecture. 109 00:12:12,000 --> 00:12:22,000 This is United States Steel. Down a little bit, very risky, 2.04 beta, way above 1. 110 00:12:22,000 --> 00:12:29,000 But interestingly enough, it's an undervalued stock as far as PE, if you look at PE ratio. 111 00:12:29,000 --> 00:12:35,000 So this is one of those where, yeah, there's a good chance of it going up dramatically. 112 00:12:35,000 --> 00:12:41,000 It's very risky, and the intrinsic value looks to be undervalued right now. 113 00:12:41,000 --> 00:12:50,000 And it does pay a little bit of a dividend, 20-cent check per share, which is 0.44%, 45.61. 114 00:12:50,000 --> 00:12:55,000 So it's one of those investments that's worth looking at. 115 00:12:55,000 --> 00:13:02,000 But this is the one that we will dive into in the most detailed way. 116 00:13:02,000 --> 00:13:08,000 So the first thing that I'm going to do, and I said this last week, 117 00:13:08,000 --> 00:13:18,000 this was one of the subjects, if you were here as a freshman in Business 100, where you get financial information. 118 00:13:18,000 --> 00:13:23,000 And in fact, that's part of the Library Research Project. 119 00:13:23,000 --> 00:13:27,000 But it's not emphasized too much. 120 00:13:27,000 --> 00:13:31,000 Here it will be, and you'll see that it's more than just financial information. 121 00:13:31,000 --> 00:13:41,000 You can learn a lot about a company by going to this resource, sec.gov. 122 00:13:41,000 --> 00:13:49,000 I'll put a link to this, but this is a resource not just for this class, but for classes after this. 123 00:13:49,000 --> 00:13:52,000 Now, a little background on what's going on here. 124 00:13:52,000 --> 00:13:59,000 The Securities and Exchange Commission is an agency of the executive branch of the United States government. 125 00:13:59,000 --> 00:14:02,000 Laws are passed by Congress, signed by the President, 126 00:14:02,000 --> 00:14:10,000 and then these agencies interpret those laws and make them into regulations that oversee different industries. 127 00:14:10,000 --> 00:14:13,000 That's what agencies do. 128 00:14:13,000 --> 00:14:17,000 So the SEC regulates the securities industry, 129 00:14:17,000 --> 00:14:26,000 and it does so with greater or lesser degree of aggressiveness, depending upon the era and all that. 130 00:14:26,000 --> 00:14:34,000 Now, every public company must make filings with the SEC. 131 00:14:34,000 --> 00:14:37,000 Some of those are periodic. 132 00:14:37,000 --> 00:14:42,000 They are extraordinarily burdensome, but that's the price you pay, 133 00:14:42,000 --> 00:14:49,000 so that investors and prospective investors can see everything. 134 00:14:49,000 --> 00:14:55,000 Now, the history of the SEC, well, the history of regulation. 135 00:14:55,000 --> 00:14:58,000 Back in my time, it was kind of a Wild West. 136 00:14:58,000 --> 00:15:08,000 These filings, they could have material misstatements of fact, in other words, lies. 137 00:15:08,000 --> 00:15:18,000 And so the reliability of the statements was pivoting on the reliability of the officers and directors 138 00:15:18,000 --> 00:15:22,000 and the accounting and the auditors and the lawyers. 139 00:15:22,000 --> 00:15:25,000 If they were honest, they were going to tell the truth. 140 00:15:25,000 --> 00:15:32,000 If they were dishonest, there was not a whole lot of risk that there would be sanctions against them. 141 00:15:32,000 --> 00:15:36,000 In the 1990s, this was a terrible problem, 142 00:15:36,000 --> 00:15:43,000 not just for public companies reporting, but in all manner of business activities. 143 00:15:43,000 --> 00:15:54,000 What were clear and unquestionable violations of major laws were done with impunity by companies like Microsoft. 144 00:15:54,000 --> 00:16:00,000 They just did it, and they calculated that there would not be consequences 145 00:16:00,000 --> 00:16:07,000 until the effects had created for them companies that were virtually untouchable. 146 00:16:07,000 --> 00:16:09,000 That's just how it worked. 147 00:16:09,000 --> 00:16:12,000 It came to something of an end. 148 00:16:12,000 --> 00:16:15,000 There were a couple of major financial scandals. 149 00:16:15,000 --> 00:16:23,000 One was Enron, another was WorldCom, where their financial statements were just bald-faced lies. 150 00:16:23,000 --> 00:16:26,000 They were just lies, the whole thing. 151 00:16:26,000 --> 00:16:35,000 A lot of investors lost extraordinary amounts of money in the billions of dollars. 152 00:16:35,000 --> 00:16:44,000 But even worse, the workers of these companies, 10, 20, 30, 40, 50 years, they'd worked for Enron, 153 00:16:44,000 --> 00:16:47,000 and they lost everything. 154 00:16:47,000 --> 00:16:56,000 Their pensions were gone because of the shenanigans of the insiders and the executives. 155 00:16:56,000 --> 00:16:58,000 So hell broke loose. 156 00:16:58,000 --> 00:17:04,000 In the early 2000s, Congress passed a law. 157 00:17:04,000 --> 00:17:08,000 It has the informal name Sarbanes-Oxley, Sox. 158 00:17:08,000 --> 00:17:11,000 They talk about it in the book somewhat, too. 159 00:17:11,000 --> 00:17:15,000 But Sox cracked down on the lies. 160 00:17:15,000 --> 00:17:23,000 One of the things that it did, it made it so that the officers and directors and accountants and all this 161 00:17:23,000 --> 00:17:30,000 had to personally sign all of these forms that were filed with the SEC. 162 00:17:30,000 --> 00:17:39,000 So not only if the company made material misstatements of fact, not only could the company be fined, 163 00:17:39,000 --> 00:17:46,000 but those officers and directors and accountants and lawyers could be fined as well. 164 00:17:46,000 --> 00:17:55,000 And if the violations were egregious enough, the SEC could refer the matter to the Department of Justice 165 00:17:55,000 --> 00:18:00,000 for criminal prosecution of those signatories. 166 00:18:00,000 --> 00:18:08,000 So if they lied, they could go not just pay massive fines, they could go to prison. 167 00:18:08,000 --> 00:18:11,000 That was major. 168 00:18:11,000 --> 00:18:16,000 The financial statements are highly reliable now. 169 00:18:16,000 --> 00:18:21,000 But that doesn't mean that bad things can't happen. 170 00:18:21,000 --> 00:18:34,000 I won't mention the name, but on Musk, his financial statements, the filings, had material misstatements of fact. 171 00:18:34,000 --> 00:18:38,000 The SEC fined him a lot of money. 172 00:18:38,000 --> 00:18:40,000 And what did he do? 173 00:18:40,000 --> 00:18:43,000 He went on Twitter and cussed out the SEC. 174 00:18:43,000 --> 00:18:54,000 Now if I did that, I would be Mrs. Bubba at a federal facility, but he does it, he gets by with it. 175 00:18:54,000 --> 00:19:02,000 So there is still that caveat emptor, buyer beware. 176 00:19:02,000 --> 00:19:14,000 You have to assess, okay, are these officers and directors trustworthy, reliable, mature adults, 177 00:19:14,000 --> 00:19:20,000 or are they crazy mofos who will do whatever the hell they want? 178 00:19:20,000 --> 00:19:28,000 Fortunately, corporate America is for the most part made up of the former, not the latter. 179 00:19:28,000 --> 00:19:33,000 So we can rely on these filings that are made by these companies. 180 00:19:33,000 --> 00:19:37,000 Now about the filings. 181 00:19:37,000 --> 00:19:43,000 Here on the main page of the SEC, you go over to on the top horizontal bar, filings, 182 00:19:43,000 --> 00:19:48,000 the drop down menu takes you to company filing search. 183 00:19:48,000 --> 00:19:51,000 Now if I don't have it up, I'm going to have to check it. 184 00:19:51,000 --> 00:19:54,000 I'll give you the link to this in Canvas. 185 00:19:54,000 --> 00:20:05,000 Now here you will have a place where you can type in a company name, a trading symbol, or something called a CIK. 186 00:20:05,000 --> 00:20:10,000 A CIK is like the social security number of a security. 187 00:20:10,000 --> 00:20:13,000 Each security will have its own CIK. 188 00:20:13,000 --> 00:20:17,000 The common stock of Apple will have a CIK. 189 00:20:17,000 --> 00:20:22,000 The 30-year bond of IBM will have a CIK. 190 00:20:22,000 --> 00:20:27,000 They all have it, but I mean I can't even memorize any of those. 191 00:20:27,000 --> 00:20:29,000 So I go with the trading symbol. 192 00:20:29,000 --> 00:20:30,000 Now let me warn you. 193 00:20:30,000 --> 00:20:38,000 You can just type in a company's name, but that can be perilous. 194 00:20:38,000 --> 00:20:41,000 For example, let me do this. 195 00:20:41,000 --> 00:20:45,000 It's not behaving. 196 00:20:45,000 --> 00:20:47,000 Our internet is... 197 00:20:47,000 --> 00:20:48,000 Come on. 198 00:20:48,000 --> 00:20:49,000 Really? 199 00:20:49,000 --> 00:20:51,000 Let's refresh. 200 00:20:51,000 --> 00:20:53,000 That drives me crazy. 201 00:20:53,000 --> 00:20:54,000 Sears. 202 00:20:54,000 --> 00:20:55,000 There we go. 203 00:20:55,000 --> 00:21:00,000 Now watch what happens if I type in Sears. 204 00:21:00,000 --> 00:21:09,000 It will give you a whole lot of companies that might be the Sears you're looking for. 205 00:21:09,000 --> 00:21:12,000 It's better to type in the trading symbol. 206 00:21:12,000 --> 00:21:15,000 So in this case, I'm going to type in an X. 207 00:21:15,000 --> 00:21:17,000 That's U.S. Steel Corporation. 208 00:21:17,000 --> 00:21:21,000 Boy, the internet is suck right now. 209 00:21:21,000 --> 00:21:22,000 Search. 210 00:21:22,000 --> 00:21:24,000 I won't wait. 211 00:21:24,000 --> 00:21:26,000 Okay. 212 00:21:26,000 --> 00:21:29,000 What the heck is going on here? 213 00:21:29,000 --> 00:21:30,000 It's not what I... 214 00:21:30,000 --> 00:21:32,000 Oh, I see. 215 00:21:32,000 --> 00:21:37,000 It's giving me a lot of different companies that have an X in it. 216 00:21:37,000 --> 00:21:39,000 Okay. 217 00:21:39,000 --> 00:21:43,000 This should simply give me a drop-down of choice. 218 00:21:43,000 --> 00:21:44,000 There it is. 219 00:21:44,000 --> 00:21:47,000 United States Steel. 220 00:21:47,000 --> 00:21:50,000 Now, let me take this out here for a minute. 221 00:21:50,000 --> 00:21:55,000 Company, public companies have to file a lot of different forms. 222 00:21:55,000 --> 00:22:00,000 I mean, I can't even tell you what some of them are by the numbers of them. 223 00:22:00,000 --> 00:22:13,000 But the core forms we are interested in are the 10 Qs, the 10 Ks, and the 8 Ks. 224 00:22:13,000 --> 00:22:22,000 Now, the Q, a Q is a quarterly filing of the financial condition of the company. 225 00:22:22,000 --> 00:22:30,000 Those build up to the annual end of fiscal year, K. 226 00:22:30,000 --> 00:22:36,000 We call them the Qs and Ks. 227 00:22:36,000 --> 00:22:38,000 These are periodic. 228 00:22:38,000 --> 00:22:40,000 They will always be there. 229 00:22:40,000 --> 00:22:46,000 You can tell when a Q or a K is coming up because you'll have the numbers people 230 00:22:46,000 --> 00:22:51,000 moving around more quickly in the company and getting excited about this, that, 231 00:22:51,000 --> 00:22:54,000 and the other thing and asking you for... 232 00:22:54,000 --> 00:23:00,000 maybe asking your department for numbers and all that. 233 00:23:00,000 --> 00:23:02,000 The 8 K is different. 234 00:23:02,000 --> 00:23:12,000 The 8 K is a filing for a notification of a non-recurring event. 235 00:23:12,000 --> 00:23:14,000 Of a non-recurring event. 236 00:23:14,000 --> 00:23:21,000 So, for example, you, madam, you're the chief financial officer, you get abducted by aliens. 237 00:23:21,000 --> 00:23:23,000 That is an 8 K. 238 00:23:23,000 --> 00:23:25,000 Non-recurring, I think so. 239 00:23:25,000 --> 00:23:27,000 Hasn't happened to you. 240 00:23:27,000 --> 00:23:29,000 Happened to our chief operating officer a few years ago, 241 00:23:29,000 --> 00:23:33,000 but that was because he was in a cow field tipping cows, 242 00:23:33,000 --> 00:23:36,000 and this alien mothership came over and picked him up accidentally. 243 00:23:36,000 --> 00:23:40,000 Once they realized he wasn't a cow, they brought him back and threw him down. 244 00:23:40,000 --> 00:23:45,000 There's another 8 K filing because he came back. 245 00:23:45,000 --> 00:23:47,000 Real examples for real people. 246 00:23:47,000 --> 00:23:56,000 Okay, so the 8 K, when something happens, you are promoted, madam, to the CEO of the company. 247 00:23:56,000 --> 00:23:58,000 That would be an 8 K filing. 248 00:23:58,000 --> 00:24:03,000 You, on the other hand, madam, you were the chief operating officer once we fired him 249 00:24:03,000 --> 00:24:05,000 because he wouldn't stop going out to the cow fields, 250 00:24:05,000 --> 00:24:09,000 but now we fired you because you're doing the same thing he did. 251 00:24:09,000 --> 00:24:11,000 What is this? 252 00:24:11,000 --> 00:24:13,000 Anyway, you understand. 253 00:24:13,000 --> 00:24:22,000 Okay, so these 8 Ks, back in the day, when I was a consultant, I file, I create these forms, paper, 254 00:24:22,000 --> 00:24:27,000 and it was quite, the Ks and Qs were a nightmare. 255 00:24:27,000 --> 00:24:33,000 But I looked like I had magic because back in that time, companies had them, 256 00:24:33,000 --> 00:24:35,000 but they just didn't do that much with them. 257 00:24:35,000 --> 00:24:41,000 I had a computer and I had a printer, and I figured I knew how to do templates, 258 00:24:41,000 --> 00:24:47,000 so I was able to do these faster than people normally could. 259 00:24:47,000 --> 00:24:52,000 But here's the kicker, 8 Ks, I helped these little companies, 260 00:24:52,000 --> 00:24:57,000 and they were forever putting out these idiotic press releases. 261 00:24:57,000 --> 00:25:02,000 Press release, our company is on the verge of disruptive technology. 262 00:25:02,000 --> 00:25:08,000 We expect to have revenues within two months, and then two weeks later, 263 00:25:08,000 --> 00:25:12,000 our company is on the verge of disruptive technology. 264 00:25:12,000 --> 00:25:15,000 We expect to have revenues in five days. 265 00:25:15,000 --> 00:25:17,000 All they were doing was pump and dump. 266 00:25:17,000 --> 00:25:24,000 They were pumping up the stock so that when the Rule 144 window opened, the insiders could dump stock. 267 00:25:24,000 --> 00:25:26,000 That was all it was. 268 00:25:26,000 --> 00:25:32,000 But each one of those needed an 8 K filed for a non-recurring event. 269 00:25:32,000 --> 00:25:35,000 Press release, that's non-recurring. 270 00:25:35,000 --> 00:25:37,000 It doesn't happen in a normal cycle. 271 00:25:37,000 --> 00:25:41,000 So every time they did that, then they'd tell me they did it, 272 00:25:41,000 --> 00:25:45,000 or I'd find out through the news tickers at the time, and I'd say, 273 00:25:45,000 --> 00:25:49,000 do you know you have to file an 8 K? Why? It was just a press release. 274 00:25:49,000 --> 00:25:55,000 It was a non-recurring material event that you broadcast. 275 00:25:55,000 --> 00:25:59,000 And so every time it looked like I was doing this hard work, 276 00:25:59,000 --> 00:26:05,000 but I'd just type a few lines in and file the 8 K, and I got my $40. 277 00:26:05,000 --> 00:26:08,000 So here, let me show you. 278 00:26:08,000 --> 00:26:11,000 Okay, here's your 8 Ks. 279 00:26:11,000 --> 00:26:13,000 Look, there are a lot of these. 280 00:26:13,000 --> 00:26:19,000 You see, each one of these is some non-recurring event that is material, 281 00:26:19,000 --> 00:26:27,000 so the public has a need to know it. 282 00:26:27,000 --> 00:26:29,000 So if you look inside one of these, they're really simple, 283 00:26:29,000 --> 00:26:33,000 and a lot of them are just, what the hell are they talking about there? 284 00:26:33,000 --> 00:26:36,000 Like this one. 285 00:26:36,000 --> 00:26:38,000 See the 8 K? 286 00:26:38,000 --> 00:26:43,000 This is all boilerplate except for this little blurb here telling what happened. 287 00:26:43,000 --> 00:26:48,000 And I don't even know what the heck that, you know, on February 2nd, 2024, 288 00:26:48,000 --> 00:26:52,000 in lieu of holding a conference call, the corporation made available a video 289 00:26:52,000 --> 00:26:56,000 to discuss its results for the fourth quarter. 290 00:26:56,000 --> 00:26:58,000 I mean, that's an 8 K. 291 00:26:58,000 --> 00:27:02,000 They did a video instead of doing a conference call. 292 00:27:02,000 --> 00:27:06,000 So it was non-recurring, it was unusual, 293 00:27:06,000 --> 00:27:11,000 and therefore they pumped out an 8 K about it. 294 00:27:11,000 --> 00:27:17,000 Now, the truth be told, as fast as news services are these days, 295 00:27:17,000 --> 00:27:23,000 I mean, the 8 K might not even be posted until after this is, 296 00:27:23,000 --> 00:27:29,000 some news station or news service has made it known that it happened. 297 00:27:29,000 --> 00:27:33,000 The truth be told, this just showed up in the last hour, 298 00:27:33,000 --> 00:27:41,000 and this was on, this was, I saw this on one of the business news services this morning. 299 00:27:41,000 --> 00:27:50,000 So, yeah, it's not as good as maybe keeping your eyes on every news story, 300 00:27:50,000 --> 00:27:52,000 but it's worth it to have these around. 301 00:27:52,000 --> 00:27:55,000 Sometimes you can read these and you can ask yourself, 302 00:27:55,000 --> 00:28:00,000 okay, what are they saying that they're not saying? 303 00:28:00,000 --> 00:28:04,000 Well, the CEO of the company resigned. 304 00:28:04,000 --> 00:28:10,000 That's all it would say in the 8 K, but then that leaves you to think, 305 00:28:10,000 --> 00:28:13,000 hmm, I wonder why the CEO has resigned, 306 00:28:13,000 --> 00:28:16,000 and who are they going to put in place of him, 307 00:28:16,000 --> 00:28:19,000 and what will that have to do with the company's future prospects? 308 00:28:19,000 --> 00:28:22,000 You can look into these 8 Ks and ask, 309 00:28:22,000 --> 00:28:25,000 they can sometimes make more questions than they answer, 310 00:28:25,000 --> 00:28:27,000 but it's good to have those questions. 311 00:28:27,000 --> 00:28:33,000 This is an 8 K, and I didn't mean to have it go on quite that tediously. 312 00:28:33,000 --> 00:28:35,000 Okay, let me kill this. 313 00:28:35,000 --> 00:28:37,000 Okay, so let me get rid of the 8 Ks. 314 00:28:37,000 --> 00:28:41,000 Here we go, the 10 K. 315 00:28:41,000 --> 00:28:43,000 See the Qs? 316 00:28:43,000 --> 00:28:49,000 These were the Qs that built up to the K. 317 00:28:49,000 --> 00:28:56,000 There's the first quarter, 10 Q, the second quarter, 10 Q, third quarter, 10 Q, 318 00:28:56,000 --> 00:29:01,000 and just yesterday, no, a couple of days ago, 319 00:29:01,000 --> 00:29:08,000 out came the statement for the whole year, the K, annual, the annual statement. 320 00:29:08,000 --> 00:29:11,000 It has all the quarterly information, 321 00:29:11,000 --> 00:29:16,000 and it's all put together into a full year of documents. 322 00:29:16,000 --> 00:29:20,000 Now, I wouldn't beat you up on the technicalities of these, 323 00:29:20,000 --> 00:29:26,000 but I could ask, okay, which of the following would be the form filed for a non-recurring event? 324 00:29:26,000 --> 00:29:32,000 The 10 Q, the 10 K, the 13 D, things like that, 325 00:29:32,000 --> 00:29:35,000 just to see if you remember what's what in this. 326 00:29:35,000 --> 00:29:38,000 Now, we're going to go to the 10 K. 327 00:29:38,000 --> 00:29:41,000 Don't click on the text hyperlink. 328 00:29:41,000 --> 00:29:47,000 Click on the little filing box right there. 329 00:29:47,000 --> 00:29:51,000 Now, in a minute, the one that will be the most important, 330 00:29:51,000 --> 00:29:55,000 see this little blue oblong button here? 331 00:29:55,000 --> 00:30:00,000 It says interactive data. 332 00:30:00,000 --> 00:30:02,000 That's our go-to. 333 00:30:02,000 --> 00:30:06,000 But before that, let me show you what 10 Ks look like. 334 00:30:06,000 --> 00:30:12,000 What we used to file in triplicate on paper with the SEC. 335 00:30:12,000 --> 00:30:22,000 Now it's a document that's electronically built on a template with tags for everything that you put in. 336 00:30:22,000 --> 00:30:24,000 Now you say, well, what are all these? 337 00:30:24,000 --> 00:30:29,000 These are hyperlinks from the core document. 338 00:30:29,000 --> 00:30:32,000 Click here to see this exhibit. 339 00:30:32,000 --> 00:30:34,000 Click here to see this exhibit. 340 00:30:34,000 --> 00:30:35,000 That's all those are. 341 00:30:35,000 --> 00:30:38,000 The document itself is that first one, the 10 K. 342 00:30:38,000 --> 00:30:42,000 This is what an actual 10 K looks like. 343 00:30:42,000 --> 00:30:49,000 Now, back in the day, we weren't allowed to have colors and pictures, but times have changed. 344 00:30:49,000 --> 00:30:53,000 So let's go and see what a 10 K looks like. 345 00:30:53,000 --> 00:31:01,000 And on and on and on and on and on until Jesus comes back. 346 00:31:01,000 --> 00:31:02,000 There. 347 00:31:02,000 --> 00:31:04,000 We're at the end of it. 348 00:31:04,000 --> 00:31:07,000 That is what we used to put together. 349 00:31:07,000 --> 00:31:09,000 136 pages. 350 00:31:09,000 --> 00:31:12,000 Now, first let's go back up here a little ways. 351 00:31:12,000 --> 00:31:14,000 Oh, look at this. 352 00:31:14,000 --> 00:31:18,000 The electronic signatures of the officers and directors. 353 00:31:18,000 --> 00:31:22,000 That's what I was talking about, Sarbanes-Oxley socks. 354 00:31:22,000 --> 00:31:25,000 They're putting their blood on the line. 355 00:31:25,000 --> 00:31:37,000 They are attesting legally to the validity, the truthfulness, and the material accuracy of this 10 K. 356 00:31:37,000 --> 00:31:39,000 They themselves are. 357 00:31:39,000 --> 00:31:45,000 So if there are misstatements in there, they can personally get fined. 358 00:31:45,000 --> 00:31:50,000 And if they are bad enough, they can be taken to criminal trial. 359 00:31:50,000 --> 00:31:54,000 So that's what I was talking about, that Sarbanes-Oxley. 360 00:31:54,000 --> 00:31:57,000 There are the electronic signatures right here. 361 00:31:57,000 --> 00:32:01,000 Now let me take you back up to the top. 362 00:32:01,000 --> 00:32:10,000 You would really have to have no life, and I mean zero, to read a whole 10 K. 363 00:32:10,000 --> 00:32:12,000 Some people do it. 364 00:32:12,000 --> 00:32:15,000 I mean, I've tried. 365 00:32:15,000 --> 00:32:19,000 God knows I wrote them and any more. 366 00:32:19,000 --> 00:32:22,000 I don't know. 367 00:32:22,000 --> 00:32:23,000 But let me show you something. 368 00:32:23,000 --> 00:32:27,000 There is one section that is useful. 369 00:32:27,000 --> 00:32:35,000 This is a part of the 10 K that you can use in term papers, research papers. 370 00:32:35,000 --> 00:32:43,000 You can also use this if you want a really good idea of what a company is all about 371 00:32:43,000 --> 00:32:47,000 before you go into an interview for a job with that company. 372 00:32:47,000 --> 00:32:53,000 It's item seven, the management discussion and analysis of financial condition 373 00:32:53,000 --> 00:32:56,000 and results of operations. 374 00:32:56,000 --> 00:33:04,000 Our word named for it is MD&A, M-D ampersand A, MD&A. 375 00:33:04,000 --> 00:33:15,000 And this is where the company turns in on itself and just talks about everything, 376 00:33:15,000 --> 00:33:20,000 about why the numbers are what they are, what they're doing to do better, 377 00:33:20,000 --> 00:33:26,000 or what they're doing right, what kinds of exposures they're facing, 378 00:33:26,000 --> 00:33:32,000 like a SWOT kind of analysis, threats, opportunities, strengths, weaknesses, 379 00:33:32,000 --> 00:33:36,000 lawsuits that may make trouble for them down the road. 380 00:33:36,000 --> 00:33:42,000 They go through in depth and they even take apart the financial statements 381 00:33:42,000 --> 00:33:46,000 and they make little mini tables through this. 382 00:33:46,000 --> 00:33:53,000 You can copy those and paste them into your own research papers. 383 00:33:53,000 --> 00:33:55,000 Copy these tables. 384 00:33:55,000 --> 00:33:59,000 Now obviously give the source, there's no crime in the source, 385 00:33:59,000 --> 00:34:02,000 and what's more important is these are primary. 386 00:34:02,000 --> 00:34:09,000 Every financial service that reports anything like this or the numbers themselves, 387 00:34:09,000 --> 00:34:11,000 they got them from here. 388 00:34:11,000 --> 00:34:14,000 So instead of going to one of those secondary resources, 389 00:34:14,000 --> 00:34:20,000 which might glitch in data or something like that, you got it right here. 390 00:34:20,000 --> 00:34:26,000 Tables, they've even usually got some pie charts and stuff like that. 391 00:34:26,000 --> 00:34:28,000 Oh, here we go. 392 00:34:28,000 --> 00:34:34,000 Capital spending by segment, 2022 to 2023. 393 00:34:34,000 --> 00:34:35,000 Copy and paste those. 394 00:34:35,000 --> 00:34:46,000 Source, form 10K filing by United States Steel Corporation from the SEC, Edgar, 395 00:34:46,000 --> 00:34:48,000 something like that. 396 00:34:48,000 --> 00:34:50,000 Not hard to cite it. 397 00:34:50,000 --> 00:34:57,000 But oh, look at the more pretty tables, more little pieces where they explain what happened. 398 00:34:57,000 --> 00:35:01,000 You don't even need, they're not, and they're not going to sugar coat it. 399 00:35:01,000 --> 00:35:08,000 That's the one thing that has always been a feature of the item seven is that it's honest. 400 00:35:08,000 --> 00:35:17,000 And it's almost, sometimes you almost think that the people writing this are having their gotcha 401 00:35:17,000 --> 00:35:21,000 of the company saying what has to be said. 402 00:35:21,000 --> 00:35:28,000 And they can't be fired for telling the truth because they'd be fired for following the law. 403 00:35:28,000 --> 00:35:34,000 So it is a very honest document, and it's not going to pull punches. 404 00:35:34,000 --> 00:35:36,000 It's going to say here's what happened. 405 00:35:36,000 --> 00:35:38,000 It's bad or it's good. 406 00:35:38,000 --> 00:35:44,000 Here's how we'll make it better or here's how we will improve on what's already good. 407 00:35:44,000 --> 00:35:51,000 So that's the only thing about the form 10 that's a really good thing for you to know about. 408 00:35:51,000 --> 00:35:56,000 Now, let me go back to that page on the filing box. 409 00:35:56,000 --> 00:36:03,000 See this blue button just above center on the left-hand side, interactive data. 410 00:36:03,000 --> 00:36:14,000 Now, when I click on that, I can see over here on the left side, this box, financial statements. 411 00:36:14,000 --> 00:36:17,000 They have them right here. 412 00:36:17,000 --> 00:36:20,000 Really nice. 413 00:36:20,000 --> 00:36:24,000 And you'll see me every now and then just reach in here and grab a number. 414 00:36:24,000 --> 00:36:27,000 I think I did it like the first or second day of class. 415 00:36:27,000 --> 00:36:37,000 But I mean, they've got all these different financial statements right here so that you can see quickie information. 416 00:36:37,000 --> 00:36:46,000 But you really shouldn't copy and paste this because every public company is required to put all of its financial statements 417 00:36:46,000 --> 00:36:54,000 into an Excel spreadsheet that anyone in the world can see. And here it is. 418 00:36:54,000 --> 00:37:00,000 It's right above the black box with the little yellow 10K. 419 00:37:00,000 --> 00:37:03,000 It says, view Excel document. 420 00:37:03,000 --> 00:37:12,000 If you click on that, you will download the financial statements of U.S. Steel, 421 00:37:12,000 --> 00:37:17,000 the same ones that the management looks at, the same ones the SEC looks at, 422 00:37:17,000 --> 00:37:21,000 the same ones the biggest investors on earth look at. 423 00:37:21,000 --> 00:37:25,000 You've got them right here. 424 00:37:25,000 --> 00:37:28,000 Now, let's have a look. 425 00:37:28,000 --> 00:37:31,000 First things first. 426 00:37:31,000 --> 00:37:33,000 This is authoritative. 427 00:37:33,000 --> 00:37:34,000 You ever had a term paper? 428 00:37:34,000 --> 00:37:38,000 What is the legal address of this corporation? 429 00:37:38,000 --> 00:37:40,000 It's on the cover page. 430 00:37:40,000 --> 00:37:44,000 There is no other that would be the right answer. 431 00:37:44,000 --> 00:37:49,000 Remember that they have to tell exactly the truth and no misspellings. 432 00:37:49,000 --> 00:37:51,000 So there you go. 433 00:37:51,000 --> 00:37:54,000 Now, the next thing. 434 00:37:54,000 --> 00:37:59,000 Let me show you the financial statements of U.S. Steel. 435 00:37:59,000 --> 00:38:04,000 See those? Look at the worksheets. 436 00:38:04,000 --> 00:38:07,000 This will take a while. 437 00:38:07,000 --> 00:38:10,000 These are the financial statements. 438 00:38:10,000 --> 00:38:13,000 And I am regretting this because I'm going to go clear to the end 439 00:38:13,000 --> 00:38:15,000 and then have to go clear back to the beginning. 440 00:38:15,000 --> 00:38:19,000 I mean, there is everything in here. 441 00:38:19,000 --> 00:38:24,000 I mean, they probably got the weights of every executive's butt somewhere in here. 442 00:38:24,000 --> 00:38:26,000 I mean, it is ridiculous. 443 00:38:26,000 --> 00:38:28,000 Now, do you need all of those? 444 00:38:28,000 --> 00:38:29,000 Oh, hell no. 445 00:38:29,000 --> 00:38:31,000 Do you think I'm going to go through those with you? 446 00:38:31,000 --> 00:38:33,000 You are wrong. 447 00:38:33,000 --> 00:38:35,000 There are just a few that we need. 448 00:38:35,000 --> 00:38:39,000 But if there were ever anything that you really wanted to know, 449 00:38:39,000 --> 00:38:43,000 like for example, well, what kind of lease payments do they have? 450 00:38:43,000 --> 00:38:46,000 You could just do an Excel search, lease, 451 00:38:46,000 --> 00:38:49,000 and it will take you to the spreadsheets that had it. 452 00:38:49,000 --> 00:38:51,000 Oh, thank God. We finally came to the end. 453 00:38:51,000 --> 00:38:58,000 Now we've got to go clear back to the beginning where the ones I want are. 454 00:38:58,000 --> 00:39:02,000 Take you back here. 455 00:39:02,000 --> 00:39:04,000 What was I saying? 456 00:39:04,000 --> 00:39:08,000 Oh, yeah, but I mean, it's got all of this information, 457 00:39:08,000 --> 00:39:12,000 and you can't get a better source. 458 00:39:12,000 --> 00:39:22,000 I mean, Googling it or something like that isn't going to get you the actual information itself. 459 00:39:22,000 --> 00:39:25,000 And it cannot be incomplete here. 460 00:39:25,000 --> 00:39:27,000 It will be the whole thing. 461 00:39:27,000 --> 00:39:29,000 They'll tell you all the lease payments. 462 00:39:29,000 --> 00:39:32,000 They'll even break down the executive compensation. 463 00:39:32,000 --> 00:39:34,000 You find it all there. 464 00:39:34,000 --> 00:39:36,000 Now the next thing I'm going to do, 465 00:39:36,000 --> 00:39:44,000 this is something that is done in every business there is. 466 00:39:44,000 --> 00:39:50,000 You rearrange the workspace for efficiency for you. 467 00:39:50,000 --> 00:39:58,000 If you, in finance, will move the important financial statements all to a cluster together. 468 00:39:58,000 --> 00:40:03,000 If you are in any kind of a manufacturing industry, 469 00:40:03,000 --> 00:40:10,000 you will move the tools that you use most to the place where they are used. 470 00:40:10,000 --> 00:40:17,000 All of this, we all do it in any business, and in our business it is no different. 471 00:40:17,000 --> 00:40:25,000 Now I want to caution you that what I do today is lightweight baby Excel. 472 00:40:25,000 --> 00:40:32,000 By the time I get to the lecture on Wednesday, we'll be in intermediate Excel. 473 00:40:32,000 --> 00:40:35,000 If you know what I'm doing and you would have done it yourself, 474 00:40:35,000 --> 00:40:40,000 then you can legitimately say on a resume, I know Excel. 475 00:40:40,000 --> 00:40:45,000 But if it gets to the point anywhere along here where you say, what the hell are you doing, 476 00:40:45,000 --> 00:40:52,000 then for God's sake get that certification and don't forget what you learn in it. 477 00:40:52,000 --> 00:41:01,000 Okay now, the first thing I want to warn about, back a long time ago, 10 years ago maybe, 478 00:41:01,000 --> 00:41:06,000 everyone had to use the same names for the same things. 479 00:41:06,000 --> 00:41:11,000 If it's an income statement, you call it an income statement. 480 00:41:11,000 --> 00:41:14,000 Now you can call it a variety of things. 481 00:41:14,000 --> 00:41:21,000 In the case of US Steel, they call it the consolidated statement of operations. 482 00:41:21,000 --> 00:41:24,000 That's true for other financial statements too. 483 00:41:24,000 --> 00:41:31,000 Sometimes I'm even bluffed, which one of these is my stupid balance sheet or something like that. 484 00:41:31,000 --> 00:41:36,000 So that's a little bit of a, you know, just look around. 485 00:41:36,000 --> 00:41:40,000 Now another thing that's going to happen, and I'll show you in a minute, 486 00:41:40,000 --> 00:41:48,000 financial statements used to all have the same name for the same entries. 487 00:41:48,000 --> 00:41:52,000 You called it operating income. 488 00:41:52,000 --> 00:42:00,000 Now you can call it earnings before interest and taxes, EBIT, and various things. 489 00:42:00,000 --> 00:42:06,000 And also there used to be lines that everyone had to put in. 490 00:42:06,000 --> 00:42:10,000 Now some places won't put those in. 491 00:42:10,000 --> 00:42:15,000 And so you're left, okay, there's something missing here. 492 00:42:15,000 --> 00:42:20,000 Then you have to go clawing around or doing calculations to get what you want. 493 00:42:20,000 --> 00:42:23,000 I'll show you examples of that in a minute here. 494 00:42:23,000 --> 00:42:27,000 But, okay, I've got the income statement. 495 00:42:27,000 --> 00:42:31,000 Now the next thing I'm going to want is the balance sheet. 496 00:42:31,000 --> 00:42:34,000 That's not it. There's the balance sheet. 497 00:42:34,000 --> 00:42:37,000 So what I'm going to do is click and hold it. 498 00:42:37,000 --> 00:42:42,000 Whoops, try that again. 499 00:42:42,000 --> 00:42:51,000 Click and hold it and then scoot it over here so that it's sitting next to my statement of operations. 500 00:42:51,000 --> 00:42:55,000 I'm moving the workspace around to fit what I want. 501 00:42:55,000 --> 00:43:00,000 Now the next thing that I'm going to do is find the statement of cash flows. 502 00:43:00,000 --> 00:43:03,000 There it is. Consolidated statement of cash flows. 503 00:43:03,000 --> 00:43:05,000 Click and hold it. 504 00:43:05,000 --> 00:43:14,000 I'm going to scoot this one over next to the balance sheet. 505 00:43:14,000 --> 00:43:15,000 I've got them in the work. 506 00:43:15,000 --> 00:43:17,000 I've got them where I, those are the ones I'll need. 507 00:43:17,000 --> 00:43:20,000 So I don't want to just jump all over the place, scroll back and forth. 508 00:43:20,000 --> 00:43:23,000 I've got them where I need them. 509 00:43:23,000 --> 00:43:28,000 Now, next thing. 510 00:43:28,000 --> 00:43:40,000 One sure way to honk off your boss is to start putting scratch work on one of the sheets that you downloaded. 511 00:43:40,000 --> 00:43:45,000 I've got some pretty phenomenal stories about that. 512 00:43:45,000 --> 00:43:53,000 If I've got a calculation that relies on numbers in the income statement and the balance sheet, 513 00:43:53,000 --> 00:43:57,000 I don't want to do it on the income statement or the balance sheet. 514 00:43:57,000 --> 00:44:06,000 I want to create, and I'm going to do it right between the balance sheet and the consolidated statement of cash flows 515 00:44:06,000 --> 00:44:09,000 so it's where I can get to it pretty quickly. 516 00:44:09,000 --> 00:44:18,000 Right click, right click right between them, insert a blank worksheet. 517 00:44:18,000 --> 00:44:26,000 And call it calculations. 518 00:44:26,000 --> 00:44:30,000 That way all of your calculations are done on a scratch sheet. 519 00:44:30,000 --> 00:44:35,000 So they're not cluttering up the core. 520 00:44:35,000 --> 00:44:38,000 Now there's actually another reason to do this. 521 00:44:38,000 --> 00:44:42,000 Sometimes you'll see me actually make two blank sheets. 522 00:44:42,000 --> 00:44:47,000 One for calculations and then another one for results. 523 00:44:47,000 --> 00:44:54,000 You don't want to do your calculation or especially you don't want your results 524 00:44:54,000 --> 00:44:58,000 parked on one of those primary sheets. 525 00:44:58,000 --> 00:45:02,000 Two reasons. One is it clutters the sheet. 526 00:45:02,000 --> 00:45:08,000 And two is if you're presenting in a meeting, you don't want wandering curious eyes, 527 00:45:08,000 --> 00:45:12,000 not on what you want them to see. 528 00:45:12,000 --> 00:45:14,000 You want them to see the results. 529 00:45:14,000 --> 00:45:18,000 You don't want some ho handle in your presentation saying, 530 00:45:18,000 --> 00:45:23,000 can you look over that income statement and explain to me what, no, you don't want that. 531 00:45:23,000 --> 00:45:30,000 You get them over where they can't be distracted by other things. 532 00:45:30,000 --> 00:45:35,000 Okay. 533 00:45:35,000 --> 00:45:40,000 Now I'm going to show you a couple of things here. 534 00:45:40,000 --> 00:45:43,000 Okay, statement of operations. 535 00:45:43,000 --> 00:45:46,000 Now, let me do something here. 536 00:45:46,000 --> 00:45:52,000 Hold down control and click on each of those sheets. 537 00:45:52,000 --> 00:45:56,000 And I'm going to expand all of them at once so you can see them. 538 00:45:56,000 --> 00:45:58,000 They're in the back a little better. 539 00:45:58,000 --> 00:46:01,000 Okay. 540 00:46:01,000 --> 00:46:02,000 Sorry about that. 541 00:46:02,000 --> 00:46:05,000 I just wanted to make sure you can see them. 542 00:46:05,000 --> 00:46:07,000 Okay, so now let's go over here. 543 00:46:07,000 --> 00:46:10,000 Click out of that, highlight all of them. 544 00:46:10,000 --> 00:46:11,000 Statement of operations. 545 00:46:11,000 --> 00:46:14,000 Now, I don't expect you to be able to catch it. 546 00:46:14,000 --> 00:46:18,000 If you can, I will buy you a cookie. 547 00:46:18,000 --> 00:46:26,000 What is missing that would normally be, you would expect to see in an income statement? 548 00:46:26,000 --> 00:46:28,000 You're all accounting geniuses now. 549 00:46:28,000 --> 00:46:30,000 You've had accounting 131. 550 00:46:30,000 --> 00:46:32,000 What's missing? 551 00:46:32,000 --> 00:46:35,000 And it shouldn't be, but it is. 552 00:46:35,000 --> 00:46:42,000 Now some have it, but apparently, and I don't know the rules for this, 553 00:46:42,000 --> 00:46:47,000 but apparently it's just discretionary whether you put it in there or not. 554 00:46:47,000 --> 00:46:52,000 But we in finance, oh yeah, we need this one big time. 555 00:46:52,000 --> 00:46:56,000 Do you see it? 556 00:46:56,000 --> 00:46:59,000 Gross income. 557 00:46:59,000 --> 00:47:04,000 In other words, your revenue is minus your cost of goods sold. 558 00:47:04,000 --> 00:47:06,000 Now we care about that a lot. 559 00:47:06,000 --> 00:47:08,000 You'll see why here in a minute. 560 00:47:08,000 --> 00:47:16,000 Gross income. 561 00:47:16,000 --> 00:47:26,000 And all that, that is nothing but equals revenue minus cost of goods sold. 562 00:47:26,000 --> 00:47:32,000 Enter it and then copy it over. 563 00:47:32,000 --> 00:47:36,000 Now, one thing I've got to make this mention. 564 00:47:36,000 --> 00:47:40,000 Professionally, you're supposed to not use the mouse. 565 00:47:40,000 --> 00:47:44,000 You use the keyboard for everything, all your commands. 566 00:47:44,000 --> 00:47:48,000 And you'll learn about that when you take the certification course. 567 00:47:48,000 --> 00:47:54,000 But for teaching purposes, you can't see what I'm doing on the keyboard, 568 00:47:54,000 --> 00:47:57,000 and so it's better to use the mouse here. 569 00:47:57,000 --> 00:48:01,000 And I still use the mouse for some things anyway. 570 00:48:01,000 --> 00:48:03,000 I don't care what they say. 571 00:48:03,000 --> 00:48:05,000 But anyway, there we go. 572 00:48:05,000 --> 00:48:06,000 So that one's in there. 573 00:48:06,000 --> 00:48:09,000 We're all good. 574 00:48:09,000 --> 00:48:19,000 Now there's one that is in this one that you don't usually see anymore. 575 00:48:19,000 --> 00:48:23,000 It's the depreciation and amortization line. 576 00:48:23,000 --> 00:48:25,000 That's missing. 577 00:48:25,000 --> 00:48:32,000 And we need that one big time because that's a non-cash flow expense. 578 00:48:32,000 --> 00:48:35,000 So we need to know where it is so we can fix it. 579 00:48:35,000 --> 00:48:37,000 But it's not in most of them. 580 00:48:37,000 --> 00:48:41,000 But this company has it, but US Steel has it in there. 581 00:48:41,000 --> 00:48:46,000 Now if it's not in here, you have to run over to the statement of cash flows to find it. 582 00:48:46,000 --> 00:48:48,000 It will be in there. 583 00:48:48,000 --> 00:48:52,000 But anyway, okay, so now let me take you down. 584 00:48:52,000 --> 00:49:01,000 And this is the preliminary clean it up before we do anything else. 585 00:49:01,000 --> 00:49:08,000 Down here, earnings before interest in taxes. 586 00:49:08,000 --> 00:49:11,000 That can have a number of different names. 587 00:49:11,000 --> 00:49:16,000 You can hear it or see it EBIT. 588 00:49:16,000 --> 00:49:30,000 Or you'll see what I oftentimes call it, operating income. 589 00:49:30,000 --> 00:49:32,000 Sometimes you'll hear me shorten that. 590 00:49:32,000 --> 00:49:38,000 You'll just hear me say operating. 591 00:49:38,000 --> 00:49:41,000 It can have any of those names. 592 00:49:41,000 --> 00:49:45,000 Different companies use a different name for it. 593 00:49:45,000 --> 00:49:49,000 Like I said, there is no standard this is what you put anymore. 594 00:49:49,000 --> 00:49:54,000 It used to be Manai Moore. 595 00:49:54,000 --> 00:49:59,000 Now before I go any further, I want to bring up one, they bring it up in the book. 596 00:49:59,000 --> 00:50:04,000 I'm going to put it in and then I'm going to take it back out. 597 00:50:04,000 --> 00:50:09,000 I'm going to put it in and show you what it is because the book does. 598 00:50:09,000 --> 00:50:24,000 But also because for a couple of years, corporate America has had kind of an obsession with this. 599 00:50:24,000 --> 00:50:28,000 So there was the CEO of the company. 600 00:50:28,000 --> 00:50:33,000 He was, we were at a dinner and he was chatting with people. 601 00:50:33,000 --> 00:50:34,000 He chatted with me. 602 00:50:34,000 --> 00:50:39,000 I heard him kept saying EBITDA. 603 00:50:39,000 --> 00:50:42,000 I thought what the hell is he saying? 604 00:50:42,000 --> 00:50:45,000 They were having beers that night. 605 00:50:45,000 --> 00:50:49,000 But it turns out he was saying EBITDA. 606 00:50:49,000 --> 00:50:54,000 Earnings before interest, taxes, depreciation and amortization. 607 00:50:54,000 --> 00:51:02,000 So EBITDA, insert, I'm going to put it in here and then I'm going to take it back out. 608 00:51:02,000 --> 00:51:27,000 It is earnings before interest and taxes and income taxes 609 00:51:27,000 --> 00:51:42,000 and depreciation and amortization. 610 00:51:42,000 --> 00:51:48,000 EBITDA. 611 00:51:48,000 --> 00:51:52,000 And your book uses that breakdown of it. 612 00:51:52,000 --> 00:52:05,000 Now all you have to do is take your EBIT, all you have to do is take your EBIT 613 00:52:05,000 --> 00:52:12,000 and then add back depreciation and amortization, which were subtracted out for EBIT. 614 00:52:12,000 --> 00:52:17,000 So I want to say equals, let's try that again, 615 00:52:17,000 --> 00:52:24,000 equals your earnings before interest, taxes, interest and taxes plus, 616 00:52:24,000 --> 00:52:28,000 and then go back up here and add this back in. 617 00:52:28,000 --> 00:52:34,000 And there's your Uncle Bob and then copy it over. 618 00:52:34,000 --> 00:52:40,000 As I said, it's become kind of a fetish in corporate. 619 00:52:40,000 --> 00:52:43,000 Well, what's EBITDA? 620 00:52:43,000 --> 00:52:51,000 Or you see the book brings it up too, but it's not really all that interesting to us. 621 00:52:51,000 --> 00:53:02,000 It is an attempt to make the income statement look more like true cash flow. 622 00:53:02,000 --> 00:53:05,000 Because when you subtract out depreciation and amortization, 623 00:53:05,000 --> 00:53:09,000 you're subtracting something that didn't actually happen. 624 00:53:09,000 --> 00:53:16,000 So EBITDA fixes that, gets it out of your subtraction, adds it back in, 625 00:53:16,000 --> 00:53:20,000 so that it looks more like a true cash flow. 626 00:53:20,000 --> 00:53:24,000 It's not good enough and you'll see why on Wednesday, but it's something there. 627 00:53:24,000 --> 00:53:29,000 So I'm going to take that back out now after I did all that stupid typing. 628 00:53:29,000 --> 00:53:30,000 Delete. 629 00:53:30,000 --> 00:53:31,000 Okay. 630 00:53:31,000 --> 00:53:38,000 Now we get down here a little further, earnings before income taxes. 631 00:53:38,000 --> 00:53:44,000 You'll see that one, EBT. 632 00:53:44,000 --> 00:53:48,000 Now you'll hear me, the jargon is pre-tax. 633 00:53:48,000 --> 00:53:50,000 We just say pre-tax. 634 00:53:50,000 --> 00:53:51,000 Well, what was pre-tax? 635 00:53:51,000 --> 00:53:53,000 Or pre-tax was. 636 00:53:53,000 --> 00:53:59,000 So in other words, it's just a shortening. 637 00:53:59,000 --> 00:54:03,000 It's how much is there before the company pays its taxes. 638 00:54:03,000 --> 00:54:05,000 Net earnings. 639 00:54:05,000 --> 00:54:08,000 Last one before we get to something more interesting. 640 00:54:08,000 --> 00:54:10,000 That's a fancy. 641 00:54:10,000 --> 00:54:14,000 Now, I was given a lecture that this is not correct. 642 00:54:14,000 --> 00:54:19,000 But net earnings, the common name for it is profit or net profit. 643 00:54:19,000 --> 00:54:27,000 I got a lecture from an accounting teacher here that net earnings is not the same as profit. 644 00:54:27,000 --> 00:54:31,000 And he went on to give me an explanation. 645 00:54:31,000 --> 00:54:34,000 And I mean, I wasn't listening to him. 646 00:54:34,000 --> 00:54:36,000 I don't know why he was talking. 647 00:54:36,000 --> 00:54:43,000 I'm pretty sure he was talking to me because he was looking right at me, wagging his finger. 648 00:54:43,000 --> 00:54:45,000 But it's profit. 649 00:54:45,000 --> 00:54:47,000 So forget it. 650 00:54:47,000 --> 00:54:48,000 Okay. 651 00:54:48,000 --> 00:54:53,000 Now, balance sheet. 652 00:54:53,000 --> 00:54:57,000 Looking over here, there's not much I can do to that. 653 00:54:57,000 --> 00:55:06,000 But now I'm going to talk about something else. 654 00:55:06,000 --> 00:55:09,000 I'm going to pick out this cluster right here. 655 00:55:09,000 --> 00:55:14,000 Okay, madam, you are CSI. 656 00:55:14,000 --> 00:55:16,000 You know that show? 657 00:55:16,000 --> 00:55:18,000 Okay. 658 00:55:18,000 --> 00:55:22,000 You are the lead investigator at a murder. 659 00:55:22,000 --> 00:55:25,000 I am lying there on the ground. 660 00:55:25,000 --> 00:55:28,000 Obviously, I've been murdered. 661 00:55:28,000 --> 00:55:29,000 Okay. 662 00:55:29,000 --> 00:55:32,000 Now, it's your job to figure out why. 663 00:55:32,000 --> 00:55:33,000 Well, that's not hard. 664 00:55:33,000 --> 00:55:35,000 He gave quiz one. 665 00:55:35,000 --> 00:55:44,000 But the other really hard question is who? 666 00:55:44,000 --> 00:55:48,000 Okay. 667 00:55:48,000 --> 00:55:53,000 And so you go through my pockets and you're reaching around to see if there are cards. 668 00:55:53,000 --> 00:55:58,000 You find that my chewing gum, old chewing gum is in there. 669 00:55:58,000 --> 00:56:00,000 And that doesn't help you. 670 00:56:00,000 --> 00:56:05,000 So you go looking around the room and you've got all these witnesses. 671 00:56:05,000 --> 00:56:08,000 You, sir, you definitely are a suspect. 672 00:56:08,000 --> 00:56:09,000 You are too. 673 00:56:09,000 --> 00:56:11,000 Let's see your hands. 674 00:56:11,000 --> 00:56:14,000 Okay, they have clean hands. 675 00:56:14,000 --> 00:56:19,000 And he was stabbed, so either they didn't stab him or they washed their hands. 676 00:56:19,000 --> 00:56:23,000 So you're working around and now we come to you. 677 00:56:23,000 --> 00:56:27,000 Obviously, you're a suspicious looking person. 678 00:56:27,000 --> 00:56:30,000 You know, obviously a scoundrel. 679 00:56:30,000 --> 00:56:37,000 Possibly even, you know, you listen to dubstep and you kind of favor. 680 00:56:37,000 --> 00:56:41,000 You don't like Taylor Swift. 681 00:56:41,000 --> 00:56:43,000 And so there's something wrong with you. 682 00:56:43,000 --> 00:56:49,000 Okay, that's what we're going to do with this. 683 00:56:49,000 --> 00:56:56,000 Before you pull out a stupid calculator, now remember, accountants do numbers. 684 00:56:56,000 --> 00:56:59,000 We have to do numbers too just to fix things. 685 00:56:59,000 --> 00:57:04,000 But we also, we are the ones who ask the why. 686 00:57:04,000 --> 00:57:08,000 What happened and why did it happen? 687 00:57:08,000 --> 00:57:09,000 Well, we're going to look at that. 688 00:57:09,000 --> 00:57:18,000 And that's why when I was in the service, you don't just charge into an unknown zone. 689 00:57:18,000 --> 00:57:19,000 You do recon. 690 00:57:19,000 --> 00:57:25,000 You look, get your hands off the calculators, off the Excel, off the pens and pencils, 691 00:57:25,000 --> 00:57:31,000 and you just start looking at the numbers and get the lay of the battlefield. 692 00:57:31,000 --> 00:57:35,000 And in this case, I'm just going to start at the top and I'm just going to look at them. 693 00:57:35,000 --> 00:57:38,000 I'm not going to ask a lot of mathematical. 694 00:57:38,000 --> 00:57:42,000 I'll try to do a little quick back of the head thought. 695 00:57:42,000 --> 00:57:43,000 But I'm going to look here. 696 00:57:43,000 --> 00:57:47,000 Now remember, financial statements, most current is on the left, 697 00:57:47,000 --> 00:57:51,000 and then further back is going right. 698 00:57:51,000 --> 00:57:55,000 So I'm going to look right at the top at the revenue. 699 00:57:55,000 --> 00:58:00,000 And if I look right at the top at the revenue, sir, what do you see? 700 00:58:00,000 --> 00:58:05,000 Say it. 701 00:58:05,000 --> 00:58:08,000 Let's try, what do you see? 702 00:58:08,000 --> 00:58:10,000 Do you see anything about that revenue? 703 00:58:10,000 --> 00:58:14,000 It went up and then it goes back down? 704 00:58:14,000 --> 00:58:15,000 No. 705 00:58:15,000 --> 00:58:18,000 Matter of fact, it went down rather dramatically. 706 00:58:18,000 --> 00:58:21,000 So we've got a company that has not sold as much. 707 00:58:21,000 --> 00:58:28,000 It's lost over two years $2 billion on $20 billion. 708 00:58:28,000 --> 00:58:31,000 Well, that's a 10% drop in revenue. 709 00:58:31,000 --> 00:58:35,000 I mean, I'm not doing any technical, well, it's technically 10.4. 710 00:58:35,000 --> 00:58:39,000 No, they've got a revenue loss and it's noticeable, 711 00:58:39,000 --> 00:58:44,000 down over two years by that much. 712 00:58:44,000 --> 00:58:48,000 Now then the next thing I'm going to look at is the cost of goods sold. 713 00:58:48,000 --> 00:58:51,000 Oh, well there's a problem right there. 714 00:58:51,000 --> 00:58:58,000 Because, yeah, the cost of goods sold slid a little bit, 715 00:58:58,000 --> 00:59:02,000 but it was not as proportional as the loss of sales. 716 00:59:02,000 --> 00:59:13,000 So dollar for dollar it looks like they're paying more for wholesale even on less retail sales. 717 00:59:13,000 --> 00:59:16,000 And that is confirmed right here. 718 00:59:16,000 --> 00:59:17,000 Look at the gross. 719 00:59:17,000 --> 00:59:21,000 That's why that gross income was important for us to look at. 720 00:59:21,000 --> 00:59:29,000 Do you see how they really have lost ground? 721 00:59:29,000 --> 00:59:42,000 In other words, how much of every dollar they keep after they pay wholesale costs has gone down? 722 00:59:42,000 --> 00:59:43,000 Look at that. 723 00:59:43,000 --> 00:59:54,000 From 5.7 billion, their gross income fell over two years to less than half of that. 724 00:59:54,000 --> 00:59:57,000 So right there, big flag. 725 00:59:57,000 --> 00:59:59,000 I don't have to really calculate. 726 00:59:59,000 --> 01:00:00,000 I just have to look. 727 01:00:00,000 --> 01:00:03,000 Revenues went down somewhat. 728 01:00:03,000 --> 01:00:07,000 Cost of goods sold went down, but not as much. 729 01:00:07,000 --> 01:00:12,000 And the net effect was an erosion of their cost of goods sold. 730 01:00:12,000 --> 01:00:16,000 A really heavy erosion. 731 01:00:16,000 --> 01:00:19,000 Okay, now we go along here. 732 01:00:19,000 --> 01:00:23,000 Yeah, there's selling general administrative. 733 01:00:23,000 --> 01:00:25,000 Did pop. 734 01:00:25,000 --> 01:00:27,000 It's noticeable. 735 01:00:27,000 --> 01:00:33,000 That might be an issue we would want to have a conversation about in management meetings. 736 01:00:33,000 --> 01:00:35,000 We may need to do some cost cutting here. 737 01:00:35,000 --> 01:00:37,000 Our sales are down. 738 01:00:37,000 --> 01:00:52,000 Why did our wages, utilities, meals and entertainment, mailings, advertising, why did that go up if we have lost sales? 739 01:00:52,000 --> 01:00:59,000 Then we go down a little further and we see depreciation and amortization went up. 740 01:00:59,000 --> 01:01:01,000 Now that's interesting. 741 01:01:01,000 --> 01:01:06,000 That would tell me that they've made a pretty heavy new capital investment. 742 01:01:06,000 --> 01:01:13,000 They've bought more property, plant and equipment so they've got more depreciation expense. 743 01:01:13,000 --> 01:01:16,000 Which is a good thing because that's tax shield and all that. 744 01:01:16,000 --> 01:01:26,000 But still, they have not earned as much cash, but apparently they spent on something big. 745 01:01:26,000 --> 01:01:32,000 A new factory, completely new technology for the steel, whatever. 746 01:01:32,000 --> 01:01:38,000 Okay, now the rest of this is all over the place and it's hard to even tell what it is. 747 01:01:38,000 --> 01:01:48,000 But if you look down here at the end, the total expenses over two years rose. 748 01:01:48,000 --> 01:01:52,000 They fell a little bit over the past year, but it's still not terrible. 749 01:01:52,000 --> 01:01:55,000 Okay, EBIT, look at this. 750 01:01:55,000 --> 01:02:03,000 Our operating income is, oh my God, that's a real whopping down. 751 01:02:03,000 --> 01:02:13,000 So the cash flow from operations has lost a lot, a noticeable amount. 752 01:02:13,000 --> 01:02:25,000 It's gone down more than 80 percent. 753 01:02:25,000 --> 01:02:30,000 From $5,000 down to $1,000, that would be $4,000. 754 01:02:30,000 --> 01:02:37,000 Yeah, their earnings, EBIT, has really taken a bath. 755 01:02:37,000 --> 01:02:43,000 And get down here to the net earnings, look at that. 756 01:02:43,000 --> 01:02:46,000 Lost a lot of ground. 757 01:02:46,000 --> 01:02:51,000 Okay, now we can walk back along the murder path. 758 01:02:51,000 --> 01:02:59,000 First things first, their earnings before taxes, right here. 759 01:02:59,000 --> 01:03:01,000 Oh, I was on the wrong line. 760 01:03:01,000 --> 01:03:05,000 Their earnings on taxes suffered massively over two years. 761 01:03:05,000 --> 01:03:12,000 You see it went from $4.3 billion down to $1.04 billion, $1.05 billion. 762 01:03:12,000 --> 01:03:14,000 Okay, where did that come from? 763 01:03:14,000 --> 01:03:19,000 You can trace that right back up here to gross income, falling. 764 01:03:19,000 --> 01:03:22,000 And you can trace that right back up there. 765 01:03:22,000 --> 01:03:26,000 They're losing money because they're not selling as much. 766 01:03:26,000 --> 01:03:32,000 And yet their wholesale costs are not going down as much as their sales are going down. 767 01:03:32,000 --> 01:03:38,000 We've traced it back to the source of this disaster on their net income. 768 01:03:38,000 --> 01:03:40,000 It happened right at the top. 769 01:03:40,000 --> 01:03:43,000 It wasn't selling general and administrative expenses. 770 01:03:43,000 --> 01:03:46,000 It wasn't more depreciation expense. 771 01:03:46,000 --> 01:03:49,000 It wasn't any of those things. 772 01:03:49,000 --> 01:03:53,000 It was that they just didn't sell as much, 773 01:03:53,000 --> 01:03:58,000 and their wholesale costs did not drop as much as their sales did. 774 01:03:58,000 --> 01:04:01,000 Proportion, did not drop proportionally. 775 01:04:01,000 --> 01:04:03,000 So we've got a problem. 776 01:04:03,000 --> 01:04:11,000 The company clearly for the last year has showed signs of definite trouble. 777 01:04:11,000 --> 01:04:14,000 Now we go over here to the balance sheets. 778 01:04:14,000 --> 01:04:17,000 Cash lost some position. 779 01:04:17,000 --> 01:04:19,000 But now look at the inventories. 780 01:04:19,000 --> 01:04:22,000 Our inventories fell. 781 01:04:22,000 --> 01:04:24,000 That would free up cash. 782 01:04:24,000 --> 01:04:26,000 Good. 783 01:04:26,000 --> 01:04:29,000 Accounts receivable went down a little bit. 784 01:04:29,000 --> 01:04:31,000 That would free up some cash. 785 01:04:31,000 --> 01:04:33,000 Total current assets. 786 01:04:33,000 --> 01:04:36,000 Now if we go down here, property, plant, and equipment, that's what I thought. 787 01:04:36,000 --> 01:04:37,000 See that? 788 01:04:37,000 --> 01:04:41,000 They must have bought something really big, put up a new factory or something. 789 01:04:41,000 --> 01:04:45,000 See how their property, plant, and equipment has jumped? 790 01:04:45,000 --> 01:04:52,000 Okay, so our total assets, they have actually risen a little bit. 791 01:04:52,000 --> 01:04:57,000 They've managed their cash flow somewhat. 792 01:04:57,000 --> 01:05:01,000 Accounts payable, payroll. 793 01:05:01,000 --> 01:05:05,000 They're catching up on payroll, which uses cash. 794 01:05:05,000 --> 01:05:07,000 Crude interest. 795 01:05:07,000 --> 01:05:09,000 Nothing really stands out. 796 01:05:09,000 --> 01:05:12,000 Current liabilities stayed pretty stable. 797 01:05:12,000 --> 01:05:14,000 Okay. 798 01:05:14,000 --> 01:05:17,000 Going down here. 799 01:05:17,000 --> 01:05:27,000 I mean, if you look around, their total asset base has improved somewhat. 800 01:05:27,000 --> 01:05:39,000 So the conclusion we would make from this is that the income statement is telling us that they have a short-term problem, 801 01:05:39,000 --> 01:05:41,000 and it is sales. 802 01:05:41,000 --> 01:05:51,000 But the balance sheet, holding pretty steady, tells us that this is not a reason to panic. 803 01:05:51,000 --> 01:05:57,000 You are not going to buy U.S. steel probably, but you're not going to run away from it. 804 01:05:57,000 --> 01:06:01,000 This is what we would call a recommendation for a hold. 805 01:06:01,000 --> 01:06:05,000 You wouldn't buy it because that income statement isn't good. 806 01:06:05,000 --> 01:06:10,000 You wouldn't sell it because the balance sheet is stable. 807 01:06:10,000 --> 01:06:15,000 So your best recommendation, just keep what you've got in your portfolio. 808 01:06:15,000 --> 01:06:20,000 Don't up the amount of it and don't drop the amount of it. 809 01:06:20,000 --> 01:06:22,000 Just hold. 810 01:06:22,000 --> 01:06:24,000 This is what we do. 811 01:06:24,000 --> 01:06:28,000 And I haven't even touched all those numbers and cranked them. 812 01:06:28,000 --> 01:06:37,000 This is what we do is the numbers are important, sure, but we have minds and we can look at these numbers. 813 01:06:37,000 --> 01:06:39,000 Now, can you do this right now? 814 01:06:39,000 --> 01:06:41,000 I sure as heck wouldn't expect you to. 815 01:06:41,000 --> 01:06:47,000 By the end of the semester, you'll be pretty good at it, and then you can take my jobs away from me. 816 01:06:47,000 --> 01:06:50,000 But for now, that's all I have for you today. 817 01:06:50,000 --> 01:07:13,000 I thank you.