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Alan Cring Productions in association with Emergent Light Studio presents the Illinois

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State Collegiate Compendium, academic lectures in Business and Economics.

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This is Business Finance, FIL 190 for spring semester 2024.

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Today the time value of money and let me get myself together here.

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However, before we do TVM, begin that anyway.

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I will finish up ratios and do some analytics and also have more fun with spreadsheets as

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I'm sure you are already getting the awareness, if you didn't have it already, that it was

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these are actually the work horses of the entirety of finance these days.

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Now I haven't had a chance yet to, I don't know whether it's released or it's about to

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be released, but Python is about to be embedded into the spreadsheets as well.

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It's kind of a way for you to sneak in some pre-learning about Python if you haven't ever

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done it before, but I would also encourage you to try out.

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LinkedIn Learning has a, I think it's a three course sequence in Python.

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It starts out really light weight.

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I kind of like the way the teacher of it, it doesn't ramp you up like here's a big bunch

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of code, now let's figure out what happened in here.

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It's a better lighter weight approach, but as I've said before, you're really going to

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need about anywhere you go in finance these days, at least two of the four heavies, Python,

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R, C++ and Java.

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It doesn't hurt for you to get a little bit of a feel for SQL as well.

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SQL isn't that hard.

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You can see what the purpose of your command line entries is a lot more cleanly in SQL.

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Sometimes it's hard to figure out where the heck you're heading in a language like Java

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or a language like R. Anyway, we'll talk about that as time goes

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along and you might even see me.

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We're going to do spreadsheets.

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Of course, you saw them last time.

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They're going to be here this time and from now on almost every class is going to have

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spreadsheets in it.

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To the extent that you can keep up and know what you're doing, you can create spreadsheets

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for a lot of the problems that you would encounter on midterms and quizzes.

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I'm going to help you show you how to craft nice clean spreadsheets that will solve different

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kinds of problems for you.

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But anyway, to start off today just as a start off today kind of exercise that we do every

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day, let's do this thing called let's look at the numbers.

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And well, okay, I'm going to try this.

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Sir is this a bowl or a bear day?

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Let me expand that screen a little bit for you there.

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Bear with me.

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Whoops, that didn't do it.

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It's a bowl day.

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It is a weak bowl day.

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It's not a moo.

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It's sort of a ee.

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It started off actually, it's been trying to talk itself into having a good day.

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But it's really, it just doesn't have much punch in it.

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As you can see, the Dow and the S&P are vying for boredom today so far.

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And the NASDAQ is up more, of course, obviously, it's a higher risk portfolio and that's what

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you're going to get.

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You're going to get a bowl day.

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It's going to be a little more of a bowl day usually on the NASDAQ.

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But there's really not much to talk about here on this on a day like this.

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A lot of weight you can see right now.

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Markets despite, well, let me not get into that too much here.

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It gets to be a little political.

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There was a little bit of more talk than usual on back channels about some things that happened

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politically that were said this weekend that kind of rattled international markets.

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It did kind of rattle.

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It just sort of shocked the hell out of them.

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But anyway, let's go on here.

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And over here on crude, crude had dropped, it was going down.

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And then as you can see, there was a bull rally coming along.

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It's up above the surface of the water.

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But I want you to notice something.

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I may have already said this, but let me emphasize it again.

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If you see how these spark charts are short, we just started the day off, the bell bing,

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ding, ding, ding, about an hour ago or so.

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But if you look over here at this oil, well, that's been going on.

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That's how it works.

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The commodities markets are clockers.

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They're running all the time.

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And the futures markets drive you crazy.

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Because in the futures markets, they all have like a four hour quiet period.

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But when they start back up depends upon the commodity.

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So you might have beef start at one time, some kind of beef futures start at one time,

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and oil starts at another time, and then wheat starts at another time.

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It just drives me crazy trying to keep track of when the times are that these markets get

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quiet, and then when they wake up.

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As you can see, oil's been rolling here for probably, it looks like about eight hours

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right now already.

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So these markets don't behave the way your classic stock market or your bond market works.

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It's just something you kind of get used to.

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See how long gold's been running for the day?

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So it's not the same markets we think in, lightweights in the market think in terms

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of the bell of the New York Stock Exchange, that big ding, ding, ding bell.

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Well that's just one part of the whole world of financial markets and commodity markets

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and all of that.

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They have different time frames.

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And I just wanted to point that out to you.

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Depending upon what kind of, if you are into the world of investments, of trading, you're

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going to have a different time frame than others would.

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Even in corporate, if you're in treasury, you might have to be there at an early hour

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to handle some of the stuff that's going on in the world markets that have that impact

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on your corporation.

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So we don't get to have, sometimes in some areas of finance, we don't get to have the

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regular eight to five jobs, just the way it is.

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And of course, see the currency markets?

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There you go.

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Those have been going on.

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They're just, obviously those are going to be trading all the time because you're talking

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about the euro, which would be the euro against the dollar.

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And then you've got the Great Britain pound against the dollar.

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See how long that's been trading so far today?

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And the Japanese yen, I don't know.

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But anyway, okay, so getting back over here to bonds, you see that there was a very steep

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drop.

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Right off the bat, it was instantly down, which would mean yields were instantly up

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on the bond market today.

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But that rallied really quickly as this would have been a lot of buying activity, pushing

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the price up at the bell and therefore driving the yields down.

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I've got to keep my order here.

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But then that pressure, that buying pressure on the bonds really eased up and was replaced

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by more of a balance on the sell side to the point now where we're virtually at dead stop

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from where it closed last night.

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And right now, as you can see, 0.2 basis points, which would be 1 one thousandth of a percent

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because one basis point is a hundredth of a percent.

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So a 0.002 would be a thousandth of a percent, or 0.2 basis points.

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So getting the thinking, one of the things that I do in this course is to get your eyes

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to see what is actually there.

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Instead of a mass of numbers, you see the numbers and then you can begin to interpret

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what those numbers mean.

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And as far as everything else goes, on the other side of the world, the Nikkei, I'm not

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sure what was going on, but it started on a bull spike, a couple bull spikes there, and

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then it just tailed off.

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There was struggle through the day, but by the end the bears had taken control and it

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finished virtually flat from where it started.

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So it was kind of a rollicking day on the Tokyo exchange.

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Now in London, bull spike at the beginning and then it just dropped off, and then it

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more or less stayed about the same until just the last few hours.

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There's been a bull rally, but that was cut off very quickly, and now they're still trading

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over there at the end of the day.

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It's just sort of struggling to hold its head above water.

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So there you are on that.

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But just to have a look, who's coming up soon here?

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One quick thing, look at the VIX.

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Now you remember what the VIX is?

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Do you remember?

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It's okay.

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You'll get the hang of it.

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VIX?

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Vol.

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It's vol.

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It's a metric of volatility.

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And you can trade it.

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So let's see how the volatility is going right now.

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Well that's, hmm, very interesting.

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It was resting, little bit of index drop, but then it's had this little spike in here

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in the last hour or two.

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It's coming off that top of that spike right there.

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But there seems to have been some volatility that was reflected.

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Let me look back here real quick just to see.

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Can we see that here?

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Yeah, see it?

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See the volatility?

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It was down there in the spike.

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That's a volatility spike.

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And that's what you're seeing over there with the VIX itself.

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See it?

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That's that.

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So in other words, this is a raw.

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The stocks, you can see volatility in the portfolios, in individual stocks, ETFs, all

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that.

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But when you look at it, this is sort of taking away the stocks themselves, the underlying

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companies, and just saying what is the behavior of this thing that is representing how those

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stocks are moving up and down as a whole.

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And as you can see, there's some spike in that.

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Now when that spike stays up there, we'll talk about that a little later.

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But anyway, it's going through.

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I don't know, anyone got a stock to look at today?

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Great recommendation for how I can make money?

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You.

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Oh, go ahead.

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Oh, I was going to say L-beauty, like D-L-F.

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I have heard of that.

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Where have I heard that?

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Oh, decent.

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Expensive, kind of expensive.

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Oh, it's riding high.

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Let's have a look at it.

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Well, okay, your turn.

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Risky or not risky?

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Oh, it's risky.

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Risky is not horrible like a Tesla or one of those like AMD, but that's noticeable.

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Now if I'm looking at the P-E ratio, I see overvalued there.

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I see it at 78.

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You're getting up there in the high range on P-E ratios asking for a pull off.

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But at the same time, whoa, look at that spread.

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Well, it is $175 stock, but that's still.

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For bid is what you will get if you sell it to a broker.

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Ask is what you will pay if you buy it from a broker, which the book takes it the other

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way.

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The bid is an ask or exactly flipped from the broker's point of view.

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Well, that's good, but from our point of view, what I'm saying is the way you should think

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about it.

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Oh, look at that though.

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Whoa.

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52 week rate, 67.59 to 179.58.

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So we are near the top of the 52 week on this.

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And if we were to look at the one year, and is there some reason that this sucks?

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Okay.

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If we look at the one year, why do these look so weird today?

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Okay, look at that.

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Okay, now, a technical analyst.

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And I feel like I'm telling you how to do something that's evil.

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A technical analyst would say, you've got rising tops, you've got rising bottoms.

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That is a sign of a buy.

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That's a buy sign.

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At least that's in the intermediate.

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This is an intermediate.

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If I look at it over here, I still kind of see rising tops, but I don't see the rising

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bottoms really.

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I see no clear indication one way or the other over a longer haul.

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But in the intermediate, I do see the rising tops.

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And honestly, the way I was taught how to do it, you print out one of these charts,

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and then you take a ruler and you draw the lines through the tops.

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And you didn't have to do it perfectly, but you wanted to do it kind of so that you could

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see where might be a crossing point, where rising tops and rising bottoms crossed each

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other or something like that.

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So you could tell where there might be a signal to do something.

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But in general, we just drew a line through these tops and a line through the bottoms.

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We would see these rising tops and rising bottoms.

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And then you look for a point where the line of the tops and the line of the bottoms crossed,

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and that was supposed to be a trigger of some kind.

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That was old school technical analysis.

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But as far as looking at this goes, okay, well, I can do this.

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I can do this.

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Well, I don't get this.

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They had earnings that were supposed to have been reported.

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The earnings call, February 6th.

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They're past that, but there's no mark that tells me what happened to them.

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So they may not have given their final earnings report yet, even though they've done an earnings

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call.

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So that would tell me that the rumor right now is that there's going to be—let me get

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back to the one day.

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Okay.

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This is really driving me crazy what YIHA is doing today.

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Speculation.

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The speculation it looks like.

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Now, I told you, I don't—well, I've got to remember.

240
00:17:34,960 --> 00:17:36,960
Sometimes I don't remember what I tell you.

241
00:17:36,960 --> 00:17:40,440
There's an old saying, buy on the rumor, sell on the news.

242
00:17:40,440 --> 00:17:45,240
So if there's a rumor that it's going to go up, then what you do is you buy into the

243
00:17:45,240 --> 00:17:47,240
rumor that it's going up.

244
00:17:47,240 --> 00:17:51,760
But if there's anywhere close to that when the news is going to come out, no matter whether

245
00:17:51,760 --> 00:17:57,720
it's on your side or against your side, get the hell out of the way.

246
00:17:57,720 --> 00:18:02,760
That's an old—and it's still been—I still hear that one to this day among traders.

247
00:18:02,760 --> 00:18:08,720
So in other words, the rumor would have been earnings above what they were forecasting

248
00:18:08,720 --> 00:18:13,640
and now that we're getting close to the news or almost on the news, get out of the way

249
00:18:13,640 --> 00:18:16,600
of it because it's not going to be good for you.

250
00:18:16,600 --> 00:18:20,020
Any good news would already have been impounded in the price.

251
00:18:20,020 --> 00:18:24,640
You're not going to get anything else out of it if the company announces, well, we did

252
00:18:24,640 --> 00:18:25,640
good.

253
00:18:25,640 --> 00:18:29,000
You're not going to get any more out of it at that point.

254
00:18:29,000 --> 00:18:35,320
But especially if you had good rumors and then the news is sour, you surely want to

255
00:18:35,320 --> 00:18:39,120
be out of the way of that one.

256
00:18:39,120 --> 00:18:40,600
And it goes the other way too.

257
00:18:40,600 --> 00:18:46,160
If you hear that it's going to be bad, get out of the way of it while you hear it's

258
00:18:46,160 --> 00:18:48,160
going to be bad.

259
00:18:48,160 --> 00:18:53,280
And then when the news comes out, then you just sit there and hang out, just wait.

260
00:18:53,280 --> 00:18:57,840
It's not going to be perfect, but it's a way we survive in the business.

261
00:18:57,840 --> 00:19:00,060
It's like when I was in the service.

262
00:19:00,060 --> 00:19:04,980
You're not always going to come out with no scratches or no scrapes or no holes in you,

263
00:19:04,980 --> 00:19:08,960
but if you keep following the rules over a period of time, you're going to be one of

264
00:19:08,960 --> 00:19:15,120
those people who lives to tell the stories when you're an old man or an old woman.

265
00:19:15,120 --> 00:19:16,520
Anyway, strong volume.

266
00:19:16,520 --> 00:19:18,660
Look at that, strong volume.

267
00:19:18,660 --> 00:19:25,040
It's already at about a fourth of its volume, no, a third of its volume for the day and

268
00:19:25,040 --> 00:19:28,600
we're not that much into the day yet.

269
00:19:28,600 --> 00:19:32,880
And again, these things that I'm doing here, this is when I get the chance for you who

270
00:19:32,880 --> 00:19:36,080
are finance majors to hear how we think.

271
00:19:36,080 --> 00:19:41,800
I'm talking out loud, I'm thinking out loud as I'm looking at these so that you can hear

272
00:19:41,800 --> 00:19:47,320
it and it gets to be part of your thinking as you go forward in your classes and then

273
00:19:47,320 --> 00:19:51,640
into your careers in finance, wherever it is.

274
00:19:51,640 --> 00:19:54,200
Anyway, any other ones before I go on?

275
00:19:54,200 --> 00:19:55,200
Yeah?

276
00:19:55,200 --> 00:19:56,200
USFR.

277
00:19:56,200 --> 00:19:57,200
USFR.

278
00:19:57,200 --> 00:20:03,120
You've got to point things out.

279
00:20:03,120 --> 00:20:04,120
Okay.

280
00:20:04,120 --> 00:20:07,120
No, the year chart.

281
00:20:07,120 --> 00:20:10,120
Or like, max.

282
00:20:10,120 --> 00:20:13,120
Whoa, look at that, year chart?

283
00:20:13,120 --> 00:20:14,120
Max.

284
00:20:14,120 --> 00:20:15,120
Oh.

285
00:20:15,120 --> 00:20:18,640
Whoa, what the hell is that about?

286
00:20:18,640 --> 00:20:22,600
You see the volume bars?

287
00:20:22,600 --> 00:20:23,600
See the vol bars?

288
00:20:23,600 --> 00:20:25,480
The volume bars there?

289
00:20:25,480 --> 00:20:29,680
Now when I say vol here, I don't mean volatility, I mean volume.

290
00:20:29,680 --> 00:20:38,160
The vol bars are, whoa, something really got the market interested in this for a while

291
00:20:38,160 --> 00:20:42,840
and then it sort of dropped off the face of the earth.

292
00:20:42,840 --> 00:20:43,960
Anything?

293
00:20:43,960 --> 00:20:46,040
Any observations here?

294
00:20:46,040 --> 00:20:47,040
Okay.

295
00:20:47,040 --> 00:20:50,760
Yeah, this is, what is this, an ETF?

296
00:20:50,760 --> 00:20:56,400
Oh, I see what it is, okay.

297
00:20:56,400 --> 00:20:58,520
Treasury fund rate.

298
00:20:58,520 --> 00:20:59,520
Yield?

299
00:20:59,520 --> 00:21:06,080
You don't have a PE on that, probably.

300
00:21:06,080 --> 00:21:09,840
It's flat, so it's not correlated.

301
00:21:09,840 --> 00:21:16,280
If you see that the beta is right there about zero, what that's telling you is that it is

302
00:21:16,280 --> 00:21:22,320
completely uncorrelated to the market.

303
00:21:22,320 --> 00:21:23,320
It lives its own life.

304
00:21:23,320 --> 00:21:29,080
And I'll do this for you right now, you don't have to know this yet.

305
00:21:29,080 --> 00:21:46,080
But beta is the correlation between the security

306
00:21:46,080 --> 00:21:56,440
and the market times the standard deviation of the security over the standard deviation

307
00:21:56,440 --> 00:21:58,040
of the market.

308
00:21:58,040 --> 00:22:02,920
That's what beta is.

309
00:22:02,920 --> 00:22:05,880
That's row.

310
00:22:05,880 --> 00:22:09,580
Row is the Pearson correlation coefficient.

311
00:22:09,580 --> 00:22:11,480
Have you had your stats course yet?

312
00:22:11,480 --> 00:22:12,800
Have you done that one yet?

313
00:22:12,800 --> 00:22:14,960
Okay, you're nodding your heads.

314
00:22:14,960 --> 00:22:18,360
This is the correlation between the stock and the market.

315
00:22:18,360 --> 00:22:20,520
We'll do these, they're actually easy in Excel.

316
00:22:20,520 --> 00:22:22,240
They're almost like a joke.

317
00:22:22,240 --> 00:22:29,620
But then multiply that times the standard deviation of the stock divided by the standard

318
00:22:29,620 --> 00:22:31,760
deviation of the market.

319
00:22:31,760 --> 00:22:37,360
So in other words, you're scaling the standard deviation of the stock by the standard deviation

320
00:22:37,360 --> 00:22:38,440
of the market.

321
00:22:38,440 --> 00:22:46,000
When I see a beta of zero, my first impression is, oh, that's a correlation coefficient between

322
00:22:46,000 --> 00:22:50,560
this security and the market of zero.

323
00:22:50,560 --> 00:22:54,680
That doesn't mean that, see that standard deviation up there on top, that could be a

324
00:22:54,680 --> 00:22:57,440
mother, that could be a very big number.

325
00:22:57,440 --> 00:23:03,280
But if it's times by zero, then the beta will be zero on it.

326
00:23:03,280 --> 00:23:10,040
And in this case, if I look at, oh, let me look at just the one month chart.

327
00:23:10,040 --> 00:23:15,200
Hello, kitty, what the hell happened there?

328
00:23:15,200 --> 00:23:16,440
Dropped off the face of the earth.

329
00:23:16,440 --> 00:23:17,440
When did that happen?

330
00:23:17,440 --> 00:23:20,320
Oh, that was probably the Fed's announcement.

331
00:23:20,320 --> 00:23:29,040
This is a Treasury Board playing field.

332
00:23:29,040 --> 00:23:35,480
It just dropped off, and then it's groveling back up again here.

333
00:23:35,480 --> 00:23:43,520
That might have been some kind of hellacious portfolio adjustment back there a few days

334
00:23:43,520 --> 00:23:49,460
ago, about a week or two ago, during the Fed's latest announcements.

335
00:23:49,460 --> 00:23:55,040
But one way or the other, the thing, as you can see, there's some rather scary volatility

336
00:23:55,040 --> 00:23:56,040
there.

337
00:23:56,040 --> 00:24:03,480
So let me look at the five day, just to, oh, that thing is nasty.

338
00:24:03,480 --> 00:24:05,040
That's volatility.

339
00:24:05,040 --> 00:24:13,400
But it's going to have a beta of zero, because it's uncorrelated to the market, probably

340
00:24:13,400 --> 00:24:21,320
because this is uncorrelated with the stock market, with the market portfolio.

341
00:24:21,320 --> 00:24:25,440
That's why you need to know the formulas, because behind the formulas, you can figure

342
00:24:25,440 --> 00:24:29,320
out why the heck things do what they do sometimes.

343
00:24:29,320 --> 00:24:33,100
But there you go.

344
00:24:33,100 --> 00:24:37,440
Did you have a particular investment recommendation on this one?

345
00:24:37,440 --> 00:24:39,600
Okay, that's good.

346
00:24:39,600 --> 00:24:46,280
That's good, because I don't know, that might be something to play, but look how quiet it

347
00:24:46,280 --> 00:24:48,240
is so far this morning.

348
00:24:48,240 --> 00:24:54,140
Half a million shares against five million on the typical day over the last year.

349
00:24:54,140 --> 00:24:57,560
So it's lying low right now.

350
00:24:57,560 --> 00:25:00,840
It's being very quiet for one reason or another.

351
00:25:00,840 --> 00:25:01,840
Yeah, see it?

352
00:25:01,840 --> 00:25:04,840
Look, it's just sitting there looking stupid.

353
00:25:04,840 --> 00:25:08,400
It's not even moving anywhere right now.

354
00:25:08,400 --> 00:25:13,880
So apparently, whatever this thing, Animal, is, and I honestly have no idea, I think I'll

355
00:25:13,880 --> 00:25:19,840
research it though, it's telling me that it's sort of off the table right now.

356
00:25:19,840 --> 00:25:24,840
Someone's staying away from it, or most of the investors are kind of just, what is it

357
00:25:24,840 --> 00:25:27,840
going to do next?

358
00:25:27,840 --> 00:25:34,320
I don't know.

359
00:25:34,320 --> 00:25:41,040
I don't even know what you would do with that in a portfolio, but it's just kind of sitting

360
00:25:41,040 --> 00:25:42,400
there, has no beta.

361
00:25:42,400 --> 00:25:49,000
So I mean, if you had a high, your portfolio's beta was way above what you wanted it to be.

362
00:25:49,000 --> 00:25:52,640
You put that in it, and that'll bring the beta down.

363
00:25:52,640 --> 00:25:57,240
That's one of those things with portfolio control theory, is if you've got a beta that's

364
00:25:57,240 --> 00:26:05,920
away from where your target beta is, loading something that is of a much different beta

365
00:26:05,920 --> 00:26:15,960
will sometimes be what you need to do to calm down the activity, the high beta or low beta,

366
00:26:15,960 --> 00:26:17,920
which is above what you want.

367
00:26:17,920 --> 00:26:22,560
Anyway, let me get on to some, let me crank here for a little bit.

368
00:26:22,560 --> 00:26:29,040
This is student view of your spreadsheets, and I'm just going to go back in and finish

369
00:26:29,040 --> 00:26:30,840
up what I had done before.

370
00:26:30,840 --> 00:26:37,160
Now in case you didn't see it, in your canvas, go to files.

371
00:26:37,160 --> 00:26:48,560
I'm going to slow down here so that you can get on board with me.

372
00:26:48,560 --> 00:27:04,920
Go ahead and crank.

373
00:27:04,920 --> 00:27:14,640
Unless you are in files, I've set up a subfolder.

374
00:27:14,640 --> 00:27:15,640
Go to spreadsheets.

375
00:27:15,640 --> 00:27:19,440
You'll see that there's a subfolder called class spreadsheets.

376
00:27:19,440 --> 00:27:24,120
Those are the ones, that will be where I do one in class, and then I put it in here for

377
00:27:24,120 --> 00:27:26,860
you.

378
00:27:26,860 --> 00:27:32,500
And this will fill up, and this is sort of like an archive as we go along, and it might

379
00:27:32,500 --> 00:27:35,160
be useful to you as time goes on.

380
00:27:35,160 --> 00:27:44,880
Now up in the main folder, I have built spreadsheet templates for almost every kind of mathy type,

381
00:27:44,880 --> 00:27:49,720
quantitative, I shouldn't say mathy, quantitative type of problem there is.

382
00:27:49,720 --> 00:27:54,440
And we're going to build those together, and you're going to see how it's done.

383
00:27:54,440 --> 00:27:57,560
And this is going to strengthen you in Excel.

384
00:27:57,560 --> 00:28:04,640
Ultimately, in the long run, the reason I'm giving you the term assignment with the chat

385
00:28:04,640 --> 00:28:14,400
GPTs, a lot of what we're doing in Excel, we will be able to do with low level AIs.

386
00:28:14,400 --> 00:28:17,160
You can do with low level AIs.

387
00:28:17,160 --> 00:28:22,720
It's just going to be a matter of having the world catch up to what we're doing.

388
00:28:22,720 --> 00:28:36,480
Right now, in corporate America, there is a lot of skepticism, and a lot of misinformation,

389
00:28:36,480 --> 00:28:39,920
and lack of information about AIs.

390
00:28:39,920 --> 00:28:48,400
They could be doing things right now at insanely greater speed than they are, because they're

391
00:28:48,400 --> 00:28:51,640
still doing it in Excel.

392
00:28:51,640 --> 00:28:57,640
And you have to also understand that there is a survival kind of thing.

393
00:28:57,640 --> 00:29:07,720
All of these older corporate executives, even if they knew that the AIs, a chat GPT, that

394
00:29:07,720 --> 00:29:13,760
could be written in a matter of an hour without a whole lot of technical skill, can do anything

395
00:29:13,760 --> 00:29:20,120
that their Excel spreadsheets can do, even if they knew that, they wouldn't like it,

396
00:29:20,120 --> 00:29:25,640
and they wouldn't want you to do it that way, because that's the end of all their years

397
00:29:25,640 --> 00:29:33,840
of learning Excel, getting power in the corporation through their expertise, and all those sheets

398
00:29:33,840 --> 00:29:38,440
that they wrote, they built, they're obsolete now.

399
00:29:38,440 --> 00:29:41,680
So you think they're going to embrace AI very quickly?

400
00:29:41,680 --> 00:29:45,280
Well, they, no, no, they won't.

401
00:29:45,280 --> 00:29:51,720
They will, it'll take you guys coming into the workforce about five years to make it

402
00:29:51,720 --> 00:29:58,920
so that everything that they did, a lot of what they did, is obsolete.

403
00:29:58,920 --> 00:30:02,000
Yeah, we still go into battle with a sword.

404
00:30:02,000 --> 00:30:08,960
Well, now we've got these cannons, and then we've got now the drones, and we can do all

405
00:30:08,960 --> 00:30:09,960
that.

406
00:30:09,960 --> 00:30:11,280
Yeah, but I still like my sword.

407
00:30:11,280 --> 00:30:12,280
Okay, good.

408
00:30:12,280 --> 00:30:18,600
And also I got a Flint spear, a Flint Point spear.

409
00:30:18,600 --> 00:30:19,600
That's good too.

410
00:30:19,600 --> 00:30:20,600
I built it myself.

411
00:30:20,600 --> 00:30:22,640
You're going to get that mentality.

412
00:30:22,640 --> 00:30:23,640
We ride it.

413
00:30:23,640 --> 00:30:27,640
But you guys have got to know the frontier, but you also have to know the Excel too.

414
00:30:27,640 --> 00:30:30,480
Okay, now, class spreadsheets.

415
00:30:30,480 --> 00:30:32,960
We're going to pull up US Steel.

416
00:30:32,960 --> 00:30:34,520
Nope, that was a stupid thing.

417
00:30:34,520 --> 00:30:39,440
You don't click on it, because then it's going to show up in that idiotic window.

418
00:30:39,440 --> 00:30:42,600
You download the thing.

419
00:30:42,600 --> 00:30:43,600
There we go.

420
00:30:43,600 --> 00:30:47,200
US Steel, double click on it.

421
00:30:47,200 --> 00:30:48,200
Close.

422
00:30:48,200 --> 00:30:51,200
Enable editing.

423
00:30:51,200 --> 00:30:59,440
Now, one thing that...

424
00:30:59,440 --> 00:31:02,000
It's a plus side and a downside.

425
00:31:02,000 --> 00:31:06,880
I could do things in here, and I could teach you how to do macros, so it would make a lot

426
00:31:06,880 --> 00:31:10,600
of this go somewhat faster.

427
00:31:10,600 --> 00:31:20,960
But macros have a visual basic in them, and when you try to email one to anyone, especially

428
00:31:20,960 --> 00:31:25,640
in our university system, the university system is going to pee itself.

429
00:31:25,640 --> 00:31:28,320
Oh God, oh God, that's a macro.

430
00:31:28,320 --> 00:31:29,720
That's going to virus us.

431
00:31:29,720 --> 00:31:35,120
Well, we can do viruses a lot better than that now, but that's how it goes.

432
00:31:35,120 --> 00:31:41,120
So I could show you macros, but I won't show you macros, because then you couldn't email

433
00:31:41,120 --> 00:31:43,120
them to anyone.

434
00:31:43,120 --> 00:31:44,680
Anyway, okay.

435
00:31:44,680 --> 00:31:47,960
Now, the one that I put up here is somewhat different.

436
00:31:47,960 --> 00:31:55,160
I did a little rearranging so that I had the years in columns instead of as I had done

437
00:31:55,160 --> 00:31:56,840
it before.

438
00:31:56,840 --> 00:32:02,760
And we've gotten the free cash flow, and we saw that US Steel does have some diminishment

439
00:32:02,760 --> 00:32:05,680
of its free cash flow, and it's negative.

440
00:32:05,680 --> 00:32:11,800
However, now we want to go to the ratios, and let me get back over here into Canvas

441
00:32:11,800 --> 00:32:18,160
and pull up that ratio sheet for you.

442
00:32:18,160 --> 00:32:19,440
Financial analysis formula.

443
00:32:19,440 --> 00:32:24,800
And I'm going to download that again.

444
00:32:24,800 --> 00:32:28,480
There we go.

445
00:32:28,480 --> 00:32:29,480
Just like that.

446
00:32:29,480 --> 00:32:32,480
And we'll walk you through.

447
00:32:32,480 --> 00:32:39,480
Again, in a course like this, we can get the ratios calculated in Excel.

448
00:32:39,480 --> 00:32:41,640
A chat GPT can do it.

449
00:32:41,640 --> 00:32:47,840
I just found out that the stupid AI on my phone can tell me the ratios.

450
00:32:47,840 --> 00:32:52,320
I was driving here, and I just said, I'm not going to yell it out loud because that mindless

451
00:32:52,320 --> 00:32:54,380
thing is going to watch me.

452
00:32:54,380 --> 00:32:59,440
But I just called the name of the AI.

453
00:32:59,440 --> 00:33:04,880
They're now, the newest ones are AI when you just ask it a question.

454
00:33:04,880 --> 00:33:12,200
And I just asked it for one of the ratios for US Steel, and it spit the thing out.

455
00:33:12,200 --> 00:33:17,920
Within a couple of seconds, it gave me the most recent ratio.

456
00:33:17,920 --> 00:33:23,200
So there you are.

457
00:33:23,200 --> 00:33:25,880
I hear loud noise, and I say, oh, active shooter.

458
00:33:25,880 --> 00:33:31,440
I mean, it's a pretty bad world we live in.

459
00:33:31,440 --> 00:33:36,240
When someone comes into class late, and you're, oh, that's the end of it there.

460
00:33:36,240 --> 00:33:37,840
I guess that's that.

461
00:33:37,840 --> 00:33:42,760
God, it's a bad world we live in, especially for you guys.

462
00:33:42,760 --> 00:33:45,880
Although I have to say, I'll probably off the teacher first.

463
00:33:45,880 --> 00:33:47,160
You pissed me off.

464
00:33:47,160 --> 00:33:48,160
Bam.

465
00:33:48,160 --> 00:33:53,320
Oh, should have given him an A. Anyway, laughing through the graveyard.

466
00:33:53,320 --> 00:33:54,320
That's what that is.

467
00:33:54,320 --> 00:34:01,880
OK, look, but the focus for us is on the why in these.

468
00:34:01,880 --> 00:34:09,260
We can let low level people, the accountants do this, the calculations.

469
00:34:09,260 --> 00:34:12,780
But we then ask what went on here.

470
00:34:12,780 --> 00:34:18,560
Now there are some that are, a few of them are a pain in the ass to calculate these days

471
00:34:18,560 --> 00:34:25,560
because they are not directly in the financial statements.

472
00:34:25,560 --> 00:34:27,400
Like daily credit sales.

473
00:34:27,400 --> 00:34:34,360
That one, you can use accounts receivable divided by 360 or 365.

474
00:34:34,360 --> 00:34:38,840
Now what about 360 versus 365?

475
00:34:38,840 --> 00:34:44,080
You'll be seeing that in Excel a lot, where you have to tell it whether you want to use

476
00:34:44,080 --> 00:34:47,080
360 or 365.

477
00:34:47,080 --> 00:34:50,000
It's a toggle in a number of financial formulas.

478
00:34:50,000 --> 00:34:53,880
You use 360 for some calculations.

479
00:34:53,880 --> 00:34:57,720
You use 365 for other calculations.

480
00:34:57,720 --> 00:35:04,200
And sometimes you use both of them in the same calculation, believe it or not.

481
00:35:04,200 --> 00:35:06,640
So I'll get to that in a little while here.

482
00:35:06,640 --> 00:35:08,340
But let's crank on through.

483
00:35:08,340 --> 00:35:09,340
How far did I get?

484
00:35:09,340 --> 00:35:11,200
I think I got the liquidity ratios.

485
00:35:11,200 --> 00:35:15,100
Yeah, I got the liquidity ratios down.

486
00:35:15,100 --> 00:35:18,160
So now going back over there and seeing what's next.

487
00:35:18,160 --> 00:35:20,840
I got all the liquidity.

488
00:35:20,840 --> 00:35:22,320
Now let's do the profitability.

489
00:35:22,320 --> 00:35:25,320
I do apologize for doing these sort of out of order.

490
00:35:25,320 --> 00:35:29,800
I normally just do liquidity ratios first.

491
00:35:29,800 --> 00:35:37,680
Profitability, well, so we're going to do profitability next.

492
00:35:37,680 --> 00:35:45,600
By the way, a minor point, in learning Excel, don't format as you go along.

493
00:35:45,600 --> 00:35:49,120
Get everything done and then go back and format.

494
00:35:49,120 --> 00:35:50,120
You're slowing yourself down.

495
00:35:50,120 --> 00:35:52,280
Well, that should be a bold and that should be an italic.

496
00:35:52,280 --> 00:35:53,840
I should indent that.

497
00:35:53,840 --> 00:35:54,880
Do that later.

498
00:35:54,880 --> 00:35:55,880
Do that later.

499
00:35:55,880 --> 00:36:01,080
Okay, so now in the profitability ratios, we're going to crank through here.

500
00:36:01,080 --> 00:36:04,480
And I see gross margin, operating margin, and net margin.

501
00:36:04,480 --> 00:36:08,000
Those are the big margins.

502
00:36:08,000 --> 00:36:19,240
Gross margin, operating margin, operating margin.

503
00:36:19,240 --> 00:36:24,400
Do I have to have someone, a helper, because I can't type anymore?

504
00:36:24,400 --> 00:36:30,200
Operating margin and net margin.

505
00:36:30,200 --> 00:36:33,200
Now I want to caution you one thing.

506
00:36:33,200 --> 00:36:40,480
One of these is used in, it's just very old, saying gross margin.

507
00:36:40,480 --> 00:36:47,720
A lot of times a business will use gross margin and not be referring to the percentage.

508
00:36:47,720 --> 00:37:01,760
They'll just be referring to the after cost of goods sold divided by the, or revenues

509
00:37:01,760 --> 00:37:06,000
minus after the gross income.

510
00:37:06,000 --> 00:37:11,280
But for us, we're going to go over here, consolidated statement.

511
00:37:11,280 --> 00:37:21,120
All this one will be is your, and I didn't do it, did I?

512
00:37:21,120 --> 00:37:24,480
Let me stop here before you do anything else.

513
00:37:24,480 --> 00:37:28,920
I keep forgetting that they didn't do the gross margin.

514
00:37:28,920 --> 00:37:35,080
I'm going to go to the income statement, insert, and I apologize, I forgot about this, gross

515
00:37:35,080 --> 00:37:39,360
margin, gross income.

516
00:37:39,360 --> 00:37:54,280
And that will be nothing but equals the revenue minus the cost of goods sold.

517
00:37:54,280 --> 00:38:06,520
And then I'm going to copy it over.

518
00:38:06,520 --> 00:38:09,720
Drives me crazy that they do that.

519
00:38:09,720 --> 00:38:13,320
Okay so, now we've got it.

520
00:38:13,320 --> 00:38:19,120
So we can now go over and do the ratio.

521
00:38:19,120 --> 00:38:33,840
Gross margin is going to be your gross income divided by your cost of goods sold, your total

522
00:38:33,840 --> 00:38:35,840
revenues.

523
00:38:35,840 --> 00:38:50,440
Now that one is a percent.

524
00:38:50,440 --> 00:38:58,960
You will have house rules about how many decimal places you use.

525
00:38:58,960 --> 00:39:01,840
Some houses, four decimal places.

526
00:39:01,840 --> 00:39:03,920
Others, six.

527
00:39:03,920 --> 00:39:11,080
The typical in, the old one used to be two decimal places as a percent.

528
00:39:11,080 --> 00:39:18,920
And in the problems that I give you, if it's a percent, you round it to two decimal places.

529
00:39:18,920 --> 00:39:28,640
A minor side note, I give, depending upon the problem, I give you some leeway if you did

530
00:39:28,640 --> 00:39:31,400
a rounding error or something like that.

531
00:39:31,400 --> 00:39:39,600
So if I ask this question on a test or a quiz, then I would take any answer between 12.42

532
00:39:39,600 --> 00:39:43,520
and 12.50 as being correct.

533
00:39:43,520 --> 00:39:49,240
I wish I could make you have some partial credit for a little bit more than that, but

534
00:39:49,240 --> 00:39:52,480
Canvas doesn't let that happen.

535
00:39:52,480 --> 00:39:53,840
So keep that in mind.

536
00:39:53,840 --> 00:39:57,600
A little rounding error happens sometimes.

537
00:39:57,600 --> 00:40:00,360
So there's gross margin.

538
00:40:00,360 --> 00:40:05,760
Now take this, what does this tell us?

539
00:40:05,760 --> 00:40:14,800
This says that of every dollar the company took into the cash register, about 12.50 survived

540
00:40:14,800 --> 00:40:16,440
wholesale costs.

541
00:40:16,440 --> 00:40:19,540
Let me say that again.

542
00:40:19,540 --> 00:40:29,320
That number, 12.46%, is saying that out of every dollar that came in as revenue, once

543
00:40:29,320 --> 00:40:37,040
you'd paid the wholesale cost, you still had 12.50 cents about.

544
00:40:37,040 --> 00:40:40,000
Now that's a little surprising in a way.

545
00:40:40,000 --> 00:40:45,400
I mean, you know, that's all?

546
00:40:45,400 --> 00:40:50,120
That's not unusual for big, heavy industrial companies.

547
00:40:50,120 --> 00:40:58,800
They are so laden with things that they have to buy to get a product made that you'll see

548
00:40:58,800 --> 00:40:59,800
this.

549
00:40:59,800 --> 00:41:03,000
Now I'm going to drag some of these over here a little bit.

550
00:41:03,000 --> 00:41:12,600
I should have done that before, just so we can see some number comparisons.

551
00:41:12,600 --> 00:41:14,440
Now look at this though.

552
00:41:14,440 --> 00:41:21,040
Right off the bat, do you see that two years ago, U.S. Steel was keeping about 28 cents

553
00:41:21,040 --> 00:41:25,200
of every dollar after wholesale?

554
00:41:25,200 --> 00:41:35,160
And that has plummeted, plummeted to 12.50 cents of every dollar.

555
00:41:35,160 --> 00:41:42,200
Any problems we see with this company, we're seeing them up here at the top of the store.

556
00:41:42,200 --> 00:41:48,280
Now operating margin equals, now we're going to go back over here.

557
00:41:48,280 --> 00:42:01,640
Now this one is nothing but operating income, that's EBIT, divided by your sales.

558
00:42:01,640 --> 00:42:08,280
I really don't like the way they've got this financial, this income statement laid out.

559
00:42:08,280 --> 00:42:11,720
Hello Kitty.

560
00:42:11,720 --> 00:42:14,720
Good grief.

561
00:42:14,720 --> 00:42:22,160
What?

562
00:42:22,160 --> 00:42:33,160
Well let me tell you, by about any standard, I mean it wasn't that spectacular back there

563
00:42:33,160 --> 00:42:44,160
a couple of years ago, but now, holy Toledo, only.4 cents of every dollar of sales survived

564
00:42:44,160 --> 00:42:52,520
clear, down to the bottom, to the operating line.

565
00:42:52,520 --> 00:42:56,720
Okay well let's look at net margin, just to have a real wall.

566
00:42:56,720 --> 00:43:04,920
Equals, now we're going to go over here and we're going to get the net income, net earnings,

567
00:43:04,920 --> 00:43:07,640
divided by the sales.

568
00:43:07,640 --> 00:43:12,400
Did I even do that other one right?

569
00:43:12,400 --> 00:43:28,440
Let me do this one again, equals operating income, earnings before EBIT, divided by, oh

570
00:43:28,440 --> 00:43:33,360
thank God, I must have done something wrong there.

571
00:43:33,360 --> 00:43:37,040
Whoa, still ugly.

572
00:43:37,040 --> 00:43:46,720
Now percent, shift two decimal places.

573
00:43:46,720 --> 00:43:55,920
That's interesting, must have had some kind of tax shield protect them, but look at that,

574
00:43:55,920 --> 00:43:59,040
these are not good numbers at all.

575
00:43:59,040 --> 00:44:03,000
These are not good numbers at all.

576
00:44:03,000 --> 00:44:09,280
Now let me do the other ones here, and I will put this back up on the web once I'm finished

577
00:44:09,280 --> 00:44:14,040
today.

578
00:44:14,040 --> 00:44:20,800
Net margin, okay so now we're going to go back over, we should be getting ROE and ROI.

579
00:44:20,800 --> 00:44:26,920
Return on assets would be next.

580
00:44:26,920 --> 00:44:41,080
Return on assets, I'll just put in here return on equity.

581
00:44:41,080 --> 00:44:44,840
Now let's go back over here, return on assets.

582
00:44:44,840 --> 00:44:54,080
That's going to be, if you look at it, net earnings, net income over total assets for

583
00:44:54,080 --> 00:44:55,440
the first one.

584
00:44:55,440 --> 00:44:59,380
So we got return on assets.

585
00:44:59,380 --> 00:45:07,360
Now on this one we're going to go over here and we're going to get the total sales divided

586
00:45:07,360 --> 00:45:16,040
by, now this one we have to shoot over here to the balance sheet.

587
00:45:16,040 --> 00:45:21,280
You're beginning to see why I put those sheets all together in a cluster so I could jump

588
00:45:21,280 --> 00:45:22,280
back and forth.

589
00:45:22,280 --> 00:45:26,600
And if you can't do it as fast as I'm doing it, by all means that doesn't mean there's

590
00:45:26,600 --> 00:45:30,320
anything wrong with you.

591
00:45:30,320 --> 00:45:35,840
You'll get there.

592
00:45:35,840 --> 00:45:38,840
Let's see this one.

593
00:45:38,840 --> 00:45:41,800
Oh, that's, what?

594
00:45:41,800 --> 00:45:45,720
Let me try that again.

595
00:45:45,720 --> 00:45:49,840
Equals, oh I did the wrong number.

596
00:45:49,840 --> 00:45:53,800
Net income with an apology.

597
00:45:53,800 --> 00:45:55,920
Talking and chewing gum at the same time.

598
00:45:55,920 --> 00:46:04,600
Net earnings divided by total assets.

599
00:46:04,600 --> 00:46:05,600
That's better.

600
00:46:05,600 --> 00:46:15,560
Turning that into a percent at two decimal places and then scooting it over.

601
00:46:15,560 --> 00:46:22,600
Yep, we can't do that one because the balance sheet had only two years.

602
00:46:22,600 --> 00:46:29,000
But as you can see the return on assets has plummeted.

603
00:46:29,000 --> 00:46:32,520
Now what does that mean?

604
00:46:32,520 --> 00:46:42,360
That is telling us that if the total assets of the corporation, working assets, intangible

605
00:46:42,360 --> 00:46:51,920
assets were a portfolio and you invest in the, that was your investment, was that portfolio,

606
00:46:51,920 --> 00:47:03,160
all the assets of the company, this is what your return for the year would have been.

607
00:47:03,160 --> 00:47:12,280
Now the return on equity, you're going to go over and you're going to take net income,

608
00:47:12,280 --> 00:47:19,960
net earnings divided by the total shareholders equity.

609
00:47:19,960 --> 00:47:36,640
There's something that sucks.

610
00:47:36,640 --> 00:47:37,640
There it is.

611
00:47:37,640 --> 00:47:39,640
God I hate these.

612
00:47:39,640 --> 00:47:44,880
Yeah, these sheets are a little bit.

613
00:47:44,880 --> 00:47:45,880
Okay.

614
00:47:45,880 --> 00:47:46,880
Percent.

615
00:47:46,880 --> 00:47:56,920
Now what the return on equity tells you is the value of the company that belongs to the

616
00:47:56,920 --> 00:47:59,660
shareholders.

617
00:47:59,660 --> 00:48:01,720
What did you return?

618
00:48:01,720 --> 00:48:08,000
What did the company return on that capital?

619
00:48:08,000 --> 00:48:16,960
In other words, taking into account only what the shareholders own, the total shareholders

620
00:48:16,960 --> 00:48:24,300
equity, how much did that return last year for 2023?

621
00:48:24,300 --> 00:48:30,440
And as you can see, it has plummeted too.

622
00:48:30,440 --> 00:48:35,200
One thing that will always be true, and I'm saying this because I ask it on a quiz, I

623
00:48:35,200 --> 00:48:40,160
ask it on an exam, what...

624
00:48:40,160 --> 00:48:43,160
Okay.

625
00:48:43,160 --> 00:48:49,880
Let me frame this.

626
00:48:49,880 --> 00:48:58,440
The return on equity will always be at least as large, probably larger than the return

627
00:48:58,440 --> 00:49:01,360
on assets.

628
00:49:01,360 --> 00:49:07,960
Especially because if you look at the formulas for the two, look here.

629
00:49:07,960 --> 00:49:12,840
In return on assets, you're dividing by the total assets, which is the equity plus the

630
00:49:12,840 --> 00:49:13,840
liability.

631
00:49:13,840 --> 00:49:21,760
In the return on equity, you're dividing by only part of that, the equity part.

632
00:49:21,760 --> 00:49:31,360
So that means that return on equity will be smaller than the equity will be smaller than

633
00:49:31,360 --> 00:49:32,360
the total assets.

634
00:49:32,360 --> 00:49:36,960
The number for equity will be smaller than the number for total assets.

635
00:49:36,960 --> 00:49:42,520
And therefore, return on equity, you'll be dividing by a smaller number than you will

636
00:49:42,520 --> 00:49:46,240
be dividing by for the return on assets.

637
00:49:46,240 --> 00:49:54,000
That's why the return on assets will always be smaller than the return on equity.

638
00:49:54,000 --> 00:49:59,000
Because you're dividing the return on assets by a number that is larger than the number

639
00:49:59,000 --> 00:50:03,480
you're dividing in the return on equity.

640
00:50:03,480 --> 00:50:04,480
How much larger?

641
00:50:04,480 --> 00:50:06,760
Well, that depends on leverage, and I'll bring that up.

642
00:50:06,760 --> 00:50:09,120
Now, the dividend ratio.

643
00:50:09,120 --> 00:50:10,120
This one...

644
00:50:10,120 --> 00:50:17,760
I mean, if you've got market data, you have to go and look at what the dividend is currently,

645
00:50:17,760 --> 00:50:20,360
the current dividend for US Steel.

646
00:50:20,360 --> 00:50:23,960
And then you would divide that by net income.

647
00:50:23,960 --> 00:50:31,560
I'm going to do that, but I would not ask that of you on an exam.

648
00:50:31,560 --> 00:50:37,960
Dividend ratio.

649
00:50:37,960 --> 00:50:47,360
So for the dividend ratio, I'm going to need the dividend, the dollar dividend divided

650
00:50:47,360 --> 00:50:51,560
by the net income.

651
00:50:51,560 --> 00:51:01,760
So I'm going to just quickly run over here for just a second, go to Yahoo Finance, and

652
00:51:01,760 --> 00:51:04,560
look at US Steel very quickly.

653
00:51:04,560 --> 00:51:09,280
And again, I wouldn't ask you to do this.

654
00:51:09,280 --> 00:51:15,920
But the dividend that they just paid was 20 cents per share.

655
00:51:15,920 --> 00:51:20,400
Well, I still can't do it because I need the total number of shares outstanding.

656
00:51:20,400 --> 00:51:22,080
Well, I can do that.

657
00:51:22,080 --> 00:51:24,960
Again, though, I'm not going to ask you to do that.

658
00:51:24,960 --> 00:51:36,520
But I will say that it will equal 20 cents divided by...and then I'd have to go over

659
00:51:36,520 --> 00:51:41,480
here to the income statement and hope I have the net income per share.

660
00:51:41,480 --> 00:51:44,680
Did they do it?

661
00:51:44,680 --> 00:51:47,880
There it is.

662
00:51:47,880 --> 00:51:57,520
Now, the question is, do you use the basic or do you use fully diluted?

663
00:51:57,520 --> 00:51:58,520
Earnings per share.

664
00:51:58,520 --> 00:52:08,120
Now, the fully diluted says, if stock that has not been issued yet, all got issued, that's

665
00:52:08,120 --> 00:52:10,800
the number we would use as the divisor.

666
00:52:10,800 --> 00:52:18,080
This one, it says the number of shares that are actually outstanding right now.

667
00:52:18,080 --> 00:52:24,000
Typically we just use basic.

668
00:52:24,000 --> 00:52:32,960
So the dividend ratio as a percent is 5.08.

669
00:52:32,960 --> 00:52:35,600
Whoa.

670
00:52:35,600 --> 00:52:40,720
It's gone up.

671
00:52:40,720 --> 00:52:54,160
Now, the plow back ratio would be 1 minus that because they give 5% of every dollar

672
00:52:54,160 --> 00:53:02,960
to the shareholders, which must mean that they keep 1 minus that to plow back into the

673
00:53:02,960 --> 00:53:11,400
company.

674
00:53:11,400 --> 00:53:21,520
Again, this is just saying the net income, whatever the net income was, they gave 5%

675
00:53:21,520 --> 00:53:27,040
of it back to the shareholders this last year.

676
00:53:27,040 --> 00:53:36,720
Which means that the other 94.97%, 95%, they put back into the company on behalf of those

677
00:53:36,720 --> 00:53:41,080
shareholders to grow the company.

678
00:53:41,080 --> 00:53:47,080
That's what that's telling us.

679
00:53:47,080 --> 00:53:50,760
Now one side note here.

680
00:53:50,760 --> 00:53:55,040
If the company is losing money, you don't count, you don't do these.

681
00:53:55,040 --> 00:53:56,940
You just say NA.

682
00:53:56,940 --> 00:54:00,880
If the company had negative net earnings, you just say not applicable.

683
00:54:00,880 --> 00:54:09,240
So technically I would say if that ratio is less than zero, then NA.

684
00:54:09,240 --> 00:54:14,680
That was way too much like work.

685
00:54:14,680 --> 00:54:21,360
Okay, now enough of those.

686
00:54:21,360 --> 00:54:26,480
Going back over to the ratios, we'll do asset activity right now.

687
00:54:26,480 --> 00:54:28,960
Let's do asset average.

688
00:54:28,960 --> 00:54:34,200
Asset activity.

689
00:54:34,200 --> 00:54:36,400
Asset activity average collection period.

690
00:54:36,400 --> 00:54:52,640
We're going to do the asset activity.

691
00:54:52,640 --> 00:55:02,240
And the first what we'll do is average daily collection period.

692
00:55:02,240 --> 00:55:09,040
Is that what we call it?

693
00:55:09,040 --> 00:55:15,280
Let me look here and make sure I'm using the same terminology.

694
00:55:15,280 --> 00:55:16,280
Average collection period.

695
00:55:16,280 --> 00:55:18,080
I didn't mean daily.

696
00:55:18,080 --> 00:55:23,960
Average collection period.

697
00:55:23,960 --> 00:55:27,720
And then there's two more of these if I recall correctly.

698
00:55:27,720 --> 00:55:31,600
There is inventory turnover and total asset turnover.

699
00:55:31,600 --> 00:55:45,880
Inventory turnover and total asset turnover.

700
00:55:45,880 --> 00:55:48,160
Now the average collection period.

701
00:55:48,160 --> 00:55:55,720
If you look at this, what it's going to tell you is you take the accounts receivable and

702
00:55:55,720 --> 00:56:01,000
then you divide that by the average daily credit sales.

703
00:56:01,000 --> 00:56:10,080
The problem is that you would need total credit sales to do that one.

704
00:56:10,080 --> 00:56:16,280
And that's not going to, it used to be on the income statement, but it no longer is.

705
00:56:16,280 --> 00:56:26,200
That one is actually buried in the notes usually these days.

706
00:56:26,200 --> 00:56:32,960
So you're not going to get it by any normal means and I would never ask you about it.

707
00:56:32,960 --> 00:56:40,440
However, the next one we can do, inventory turnover, sales over inventory.

708
00:56:40,440 --> 00:56:43,440
So sales over inventory.

709
00:56:43,440 --> 00:56:46,240
I'm going to just put a couple of lines here.

710
00:56:46,240 --> 00:56:56,480
Oops, I didn't mean to do that.

711
00:56:56,480 --> 00:57:12,320
By the way, for a non-applicable pound, NA equals NA open close.

712
00:57:12,320 --> 00:57:16,320
Equals NA open close.

713
00:57:16,320 --> 00:57:19,520
Inventory turnover.

714
00:57:19,520 --> 00:57:25,160
Now again, if you look at the formula, it's sales over inventory.

715
00:57:25,160 --> 00:57:30,920
Sales, we'll go to first of all to the statement of operations.

716
00:57:30,920 --> 00:57:39,680
Sales divided by, and then we go over here to the balance sheet.

717
00:57:39,680 --> 00:57:51,240
Inventory, come on, come on.

718
00:57:51,240 --> 00:57:54,240
There it is.

719
00:57:54,240 --> 00:58:00,480
And we'll scoot that to, let's say, four decimal places.

720
00:58:00,480 --> 00:58:05,040
Whoops, didn't mean to do that.

721
00:58:05,040 --> 00:58:08,640
Well, try this again.

722
00:58:08,640 --> 00:58:12,800
Really, two would have done it.

723
00:58:12,800 --> 00:58:16,520
Well, let me do two.

724
00:58:16,520 --> 00:58:19,480
And then I'm going to copy that over.

725
00:58:19,480 --> 00:58:29,640
Now what this tells us is how many times a year the company cleared its warehouses and

726
00:58:29,640 --> 00:58:33,920
replaced what was in them with new stuff to sell.

727
00:58:33,920 --> 00:58:38,320
Let me say that again.

728
00:58:38,320 --> 00:58:40,700
You don't need to copy it word for word.

729
00:58:40,700 --> 00:58:49,480
But this is how many times in the year the company sold everything in the warehouse and

730
00:58:49,480 --> 00:58:56,080
replaced it with new stuff to sell in the warehouses.

731
00:58:56,080 --> 00:59:01,080
And as you can see, this hasn't changed too much.

732
00:59:01,080 --> 00:59:09,840
This is saying that about eight and a half times a year, or about every month and a half,

733
00:59:09,840 --> 00:59:17,200
they sold everything and replaced it with new stuff to sell.

734
00:59:17,200 --> 00:59:22,400
It has dipped a little bit, but that's not enough.

735
00:59:22,400 --> 00:59:24,320
They've slowed down.

736
00:59:24,320 --> 00:59:28,020
You see how they've slowed down a little bit?

737
00:59:28,020 --> 00:59:33,760
The turnover has gone down a little bit.

738
00:59:33,760 --> 00:59:41,940
Now you get these companies that, well first of all, service companies, you really can't

739
00:59:41,940 --> 00:59:44,280
talk about inventory turnover.

740
00:59:44,280 --> 00:59:50,720
But if it's a manufacturing company, you'll see an inventory turnover ratio.

741
00:59:50,720 --> 00:59:57,800
And it simply says how efficiently is this company working?

742
00:59:57,800 --> 01:00:02,720
And as I told you, it's great when that number goes up.

743
01:00:02,720 --> 01:00:06,840
You don't need as much warehouse space because you're getting rid of everything, just replacing

744
01:00:06,840 --> 01:00:08,960
it as fast as you can.

745
01:00:08,960 --> 01:00:15,000
That's wonderful until you get a supply chain choke, which happened when all these companies

746
01:00:15,000 --> 01:00:20,680
had been so obsessed for decades with getting that inventory turnover ratio up there.

747
01:00:20,680 --> 01:00:23,960
In other words, clear it out of the warehouse, order more.

748
01:00:23,960 --> 01:00:26,200
Clear it out of the warehouse, order more.

749
01:00:26,200 --> 01:00:30,360
And then suddenly where they ordered it from said, we can't get it.

750
01:00:30,360 --> 01:00:31,360
You're stocked out.

751
01:00:31,360 --> 01:00:32,600
You're done.

752
01:00:32,600 --> 01:00:34,440
That's the downside.

753
01:00:34,440 --> 01:00:40,520
The upside of increasing the inventory turnover ratio is you don't have as much cost of warehouse

754
01:00:40,520 --> 01:00:41,840
space.

755
01:00:41,840 --> 01:00:48,920
The opportunity cost of the warehouse space and the lighting and all that and the security,

756
01:00:48,920 --> 01:00:54,520
it goes down as your inventory turnover ratio goes up.

757
01:00:54,520 --> 01:00:56,200
But there is that downside to it.

758
01:00:56,200 --> 01:00:58,600
Now total asset turnover.

759
01:00:58,600 --> 01:01:06,600
Again, like the company is one giant value, product.

760
01:01:06,600 --> 01:01:08,720
How many times over did you do that?

761
01:01:08,720 --> 01:01:14,140
Did you actually clear that value and then renew it in a given year?

762
01:01:14,140 --> 01:01:24,560
So you would have in that one equals the, consolidated sales, equals the total sales

763
01:01:24,560 --> 01:01:30,480
divided by the total assets of the company.

764
01:01:30,480 --> 01:01:46,620
We'll make that one two decimal places and then we'll scoot it over.

765
01:01:46,620 --> 01:01:48,760
So they really slowed down.

766
01:01:48,760 --> 01:01:55,760
And if I've noticed right, US Steel did put in a lot of new assets.

767
01:01:55,760 --> 01:02:00,360
So there would have been a lot more value to turn over.

768
01:02:00,360 --> 01:02:06,020
So that could explain why this one dropped so much compared to the inventory turnover.

769
01:02:06,020 --> 01:02:09,320
Because here all you're doing is turning over the inventory.

770
01:02:09,320 --> 01:02:14,160
Here you're turning over the whole company.

771
01:02:14,160 --> 01:02:22,400
In the case like US Steel, if we look back to the balance sheet, do you see how their

772
01:02:22,400 --> 01:02:25,880
property plant and equipment went up?

773
01:02:25,880 --> 01:02:28,840
They'd have more that they'd have to clear out.

774
01:02:28,840 --> 01:02:35,040
You notice how there's almost like a puzzle going on here.

775
01:02:35,040 --> 01:02:40,280
These numbers are telling us a story, but we've got to figure out what the story is that they're

776
01:02:40,280 --> 01:02:46,560
telling us.

777
01:02:46,560 --> 01:02:52,920
Okay.

778
01:02:52,920 --> 01:02:54,920
Okay here we go.

779
01:02:54,920 --> 01:02:57,000
Price to earnings ratio.

780
01:02:57,000 --> 01:03:02,040
That's the price per share divided by the earnings per share.

781
01:03:02,040 --> 01:03:09,880
Now neither of those is going to be, those are, okay let me write this down here.

782
01:03:09,880 --> 01:03:11,160
Prices.

783
01:03:11,160 --> 01:03:36,280
Now the market ratios, price to earnings and market to book.

784
01:03:36,280 --> 01:03:45,120
Okay so the price to earnings, those are unfortunately you'd have to get the market price divided

785
01:03:45,120 --> 01:03:47,600
by the earnings per share.

786
01:03:47,600 --> 01:03:50,240
And that's hard for, we can do it.

787
01:03:50,240 --> 01:03:53,460
We can get the price divided by the earnings per share.

788
01:03:53,460 --> 01:04:05,440
If you go over here to Yahoo, Yahoo Finance, I can get the price per share, which is $46.31,

789
01:04:05,440 --> 01:04:22,080
equals $46.31 divided by, going back there and finding their earnings per share at their

790
01:04:22,080 --> 01:04:34,520
last report, is $3.56.

791
01:04:34,520 --> 01:04:38,360
Now this will not be the same number that Yahoo is reporting.

792
01:04:38,360 --> 01:04:42,480
And the reason is simple.

793
01:04:42,480 --> 01:04:48,000
Because the EPS that they're going to use is not the same one that's this old one, stale

794
01:04:48,000 --> 01:04:52,960
one that's in their financial statements for the end of last year.

795
01:04:52,960 --> 01:04:58,320
So it's going to be, it's almost not worth it to try to calculate these in a traditional

796
01:04:58,320 --> 01:05:00,560
ratio manner.

797
01:05:00,560 --> 01:05:03,440
Just get them from a service.

798
01:05:03,440 --> 01:05:11,040
However, the market to book is very interesting.

799
01:05:11,040 --> 01:05:24,400
In your textbook, they give you a ratio, in another chapter, they give you a market value

800
01:05:24,400 --> 01:05:28,260
and an enterprise value.

801
01:05:28,260 --> 01:05:34,800
Now the one that they teach you is take the market value of the company minus the book

802
01:05:34,800 --> 01:05:37,800
value of the company.

803
01:05:37,800 --> 01:05:45,200
You don't want to do that because the companies that are worth a billion, you couldn't compare

804
01:05:45,200 --> 01:05:48,520
with the companies that are worth a million.

805
01:05:48,520 --> 01:05:51,400
The way we do it is this.

806
01:05:51,400 --> 01:05:53,080
Market to book.

807
01:05:53,080 --> 01:06:03,280
We're going to go first of all equals to the market cap of the company.

808
01:06:03,280 --> 01:06:06,480
That we get here.

809
01:06:06,480 --> 01:06:13,800
The market capitalization of the company is 10,377,000,000.

810
01:06:13,800 --> 01:06:17,400
So I'm going to put that in first.

811
01:06:17,400 --> 01:06:25,960
10,377,000,000.

812
01:06:25,960 --> 01:06:31,040
Now you've got to be careful with this calculation because the balance sheet might not have it

813
01:06:31,040 --> 01:06:34,360
in the same units.

814
01:06:34,360 --> 01:06:35,840
So I want to divide that.

815
01:06:35,840 --> 01:06:42,360
I'm going to go over here to the balance sheet and then go down here to the total shareholders

816
01:06:42,360 --> 01:06:43,360
equity.

817
01:06:43,360 --> 01:06:48,560
But I've got to make sure that that is also going to be reported in millions.

818
01:06:48,560 --> 01:06:49,560
There it is.

819
01:06:49,560 --> 01:06:50,800
So it is reported in millions.

820
01:06:50,800 --> 01:06:53,680
So I can go ahead and write this.

821
01:06:53,680 --> 01:06:58,160
Where the hell is that thing?

822
01:06:58,160 --> 01:06:59,160
That right there.

823
01:06:59,160 --> 01:07:00,160
There it is.

824
01:07:00,160 --> 01:07:04,760
Total United States Steel Stockholders Equity.

825
01:07:04,760 --> 01:07:09,600
Shit.

826
01:07:09,600 --> 01:07:13,960
That's not good at all.

827
01:07:13,960 --> 01:07:19,280
Let me make sure that was reported in billions.

828
01:07:19,280 --> 01:07:21,160
Yep.

829
01:07:21,160 --> 01:07:23,840
10,377,000,000.

830
01:07:23,840 --> 01:07:28,280
Now let me go back over here to the balance sheet.

831
01:07:28,280 --> 01:07:29,280
Whoops.

832
01:07:29,280 --> 01:07:37,400
Didn't mean to do that.

833
01:07:37,400 --> 01:07:52,240
It's being reported in millions, so it's 10,777,000,000 divided by the total stockholders equity.

834
01:07:52,240 --> 01:07:57,840
11.

835
01:07:57,840 --> 01:08:00,360
So it's 10 divided by 11.

836
01:08:00,360 --> 01:08:02,520
Oh, that's grim.

837
01:08:02,520 --> 01:08:06,520
Let me explain.

838
01:08:06,520 --> 01:08:21,480
Sir, I had told you this before and you didn't believe me, but you are my son.

839
01:08:21,480 --> 01:08:25,200
Join me or die.

840
01:08:25,200 --> 01:08:26,200
No.

841
01:08:26,200 --> 01:08:27,200
Sorry.

842
01:08:27,200 --> 01:08:32,120
Now I put in, I've got receipts.

843
01:08:32,120 --> 01:08:43,520
I put in a quarter of a million dollars to create this adult.

844
01:08:43,520 --> 01:08:50,680
But now I'm doing the calculation for actuarial purposes to see what your true market value

845
01:08:50,680 --> 01:08:51,880
is.

846
01:08:51,880 --> 01:08:56,400
The present value of your future expected earnings.

847
01:08:56,400 --> 01:09:03,960
And it comes out to be $5 million.

848
01:09:03,960 --> 01:09:13,960
So in other words, the market to book would be $5 million divided by 250,000 or 20.

849
01:09:13,960 --> 01:09:15,580
That's a measure.

850
01:09:15,580 --> 01:09:21,360
How much did you become from what I put in?

851
01:09:21,360 --> 01:09:23,360
That's what market to book does.

852
01:09:23,360 --> 01:09:31,800
Normally we'll see these anywhere from maybe 5 to 50 to 100 in some cases.

853
01:09:31,800 --> 01:09:36,960
In other words, the company has turned the actual physical money that shareholders gave

854
01:09:36,960 --> 01:09:41,160
it and the money that was belonging to the shareholders after all bills had been paid,

855
01:09:41,160 --> 01:09:43,960
retained earnings over the years.

856
01:09:43,960 --> 01:09:54,040
In this case, the company has done nothing other than almost retain the value of what

857
01:09:54,040 --> 01:09:57,800
was put in.

858
01:09:57,800 --> 01:09:59,760
That's not good at all.

859
01:09:59,760 --> 01:10:04,880
This company has not done jack with all of the money.

860
01:10:04,880 --> 01:10:08,280
See the total shareholders equity is an accounting number.

861
01:10:08,280 --> 01:10:09,720
No question about that.

862
01:10:09,720 --> 01:10:16,680
What it does tell us, stockholders bought stock, they put it into the company, the company

863
01:10:16,680 --> 01:10:20,880
earned money, paid its bills and what was left belonged to the shareholders.

864
01:10:20,880 --> 01:10:25,880
You put those two together, that's what that accounting number, total shareholders equity

865
01:10:25,880 --> 01:10:26,880
is.

866
01:10:26,880 --> 01:10:31,280
It's the actual count of those dollars.

867
01:10:31,280 --> 01:10:33,480
And what have they done with those?

868
01:10:33,480 --> 01:10:42,920
According to the market value, they haven't done anything but barely keep the money that

869
01:10:42,920 --> 01:10:46,840
was invested by the owners.

870
01:10:46,840 --> 01:10:50,640
So in this case, that number just sucks.

871
01:10:50,640 --> 01:10:51,880
But that is an important number.

872
01:10:51,880 --> 01:10:56,360
It's one of those numbers that you'll hear almost any analyst somewhere along the line

873
01:10:56,360 --> 01:10:58,960
will say, well, market to book is.

874
01:10:58,960 --> 01:11:05,320
And the higher it is, the more value that company has created from every dollar that

875
01:11:05,320 --> 01:11:11,760
shareholders contributed, either through buying the stock or not getting dividends.

876
01:11:11,760 --> 01:11:14,420
So that the company plowed it back into operations.

877
01:11:14,420 --> 01:11:19,520
In this case, US tail is just sitting there looking stupid with that money.

878
01:11:19,520 --> 01:11:28,680
You go to a bank, you put in $10,000 and the bank says, well, we've got $930,000.

879
01:11:28,680 --> 01:11:34,280
That's $9,393.50 now.

880
01:11:34,280 --> 01:11:35,280
That's what that's saying.

881
01:11:35,280 --> 01:11:39,320
And that's a bank that you wouldn't want to be in business with.

882
01:11:39,320 --> 01:11:40,880
That's grim.

883
01:11:40,880 --> 01:11:45,640
And the year prior, it was a little better, but that still sucked.

884
01:11:45,640 --> 01:11:47,200
This is an ancient company.

885
01:11:47,200 --> 01:11:52,440
It should have market to book of at least 20.

886
01:11:52,440 --> 01:11:54,560
And yet here it is sitting here looking stupid.

887
01:11:54,560 --> 01:11:58,880
Well, we kind of kept almost all of it that was put in.

888
01:11:58,880 --> 01:12:07,880
So that's why this number is actually kind of important in a transcendent way among ratios.

889
01:12:07,880 --> 01:12:11,800
It's a long haul number.

890
01:12:11,800 --> 01:12:12,800
I'm done with you.

891
01:12:12,800 --> 01:12:28,440
I'm going home.