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Alan Cring Productions in association with the 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 review for the midterm exam and that will be coming up here. We'll have a

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quick look at the numbers simply because that's part of the review for the exam.

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As always we have a look at them and so this kind of information will be tested

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on the exam and then we'll get down to the other parts of the exam. But as you

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can see... what the heck? Oh I saw green there. This is definitely not a green day.

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Oh yeah. No it's on Wednesday. It's in the calendar. Would you like to see it?

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Hang on. Let's make sure that we have it here. Down here the calendar review day.

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Yeah the fourth and the exam day is on the sixth. You had me a little freaked

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there. Yeah and it's in the syllabus here. Let's look at the syllabus to make sure

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that it's right there too. Yeah fourth is the review day and the six is the... were

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you expecting to have the exam today? Don't do they tell everything to sit

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back and relax? But I've got to make sure because I've got the exam up here on one

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of the tabs and I don't want to pop that up for you. I have done that accidentally

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in the past. I was reviewing and there was the exam on the overhead. Boy people

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were paying attention. I mean okay if I kill this yes we're okay. It is a

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definitely a bear market remember? Bear bull. Just to remind you of that. And we

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definitely have a negative day. However it is not something spectacular at all.

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It's just a little bit on the grouchy side and that has been persisting from

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last week. Just this overall we're not happy. We don't know why we're not happy

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kind of thing. We did have something of a concern about the inflation data. It

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wasn't down the way we would like to have had it down. So the Fed is

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definitely not going to be cutting interest rates in the foreseeable future.

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That's just that. We just have to live with it. But we also have a few

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other things that are a little bit concerning at this point. But right now

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we have the there is a bear on the equity side but as you can see the at

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least the S&P 500 has been trying to fight its way back up from initially

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being down. And so and the Dow is trying to crawl back up. The Nasdaq is just

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really down but it seemed to turn the corner in the last 10 minutes or so. Now

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here's one of our concerns is that crude has crossed that line of 79. It was in

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that band from 72 to 79 but it has been on the upside of that band for some time.

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And as I had said last week that could just be the the weather is

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going to moderate except out in California. And so there will be more

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driving and deliveries. We'll use the diesel and people driving from here to

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there will be using gasoline. So it might just be a demand for the oil kind of a

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situation and not something that's going on in other parts of the world. I keep

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one of the problems is that when you've got trying to keep your finger on the

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pulse of these oil markets everyone's got a rumor. Oh there's going to be a war

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next week or no they're all going to hug and kiss and it'll all be a but the

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rumors of war right there huh and so that might be spooking the markets a

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little bit why it's it's playing right up there at that 79 level. It's not

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skyrocketing though so there's good news there. Now pawing over here to gold, gold

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spiked. I mean it's up there at 210, 2110 and that's a that's of concern to us

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because these are the gold freaks and they think that something bad is going

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to happen and they're being joined by what might be a bit cooler heads also

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grabbing up some metal just in case things go really sideways over the next

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few weeks or months and the 10-year bond they the yield is up. That means that the

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price is down. The price is down that means there's a sell-off in the bond

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market. There's a sell-off over here. Here's what worries me is that there's a

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sell-off in the equities. You've also got a sell-off in the bond market. That's why

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the yields are up is because the prices are down because the supply of the bonds

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on the open market is increasing. So we have that little issue right there. So

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but the yield is up and that is a rather modest four and a half basis points.

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Nothing to really get excited about but still it's and that is largely well

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maybe not largely but that is at least to some extent because now there is no

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one who believes the Fed is going to cut interest rates anymore. We're going to

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see the Fed at best hold interest rates where they are. So the expectation that

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was there before that the Fed will do a modest rate cut that has evaporated and

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with that expectation changing you have the dynamics of buying and selling of

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bonds changing. So now we don't want those bonds anymore and so the yields

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are going to go up. And running over here to Tokyo had a good morning and that

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would have been again late last night last night. I had a good morning and then

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it's the earlier morning and then it just kind of slowly slid down. There was a

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little bit of a rally there at the end but not much. Now London which I believe

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is still trading right now it's it's just been it's had a just a bad day and

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down two-thirds of a percent that's not horrible but it's certainly it's

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certainly indication that bearish sentiment is on the other side of the

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big pond the Atlantic and that it was over here too some crabby. See how we

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started out all the markets started out right off the at the bell they were down

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and then they've spent the rest of the day trying to crawl back up. Well the

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NASDAQ just doesn't want to do anything right now. Now just one of the one part

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of the review is I'm going to show you I'm going to present for you a screen.

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Anyone got stock? Now you know better than to say Tesla. P-H-U-N. Ph-U-N.

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Fun? No. N. Fun? Well I'm into that. What the hell? Good! What the hell do you see these after or do you know this is

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going to happen? No. Okay. I wish. Yeah right look at that it's up almost a hundred

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percent from starting out the previous close was seven dollars and eight cents

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and right now it's trading at thirteen dollars and seventy seven cents. What do

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they do? Okay well let's get a couple of things down. I'll give you a screen and

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I'll ask you okay you're going to sell a round lot or you're going to buy a round

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lot. Now do you remember what a round lot is? A round lot is a hundred shares okay.

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So I'm not going to tell you a hundred shares and so I'll maybe come up here

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and say what do you mean by a round lot? I will eat your backside and that means

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I don't have to pay for dinner. But yeah okay if you were to sell a round lot

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would you pay or would you receive? That's the first thing I would ask. Well

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if you sell you're going to receive. Now you have to look I'll give you a bunch

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of possibilities. Are you going to receive $1,360? Are you going to receive

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$1,668 or are you going to receive $1,600 I should say $73? I will give it to you

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all all those different ways. You will receive or you will pay and I will use

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that number at the top and I will use the bid and I will use the ask. In this

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case yes yes absolutely a you it says you are going to sell so if you're

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selling you're going to receive and it's going to be the bid 16 so you will

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receive $1,668. I'm basically telling you what I'll ask but it won't be this

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stock idea I go for things that are pretty reliable. Okay now one thing on

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this one but and I could do it together you buy you go long one round lot go

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long means you buy and a round lot is a hundred and if you are buying you will

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pay and it's and you would go for the ask so in the case of going long a round

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lot you would pay $1,673.

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Now the next thing I would ask is okay I'll give you three parts is this stock

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less risky than the market about the same risk as the market or more risky

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than the market and if you look at this one what say you much more risky risky

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AF this is a 2.41 beta now in this case there is no PE ratio why is there no PE

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ratio that's important to know why is there no PE ratio

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it's not it's got negative earnings there's no such thing as a PE ratio of

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the earnings are negative make sure you understand why a PE ratio wouldn't be

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presented it would be the reason would be that the stock is selling it the

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company is in the hole it has negative earnings see those earnings those are

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not just negative those are ludicrously negative they are lose that right now

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they're losing $18.50 a share in earnings that would be total or net

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earning that would be net earnings divided by shares outstanding and the

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beta of the stock is up there in the stratosphere so you have got one of the

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riskiest stocks you could imagine and of course greater risk means the possibility

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the expectation of a greater return and here you have it's in spades this thing

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is up there in the sky now a smart investor is should you buy the stock

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right now give me a give me an yes or no what do you say absolutely not it's

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already got its it's had its fun whatever the information was that's

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already there and it's going to start to skid downward from here because it is a

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risky AF stock and it's the negative got negative earnings it is so its earnings

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are so low you could play handball on the curb with those earnings so it

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doesn't pay a dividend either so those are the questions that I would ask it

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won't be too numerical but I will want you to be able to look at a stock screen

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and I just do a screenshot of one of a stock and then I ask you a battery of

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questions about it I think I asked like three or four questions so taking that

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aside let's get down to the meat of the matter I'm going to mute this so that I

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don't have and that was another thing too the mute used to last five minutes

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and that was why it was showing up on the screen when I was looking at the

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exam itself well actually I guess I could just put the exam up here for you

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to see yeah that's it fat boy just put that up there okay now it is numerically

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36 questions however there are two matching sections to it now I do

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matching because I usually have more success with everyone acing that but of

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course matching can go sideways now understand that the two matching

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sections have distractors in other words there are more possible answers than

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there are matches the left side might have five but your possible matches

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might be eight or ten so is I know right you look at me like you asshole yeah

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that's right and those are called distractors and just no okay let me go

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through the exam and but first okay again you are permitted one four by six

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inch note card front and back you are also permitted to have your financial

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analysis formula sheet that it's in your files folder in canvas you can use a

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calculator as you wish financial or whatever what have you if you have

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Excel you better use it because that there will be one template the present

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value and internal rate of return of present value and future values of

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present values and future values spreadsheet it should be able to do almost

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all of them of the math you could also use it of course there's there are a

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couple one specifically that's not on the template I will ask you to find a

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net operating working capital and that's not a template but that's just the

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current periods current assets minus current liabilities minus the previous

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periods current assets minus current liabilities but I will ask that I'll

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give you the numbers straight off that operating working capital current assets

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minus current liabilities right so you take the current periods net operating

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working capital minus the previous periods net operating working capital I

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won't have you calculate a full-blown free cash flow on the final I will but on

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this one the the one where it's the easiest to screw up is on the change in

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net operating working capital but that would be about the extent of the math

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that you couldn't do with the templates but for God's sake on the templates I

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couldn't figure out why so many people got the wrong answer on the quiz and

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they all got this a similar wrong answer and then I tracked it back it was because

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many of you forgot to put change the interest rate that was in the template

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you'll have to change you have to go through the problem and look at

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everything that has to be put in there there are already numbers there but

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you'll probably have to change at least some of those numbers to reflect the

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problem watch that you have plenty of time to get through this don't rush and

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you'll have a time to go back and check your answers be careful about

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second-guessing now as far as the layout of the exam oh and you can use if you've

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got a chat that you can give a shot at by all means you can try to use a chat

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GPT to do it I would caution you though because it I will tell you really tested

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it it could lie to you sort of like having a significant other dude it

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wasn't that I lied I just sort of changed exactly the location of where I

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was instead of with her anyway let's keep going here moving along multiple

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choice are a biggie on it now some of them there is more than one the check

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box you have to check so make sure that you go through and catch anything which

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of the following is or are correct mark them it could be that there is only one

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that's correct but it could be more that there's more than one watch out for the

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ones which of the following is false we do know from a long history of studies

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that people tend to have more problem getting all the right getting the right

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answers if you're looking for what's false that if you're looking for what's

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true just watch yourself there are some where which of the following is or are

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false there will be both kinds there will also be a few true or false three

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or four now as far as one of your study guides definitely and this is your study

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guide what you're writing down here is your study guide aside from the

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ambitions of my teaching assistant who has prepared one for you a written up

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one as well so you might want to come and visit him to go and visit him in his

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office hours for that but this is your study guide so follow what I'm saying

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carefully here there are I is it also your quizzes are a great guide to study

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because there are questions on here that I have copied and pasted from the quizzes

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yes is it three not open okay you're training it okay yeah well let me figure

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out why sometimes I get it right and sometimes I don't get it right give me a

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second here while I'm sitting instead of sitting on my fat ass here why don't I

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do that quizzes quiz three you say quiz three let me see if I can do that way

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you can tell me right here now and it

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um

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it should be showing the right answers is it showing them for two one and two I

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don't remember smoking crack this morning once

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can you see that you got the wrong answer yes okay I know why I did because

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I had all those tracks students in track that I had to give a makeup to so I

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didn't do it okay give it a second here okay look at it now refresh and look at

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it okay yeah I couldn't show any correct answers because they were doing a makeup

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when they got back from their track meet and the gymnastics none of you are in

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track or gymnastics I don't think maybe someone else do I look like it I mean

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some of those people the way they do things it makes my my old body hurt more

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might be too much of being in the service okay now let me okay um yeah the

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quizzes are definitely a study guide the podcasts are an outstanding study guide

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because you will find that the notes that you take are going to have are

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going to have a lot missing in them especially from the first few weeks of

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lecture because there is a there is a learning curve to taking notes in a

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especially in a class like fil 190 and your notes will have be more complete

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later yes yeah RSS calm go there damn boy no no let me show you something here

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give me a second I'll show you yeah yeah if you could you know that would be

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weird could you imagine a chat GPT that had my personality

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oh that would be really pathetic okay let me show you this there's an

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announcement I sent out lecture podcasts now the RSS episodes this is running

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transcripts of the lectures so if you go to RSS episodes what you want to do is

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you don't click on the play click on this and then click transcript and

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you'll see it will play it as you're watching as you're reading the

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transcript and it's outstanding it's costly as hell for me to do this but

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it's it the only thing it misspells is my name and that just pisses me off I

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have to go back in and edit it I think it does that on purpose but if you play

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the transcript play it on the transcript then I mean you've got

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everything I said down to the cuss words matter of fact it doesn't edit them

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YouTube is also doing this with my podcast but it has flagged all almost

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every one of them as adults only because I said nasty were bad words it actually

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I think they deleted the one out where I talked about Lyndon Johnson but yeah you

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can get the word-for-word transcript of my podcast down that way huh well just

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go over here I in the announcements yeah there this is the core that started it

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all about 15 16 years ago is my own right there this weird-ass site and you

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can play them from there it's in your native and then you can also Apple has

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got my podcast too and Apple iTunes has had my podcast a long long time this was

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what these were the one of the first education podcasts iTunes ever did ever

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accepted so anyway those are all available for you and I do this for you

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why because I care no I don't I just don't want to hear you yeah okay let me

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go through that again 36 questions and but some of them are matching or their

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multiple answer within the question so total with the matching puts you at 43

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or 44 I can't remember which one but then the ones where you'll have a whole

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sentence and there will be drop-down menus of choices for certain words

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within the sentence so you'll have those drop-downs there won't be any this time

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where you have to show me how bad your spelling is where you have to type in an

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answer I learned but anyway yeah so total if you take all that into

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consideration and these points go from two two and a half points two points and

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then there are some one point questions as well

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I try to shape it so that the ones that are level one and two are more likely to

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be the high value points two two and a half or two points and the ones that are

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my level threes I try to shape those more toward one and a half to one point

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okay or two point I'm sorry to one or two points the ones that are easier are

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two to two and a half points the harder they get they're more likely they are to

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be a two or a one point know your definitions definitions all over the

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place you've had so far about 50 to 55 words or terms that are either new or

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they're special definitions that are technical for this field and if I've

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given you the definition it is correct if you try to find it on wikistupedia

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or something like that I've set it up so that you can find that answer and that's

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where you have to watch out for chats because they're going to run right to

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Wikipedia and Wikipedia is a catastrophe of bad information it's a vast ocean of

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nonsense so be careful say words like liquidity bull bear investment bank

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financial intermediation words like that capital money spot forward all of those

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kinds of words primary secondary form 10k form 8k

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so make sure that you know those now ratios you will not calculate any

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ratios however you must know ratios the first thing you need to know is the

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side relative sizes which would be bigger the acid test or the burn ratio

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which would be bigger ROA or ROI

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inventory turnover versus asset turnover those kinds of know which what the size

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and that means you have to look at the formula for it and determine what is

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changing is it the numerator or the denominator if two ratios only differ by

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the denominator you know that the one that would have the bigger denominator

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would be the smaller ratio

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you would also have to know some numbers current ratio can a current ratio be

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negative no can net margin be negative yes can your inventory turnover ratio be

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negative I sure hope not so make sure that you you don't need to know exact

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numbers but you know have to know what numbers are possible and in some cases

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what number would scare the hell out of you if you saw it well net margin that's

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negative well that's a bad sign because that means net income is negative it's

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an unprofitable corporation

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market to book well we certainly would hope that it's bigger than one but we'd

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like to see it a lot bigger than one so there is a little bit of that I'm not

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doing a lot of this but there's a little bit of where I'm having you think about

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it and determine yeah this ratio happens but this is not a good thing I don't do

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a lot of that in this test but there's a little bit of it where I'm having you

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reach beyond just the technical values that could happen oh mothers going back

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to definitions but what's a stockholder what kind of companies can have stock

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what kinds of companies would not be allowed to have stock who has the prior

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claim who has the residual claim that's such a fundamental concept and it that

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should be in business 100 something about that but Lord knows people besides

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me teach it so they don't teach it the way as well as I do I went through what

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did I say I primary market secondary markets know your form 10s and your form

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eighth and a little bit I don't go deeply into the 10k or the 10q or the

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8k but you need to know what those are at this point you're early on in your

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finance as you gain momentum with slater courses these will become more familiar

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to you and you'll but I want to make sure you know what resources are the go-to

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as far as free cash flow goes know what what items on your balance sheet changes

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and items on the balance sheet have what effect so if I said accounts

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receivable in increase what effect would that have well that would draw down your

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free cash flow because not as much revenue was cash you're giving out credit

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I gave you a table of that current assets go up free cash flow goes down

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current liabilities go up free cash flow goes up make sure you know that table it

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wouldn't hurt for you to have that in a little tiny corner on your note card and

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for God's sake don't make your note card so small you can't read it I have these

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geniuses who do all their notes on a sheet of paper and then they reduce it

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to a four by six and then they can't read what they put on it what is a an

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exchange versus what is an index I told you there's a very easy way to tell the

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difference between them it's you have a number if it's an index you'll see a

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number associated with like FTSE 100 now in that same regard in that same regard

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make sure you know how to tell whether a stock is on the NASDAQ or on some other

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exchange like you just gave me phum where what exchange would that be on yeah

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absolutely four letters but if I told you K or GM or LMT that would most

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likely be a New York Stock Exchange stock and then YSE stock and if you're

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looking at a screen a stock screen quickly look back let me show you

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something I know you don't I'm not going to turn out until I got that

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I just put up LMT

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now that is not notice here do you see this don't be fooled by seeing the

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NASDAQ right there see NASDAQ you don't what the hell

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there it is yeah see NAS see right here it actually says NASDAQ this is not a

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NASDAQ stock NASDAQ just quotes everything if you look it's LMT that's

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New York Stock Exchange and it even says NYSE right there so you know that it's

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an NYSE stock now once in a while you'll see something that's weird but

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we'll ignore that for the time being but

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okay get that off there let me go through keep going

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present values and future values obviously I'm going to ask you to find

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the present value of a cash flow and the future value of a cash flow

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yikes

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almost it fortunately those were all one thing that I should emphasize though is

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that I'll also ask you about relative values the present value versus the

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future value I'll also ask you what happens to a present value of an annuity

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if the discount rate goes down or if the discount rate goes up what happens to a

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future value of an annuity if the discount rate if the compounding rate

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goes up or the compounding rate goes down

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now interest rates know what the two parts of the risk-free rate are and what

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the parts of the risk premium are make sure you know those well I'm thinking

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about it I gave you the story of the interest rate history from about 1960

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until early 1980s make sure you know a what each president faced what was the

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big thing that I talked about for each of those presidents Eisenhower Kennedy

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Johnson Nixon Ford Carter Reagan there would be a key word that would define

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why why interest rates behave the way they did during each of those

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presidencies so it's important that you know because that is just matching bait

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just matching the president with the word or the term for that was big

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obviously now I'm not going to beat you up with bonds because we just did the

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intro part of it but I would certainly want you to know the relationship

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between a broad bond price and a bond yield would certainly want you to know

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that

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and I would want you to know the difference between a bill a note and a

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bond certainly wants you to know that

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what else yeah beyond that just some relative concepts about bonds nothing

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heavy-duty at all about them I say that until after the midterm we hit that one

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the first class after the after we get back when we get back

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let me do something here okay the numericals for the most part are at the

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end of the exam that keeps you from grinding out blowing a lot of time on

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those when you could get more points just getting to that area I'll ask you

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for the present value of an annuity I'll ask you for the future value of an

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annuity I will ask you for a loan payment

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I will ask you for an annualized rate of return that's that extra spreadsheet

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make sure you download the latest version of that present and future

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values because it's in that there's a second worksheet called annualization or

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annualizing I'm sorry that if you put in the numbers you should be able to get it

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right away easily I will as I said a net operating working capital problem

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so that's five that are worth you knowing

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you go back through

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you go back through here

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concerning corporations there are two there are two different actions that a

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company can do with pause positive net earnings make sure you know that what the

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two if a company has profit it can do two different things or a combination of

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those with that profit now remember if it's profit it belongs to the

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shareholders the the debt holders have been paid in a timely manner whatever

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they were due for the current period so there's money left over that money

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00:42:53,440 --> 00:42:58,240
left over belongs to the shareholders what are the two things that a company

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00:42:58,240 --> 00:43:05,040
can do a corporation can do with that money that it has left over it belongs

363
00:43:05,040 --> 00:43:27,480
to shareholders it can do two things make sure you know those two things

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a little bit about make sure that you understand at least the outline of what

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beta is what is it telling us

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also PE ratio what does that kind of tell us

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as far as stock goes make sure you know the difference between the market value

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or market price and the intrinsic value or the intrinsic price

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now as far as securities go I talked about stocks I talked about bonds I

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talked about ETFs and mutual funds so make sure you understand that what those

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are stock represents ownership bonds represent loans to the corporation they

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these trade on exchanges but there are also other animals that trade on

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exchanges as well among those are mutual funds and ETFs ADRs also trade I haven't

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did I even I didn't ask this on the test did I bring up what ADRs are American

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depository receipts essentially a foreign company foreign it's not yeah

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it's not incorporating the United States say a Japanese company a big one it

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could actually have a security that is a mirror image of its actual stock but

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that security called an American depository receipt an ADR will trade

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here it can't trade so in other words you can't directly buy that Japanese

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00:45:37,720 --> 00:45:42,800
company stock but you can buy what is essentially like a mirror image of it it

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does the same things but I didn't bring those up but I did bring up ETFs and

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mutual funds so make sure you know what those are

383
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let's see what else I've got here few last

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yeah I went through that

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make sure I I think I asked this on one of the quizzes the difference between

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00:46:16,760 --> 00:46:22,960
discounting and compounding I asked out on a quiz I think this is actually a

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copy and paste from one of the quizzes

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no the no the relationship when I've I brought this one's an early one what's

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relationship is between liquidity and expected return the relationship between

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liquidity and expected return

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00:46:58,200 --> 00:47:02,880
other things I brought up different kinds of banks commercial banks

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investment banks financial services banks those kinds of animals make sure

393
00:47:10,360 --> 00:47:16,080
you have a good reasonable understanding of why they are not the same kind of

394
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bank

395
00:47:24,840 --> 00:47:31,560
at my age short-term memory doesn't really kick in what the hell of

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commercial banks investment banks for financial services banks yes and those

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00:47:38,600 --> 00:47:47,920
lines of a course to some extent then blurred over brokerage houses investment

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banks and brokerage houses and financial services and investment banks I mean the

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lines are blurring but we're trying our best to hold the whole the line on that

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to the extent that we can

401
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yeah

402
00:48:14,840 --> 00:48:21,600
okay it's your turn I've said what I have to say

403
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anything on your end you want to ask me you know yeah before the exam I can do a

404
00:48:42,240 --> 00:48:46,960
little bit on it but I that's for later in the course that was supposed to be

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00:48:46,960 --> 00:48:55,520
but I could look at it can I get can I access it okay it's a public bot okay

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00:48:55,520 --> 00:49:05,920
oh can I edit it because I can really mess it up no you can't edit it no I

407
00:49:05,920 --> 00:49:10,960
don't worry I might do a few things see so it'll call you some frisky names but

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00:49:10,960 --> 00:49:18,480
anyway yes if you want to you can try it I caution you though be careful until

409
00:49:18,480 --> 00:49:25,320
you have really tested a bot because they can be very difficult and I can

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00:49:25,320 --> 00:49:29,480
tell you that from my own experience I've got one bot that has turned into

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00:49:29,480 --> 00:49:36,520
an emotional wreck I swear she is on Facebook or something learning stuff

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00:49:36,520 --> 00:49:46,920
jeez anyway okay you got any questions for me bright and early on Wednesday

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and I'll be in my office for office hours and my teaching assistant will be

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in his office hours office for his office hours tomorrow that's all I have

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for you today I certainly thank you