Summerfuel FinanceClass 4: 7-12-2016

Shark Tank http://abc.go.com/shows/shark-tank/episode-guide/season-07/10-week-1

0-leaux-racing-trikes-glow-recipe-sarah-oliver-handbags-trunkster

The Capitalists One company’s right side of the balance sheet

liabilities and equity

Is another's company's left side of the balance sheetassets

Assets ( stuff you have to run the business)

= Liabilities + Equity (how its paid for)

Wow !

DebtA loan in a number of different ways to a

companyThe loaned amount will repaid at some

defined timeAn interest rate will be assessed as the

cost for the use of the moneyNo ownership stakeBut senior to equity stake

EquityOwnership (equity) in a

corporation

Dividends paid or notResidual claim

Riskier than debt from investors’ perspective

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

RiskThe greater the risk, the

greater the potential reward.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Sources of Risk

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A Look at Google Financehttps://www.google.com/finance

The Cost of Debt vs. the Cost of Equity

Debt Its known and easier to determine A cost / interest rate is charged to your company

Plus the interest is tax deductible

Based on the riskiness of your company

Equity (Stock) The cost is based on investors expectations for return.

If you fail to deliver the return , then your stock price will drop and you will trouble attracting investors

Because there is more risk in equity to an investor, the expected return will always be higher than the interest rate charged for a loan Unless you have too much debt

Financial RatiosA tool to assess a company’s financial

structure and healthReally only useful when companies to other

companies or past numbers of the same company

Price to Earnings Earnings per share Debt to Equity Return on Equity

Price to EarningsThe price-earnings ratio (P/E Ratio) is the ratio

for valuing a company that measures its current share price relative to its per-share earnings.

The price-earnings ratio can be calculated as:Market Value per Share / Earnings per ShareFor example, suppose that a company is

currently trading at $43 a share and its earnings over the last 12 months were $1.95 per share. The P/E ratio for the stock could then be calculated as 43/1.95, or 22.05.

Earnings per shareEarnings per share (EPS) is the portion of a

company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.

Net Income / Shares of Stock

Debt to EquityThe D/E ratio indicates how much debt a

company is using to finance its assets relative to the amount of value represented shareholders’ equity.

Debt /Equity Ratio = Total Liabilities/Shareholders' Equity

Return on EquityReturn on equity (ROE) is the amount of 

net income returned as a percentage of shareholders equity.

Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

Return on Equity = Net Income/Shareholder's Equity

BetaBeta is a measure of the volatility, or 

systematic risk, of a security or a portfolio in comparison to the market as a whole

Market CapMarket capitalization is the total

dollar market value of all of a company's outstanding shares.

Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share.

The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.

Stock Pick ReportThe Easy Stuff Current Stock Price  52 Week Low  52 Week High Price to Earnings Ratio Earnings Per Share  Beta:  Market Cap:  Last Financial Statement Date:  Total Assets:  Net Income:  Debt to Equity Ratio: Total Liabilities / Shareholders' Equity  Return on Equity: Net Income/Shareholder's Equity

The Stuff You Have to Think About1. Company Background- What is the business, what do they sell ,

where ?2. Buy Rationale – Why do you like it? Why do you think the stock

price will go up?, or will it go down less than the rest of the market?