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© ADMN 4116, Anton Miglo
ADMN 4116: Portfolio Management
Lecture 1: Introduction
Anton Miglo
Spring 2015
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© ADMN 4116, Anton Miglo
Organizational comments Blackboard: course outline, grades,
announcements, PPT and PDF slides Class notes: key for your success Assignments: no late assignments Investment game: teams Tests: TBA E-mail: no e-mail communication; only emergency
cases (medical or smth.); I don’t answer the message if it was answered in class.
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© ADMN 4116, Anton Miglo
Organizational comments Grades: additional points It has two parts: first 5% are given to everybody in the
beginning of the course. This can only be reduced in the following cases:
Irrespective behaviour Disruptive behaviour Missing classes
Second 5% will be given at my discretion for class participation. Since any direct control of attendance is difficult and inefficient the following criteria are typically used:
Questions in class Questions outside of class (office hours, not e-mail).
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Organizational comments Stock Track Investment Management
exercise: interaction, strategy, creativity Group projects: cases
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Topics
Introduction Types of securities Risk and Return CAPM and Portfolio Management Fixed-Income Securities Equity Analysis Options, Futures and Forwards Advanced Topics
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© ADMN 4116, Anton Miglo
Lecture 1:
Money and finance Types of business organization Financial decisions and corporate
organization chart Financial information versus accounting
reports Introduction to Excel
Topics Covered
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Forms of Business OrganizationSole proprietorship
Partnership Corporation
Ease of formation/termination
Easy Relatively Easy Complex
Life of a firm Termination or death
Death or withdrawal of partners
In perpetuity
Owners liability Unlimited Usually unlimited Limited
Separate legal entity
No Yes
Degree of control Complete Strong Separation of control and ownership
Taxes Based on personal Income taxes Corporate Income Tax & tax on dividends
Transfer of ownership
Limited Requires agreement of the partners
Unlimited
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© ADMN 4116, Anton Miglo
Organization Chart
Board of Directors
CFO GM Production
Treasurer:raising capital
banking relationship
CEO
GM Marketing
Controller:Prepares financial statements
and budgets,
Internal accounting, taxes
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© ADMN 4116, Anton Miglo
The Balance Sheet (Accounting View)
=
Cash 42
Receivable 86
Inventory 14
Short-term
Investments 15
Fixed Assets 902
Intangible Assets 85
Total Assets 1,144
Bank loan 40Ac. Payable 120Bonds 60Long Term Bank Debt 464Capital 110 Additional capital 40Retained earnings 310
Liab&Shareholders’ Equity 1,144
ASSETS LIAB&EQUITY
Book Values!!!!
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© ADMN 4116, Anton Miglo
The Financial View of the Firm
=
Assets in place 1,144
Growth Assets 140
Total Assets 1,284
Debt 684
Equity 600
Liab&Shareholders’ Equity 1,284
ASSETS LIAB&EQUITY
Market Values!!!!
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Income Statement Sales 1,301.00
Cost of Googs sold 1,031.00
EBITDA 270.00
Depreciation & Amortization 140.00
EBIT 130.00
Net interest expense 10
Income Before Taxes 120.00
Income Taxes 29.00
Net Income After Taxes 91.00
Cash Dividends 22.00
Retained earnings 69.00
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© ADMN 4116, Anton Miglo
Excel!
EVERYONE uses it! The biggest technical skill needed in
business
Use Excel to do finance and you’ll have a double advantage: Both finance and Excel
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© ADMN 4116, Anton Miglo
Introduction to Excel
Basic basics about Excel! Can probably be skipped! Most students
know this materials
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© ADMN 4116, Anton Miglo
Getting started
You’ve managed to open ExcelExcel button Office buttonon desktop
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Excel 2003, Excel 2007, Excel 2010
All versions basically the same Differ in minor stuff (graphics, toolbars) All spreadsheets for Principles of Finance
with Excel work in all versions of Excel (though see next slide)
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The small print
PFE files are saved in the Excel 2007/2010 format
To open in Excel 2003, download the compatibility pack from Microsoft:
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Some rules for financial modeling
These rules will help you build better spreadsheets
Readibility, Logic, Simplicity—this is what you should strive for
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Try to put important variables in one place
12345
6789
1011121314151617181920
A B C D E F G H I
Interest rate 8%Annual deposit 12,000.00Annual cost of college 35,000
BirthdayIn bank on birthday,
before deposit/withdrawal
Deposit or withdrawal at
beginning of year
End of year before
interest
End of year with interest
10 0.00 12,000.00 12,000.00 12,960.0011 12,960.00 12,000.00 24,960.00 26,956.8012 26,956.80 12,000.00 38,956.80 42,073.3413 42,073.34 12,000.00 54,073.34 58,399.2114 58,399.21 12,000.00 70,399.21 76,031.1515 76,031.15 12,000.00 88,031.15 95,073.6416 95,073.64 12,000.00 107,073.64 115,639.5317 115,639.53 12,000.00 127,639.53 137,850.6918 137,850.69 -35,000.00 102,850.69 111,078.7519 111,078.75 -35,000.00 76,078.75 82,165.0520 82,165.05 -35,000.00 47,165.05 50,938.2521 50,938.25 -35,000.00 15,938.25
NPV of all payments 6,835.64 <-- =C7+NPV(B2,C8:C18)
SAVING FOR COLLEGECritical parameters (sometimes called "value drivers") are in the upper left-hand corner. The actual of saving for a college education is discussed in Chapter 2.
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Do not forget to name your spreadsheets
UGLY!! You can name sheets by clicking on the sheet tab.
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Adding “Getformula” to your spreadsheet
Some of my spreadsheets embed a small program called Getformula that allows you to see what you’ve written in a cell
When you open such a file, Excel will ask you if you want to open Getformula:
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You’ve got a blank spreadsheet
Save it! (all the time!)Which format?? Excel Workbook: OK for
most uses Excel Macro-Enable
Workbook: If you want to embed Getformula macro into spreadsheet
Excel 97-2003 Workbook: Lowest common denominator
Where should you save it? My documents Special folder?
Anton/Junk is a folder I’ve created
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Formatting the numbers
Mark numbers to be formatted Press right mouse button and choose Format Cells
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Relative versus absolute copying
Relative copying Absolute copying
1
2345678
A B C D
Number of units
Price per unit Sales
3 22.32 66.96 <-- =B3*A315 18.99 284.85 <-- =B4*A422 31.22 686.84 <-- =B5*A518 17.50 315.00 <-- =B6*A6
1,353.65 <-- =SUM(C3:C6)
RELATIVE COPYING123
456789
A B C
Price per unit 15.25
Number of units Sales
12 183.00 <-- =A5*$B$222 335.50 <-- =A6*$B$2
152 2,318.00 <-- =A7*$B$2
2,836.50 <-- =SUM(B5:B7)
ABSOLUTE COPYING
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First spreadsheet
How does an investment of $1000 grow over time with 15% annual interest?
Note formula in cell and in Formula Bar
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Copying the formula by dragging
123456789
10111213
A B C
Year Bank balance0 10001 11502 1322.53 1520.8754 1749.006255 2011.3571886 2313.0607667 2660.019888 3059.0228639 3517.876292
10 4045.557736
COMPOUND INTEREST
The result
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Excel hint
Instead of dragging cell B4, there’s an even simpler way to copy.
Put your cursor on the handle and double-click with the left mouse button
The formula will be copied through the last row of the adjacent filled column.
In this case: from cell B5 through B13.
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Formatting: Look at the toolbar
You can change the fontsYou can change the cell alignmentYou can merge cells, wrap textYou can do number formats
PLAY AROUND WITH THIS! IT’S EASY!
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Shortcut
There’s a shortcut to this format (2 decimals, comma):
Ctrl+Shift+!
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© ADMN 4116, Anton Miglo
Use F4 to change from Relative to Absolute references
At this point, you’re still in the cell (haven’t hit Enter). By hitting F4, you can change the B2 to various kinds of absolute references:
$B$2: Absolute when copied$B2: Column absolute, row relativeB$2: Row absolute, column relativeB2: Back to all relative
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Digression: Shortcuts in Excel
Many! F1: Help F2: Edit cell F4: Repeat last
action F2, then F4:
change from relative to absolute copying
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[End]+[Arrow] shortcut
Problem: You have a lot of data and you want to mark it all Put cursor on first cell Hold down Shift key Push End key and Down-arrow
Problem: You have a lot of data and you want to get to the other end Put cursor on first cell Push End key and Down-arrow
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