Finance Final

Estimation of Revenue/expenses over specified period

$ leftover after paying needs

50% Needs, 30% Wants, 20% Savings

Value is never greater than what it is now / Interest on interest

# of years it takes for a $ value to double - 72/rate = years

1) Character

2) Capital (item of value)

3) Capacity (you can pay)

Provides protection for assets in case of death

Monthly payments to insurance companies for cost of insurance (higher risk = higher rate)

• limited amount time

• lower premium

• protection for times of need (mortgage/family)

• entire life

• cash value accumulates

• guaranteed income after retirement

Private sector retirement plan

• contributions pretax (pay tax @ end)

• employer match % of contributions

• max: $22500/year

• withdraw @ 59.5-70.5

Public sector retirement plan

• contributions pretax (pay tax @ end)

• employer no match contributions

• max: $22500/year

• pay tax NOW ($ deposited is taxed)

• tax break lateR

• $60,000 max

• withdraw 59.5

• pay tax later ($ put in no taxed)

• tax break Now

• $6,000 max

• withdraw 59.5

110 - age = % invested in stocks vs bonds

Decrease loss/volatility with payment plan - same investment same amount

become part owner of company

ANYBODY can own - ex: Nike, Amazon

Not traded on stock market - ex: Deloitte, KPMG

Company decides to sell to public by:

1) Investment banker underwrites stock offering

2) take responsibility/risk of selling certain amount of stock

3) Register with Securities and Exchange Commission (SEC)

Measurement of group of companies

30 Top companies

Baseline for stock of mutual fund (500 companies = more diversity)

Technology index (3700+ companies)

Amount of Shares * Stock Price

$250M - $2B

$2B - $10B

$10B >

How volatile? / Skew from average

Calculation to measure risk in stock

• <1 stable

• 1 average

• >1 volatile

Price of Stock/Earning per Share (higher = riskier)

Profit/# of Shares outstanding (want high)

Buy/sell stock

$ earned by holding onto company stock

• Tech companies usually no

• Big dividends = stable company

More shares without changing value

ex: $1M @ 50 Shares → $2M @ 25 Shares

Less shares without changing value

55-60, little change, bonds/high yield savings

Mid age, Crypto/bonds

Younger, huge beta or P/E ratio

Buy low sell lower (bet against company)

• buy on margin (loan)

• no limit to loss

  • margin fees

Buy security immediately @ price available

Buy/sell @ price YOU determine

Borrow $ to trade

SUCK - decline of 20% or more of stock market index

GREAT - gains of 20% or more of stock market index

fundamental statements

How much a company owns vs owes on specific date

Assets = liabilities + owner equity

$ made - net earnings/loses

Revenue - Expenses = Income/Loss

Inflow/Outflow of $

1) Operating Activities (lights, employees)

2) Investing (business investments, etc.)

3) Financing (loans, buying - building credit)

Ability to pay off short term liabilities

Current Assets - Current Liabilities

Ability to pay off short term liabilities (higher = likely to pay off)

Current Assets/Current Liabilities

Short term financial Strength (higher = better)

(Current Assets - Inventory) / Current Liabilities

Total Liabilities / Shareholder Equity (low!) - 0.5 low risk

ex: 3:1 ratio = $3 debt for every $1 shareholders invest

Measure profitability (high!)

Net Income / Shareholder Equity

Profitability business must earn return on invested that exceed cost of capital (Want to be > cost = invested + working) - 15% good

(Net income - Dividends) / $ invested capital

$ made / stuff sold (high!) ex: 20% = $0.20 for each $1 of sales

Net income (after tax) / Revenue

Stock’s value - lower = undervalued

PE Ratio / EPS Growth

Take and organize into one fund w/ different holdings + professionally managed

Price per share of fund

(Assets - Liabilities) / # of Shares

Seeks to invest in stocks that are deemed to be undervalued in price

Capital Apperciation Stocks

Dividends

Tracks S&P / Index

• lower fees, average performance, little variation

People = lenders to companies, gov, etc.

• Corporate

• State/local

• Government

A security issued by or on behalf of a local authority

• Treasury bonds – > 10 years

• T Notes – 1-10 years

• T bills – < 1 year

  • Zero-coupon bond (purchased at discount)

• AAA - AA = high credit

• AA - BB = medium

• BB - C = low

• C - D = junk

High ratings/stable/success

Redeemable prior to maturity

Low rate, high yield (HIGH RISK, POTENTIAL HIGH REWARD)

Principal/Maturity value of a security on face of instrument

% rate or yield

Initial rate

Rate based on market

Inverse

Range: 0% - 20% SD

How close match index - 1.0 = perfect vs 0.0 = no coRRelation

Potential Return - Potential Volatility (higher = better)

1 = good, 2= better, 3 = excellent!

Sell @ Premium

Sell @ Discount