class 4

1. Summerfuel Finance
Class 4: 7-12-2016

2. Shark Tank
 http://abc.go.com/shows/shark-tank/episode-guide/season-07/10-week-10-leaux-
racing-trikes-glow-recipe-sarah-oliver-handbags-trunkster

3. The Capitalists
 One company’s right side of the balance sheet
 liabilities and equity
 Is another's company's left side of the balance
sheet
 assets
Assets ( stuff you have to run the business)
= Liabilities + Equity (how its paid for)
Wow !

4. Debt
 A loan in a number of different ways to a
company
 The loaned amount will repaid at some
defined time
 An interest rate will be assessed as the cost
for the use of the money
 No ownership stake
 But senior to equity stake

5. Equity
 Ownership (equity) in a corporation
 Dividends paid or not
 Residual 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.

6. Risk
The 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.

7. 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.

8. A Look at Google Finance
 https://www.google.com/finance

9. 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

10. Financial Ratios
 A tool to assess a company’s financial structure
and health
 Really 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

11. Price to Earnings
 The 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 Share
 For 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.


12. Earnings per share
 Earnings 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

13. Debt to Equity
 The 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

14. Return on Equity
 Return 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

15. Beta
 Beta is a measure of the volatility, or systematic risk, of
a security or a portfolio in comparison to the market as
a whole

16. Market Cap
 Market 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.

17. Stock Pick Report
The 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 About
1. 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?