Market brokers buys/sells for the current market price Limit an
order to buy or sell a set number of shares at a specified price or
better A Limit Order guarantees price, but not an execution
Stop-Loss similar to limit, buy or sell at a certain price Limit
downside of short sell Protect existing profits Stop Limit combines
stop order (1) w/ limit order (2) Control when the trade takes
place Trailing Stop parameter w/ trailing feature
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Entry Form
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Needed for Ability to accurately and properly interpret
financial statement data Use in valuation modeling Discounted Cash
Flow Model, etc. Understanding the health of a business
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Identifying past, current, and forecasting future performance
Return on Equity, Free Cash Flow, other ratios How it affects the
manner in which its components are reported Mark-to-market
regulations, etc. This has become a major hotspot lately; if youre
interested, do a Google search for FAS 157
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These are what publicly traded companies issue through the SEC
and GAAP to report quarterly and yearly performance Many sites
(Yahoo, Google Finance, etc.) report semi-accurate data However,
often times they are not the best source for in-depth research Best
to look at the actual filing Sources? investing.businessweek.com
investing.businessweek.com sec.edgar-online.com
sec.edgar-online.com
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What are the three (primary) financial statements? Balance
Sheet Also called Statement of Financial Position Snapshot Income
Statement Also called Statement of Earnings Statement of Cash
Flows
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This statement lists all of the companies revenues, expenses,
gains, and losses for a given period of time Example: Apple, Inc.
Revenue = Sale from an iPod, Macbook, etc. Expense = Cost of goods
sold (items needed to manufacture a product), salaries/wages,
research & development, taxes etc.
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Important to distinguish differences within each type of
account Is that revenue part of our normal operations or from
interest/investments? What type of expenses is the company
incurring and in what volume? Is this gain or loss occurring
frequently or once in a lifetime?
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What is depreciation/amortization? When a company purchases an
asset, it has a limited useful life (5 years, 20 years, etc.)
Depreciation is an annual expensing of the original purchase price
of said asset There are many methods available, but the principle
remains the same Key point: Depreciation in a NON-CASH expense
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Net Income and Earnings Per Share Ultimately, every company
reports net income (or loss) for the given period Its important to
know everything to goes into calculating this number Earnings Per
Share (EPS) = Allows comparison of company profitability regardless
of overall size
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Similar to the Income Statement, as it provides information
about a company during a given period of time However, the
Statement of Cash Flows only deals with what the company did with
their CASH A company may be profitable according to their Income
Statement, but they may have trouble generating cash
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The different components Cash flows from Operating activities
Investing activities Financing activities
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Useful for determining with the company did with its cash Are
they collecting a reasonable amount from their normal operations?
Are they spending a lot of their cash on new assets, prospects for
expansion, etc.? If they have an excess amount sitting around, are
they paying out a dividend?
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Free Cash Flow (FCF): Operating Cash Flow Inflow or outflow
from everyday operations Capital Expenditures Outflow used to
acquire or upgrade physical assets such as machinery, buildings,
etc. Good indicator of whether or not the company is expanding and
still has cash on hand to pay its current debt obligations
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Reports a companys assets, liabilities, and shareholders equity
at an exact point in time Differs from the previous two in this
aspect; they cover a period of time whereas the Balance Sheet is a
snapshot Useful in determining the companys structure
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A = L + SE
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The different components: Assets These represent future
economic benefits Can be current and non-current Ranked on the
Balance Sheet in order of their ease of liquidity (how easy can you
convert this asset into cash?) The most liquid assets are listed at
the top (cash, marketable securities, etc.)
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Liabilities These represent future economic sacrifices Can be
current and non-current Important to know how much debt the company
is obligated to pay in the next few years Shareholders Equity
Represents the owners interest (thats you!) in the company Contains
an important account: R ETAINED E ARNINGS Takes a companys net
income and shows if they pay it out as a dividend or re-invest
it
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Important for analyzing the capital structure of the company Do
they have a lot of cash relative to their debt? If not, do they
have a lot of liquid assets? How do they finance their investments?
Mainly through stock issuance or with bonds/borrowing? Do they have
a lot of intangibles (goodwill, patents, etc.)?
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This is Apples condensed Balance Sheet for the years 2004-2007
Whats good about it? What might not be so good? How might they be
structured differently from a newly formed company?
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At a later date we will introduce more advanced concepts of
accounting Financial Ratios Profitability, Leverage, Solvency,
Liquidity, Efficiency Comparison to other companies in the same
industry Valuation modeling Is the companys equity more than its
market cap? Anything else you guys would like to learn more
about
Slide 28
Questions? Excel in Finance: An Intensive 2-Day Seminar in
Financial Modeling and Corporate Valuation Price: $150 Nov 20/21
Time: 9AM - 5PM Location: Lazenby Hall 0021 Registration Link:
www.wallst-training.com/osuwww.wallst-training.com/osu