Unformatted text preview: Important Course Activities
Complete Personal Finance Guidebook (pages 114132) pages 114The Four Pillars of Investing Four Pillars of Investing Chapter 2 Draft of Spending Plan February 16, 2011 Quiz: February 21, 2011 Financial Statements
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Balance Sheet: Summarizes a companies assets, liabilities and shareholders’ equity. Assets = Liabilities + Shareholders’ Equity • Income Statement: Measures a company’s financial performance over a specific period of time. “Profit or Loss Statement” Revenue – Expenses Financial Statements
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Cash Flow Statement: Tracks the flow of cash in and out of a business. (Operating, Investing and Financing Activities) Statistical Terms
• Average or mean • Median
And MOST IMPORTANTLY • Stockholders’ Equity: Is the equity stake or book value of a company. • Standard Deviation 1 Standard Deviation Formula What is the basis for its Which is the riskiest? riskiness?
Stocks  1 Bonds  2 Describe What You See in the Plot Below Can You Determine What the Average and the Range are? Mean/Average of ? Range of ? Class Class Exercise Class Exercise 2 The Average and the Range Stock Data Which Provides More Information?
Time Data Statistical Statistical Data Mean/Average of about 10 Range of about 100 Team Exercise Random Stock Data HISTOGRAM
Mean of about 7 Standard Deviation of about 20 What is the Mean& Standard Deviation? T BILLS Mean = 5% Std. Dev. = 2.5% 3 What is the Mean & Standard Deviation? 50% Stocks & 50% TBILLS T What is the ALL STOCKS Deviation? Mean & Standard Mean = 8% Std. Dev. = 12.5% Mean = 10% Std. Dev. = 20% S&P 500 Average Return = 13.0% Standard Deviation = 20.0% 68% of the time your return will be between 7.0% and 33.0% (Yellow shade) 95% of the time your return will be between 27.0% and 53.0% (Yellow and green shade) 99.7% of the time your return will be between 47.0% and 73.0% (Yellow, green and blue shade) 4 Buying Buying a Stock Key Numbers • Why do people buy stocks? • What is their expectation for the
company whose stock they are thinking about buying? • Construct a list of parameters related to the performance of stocks. • Which key numbers would you find
most useful in evaluating a company’s performance and possibly buying the stock of that company? • What do you think might be good
Class Exercise measures of a company whose stock you are thinking about buying? Team Exercise Team Exercise Develop a list of Important COMPANY & STOCK Investor’s Numbers and list them in IMPORTANT NUMBERS order of Importance starting with most important at the top of the list
EPS Number of Shares Outstanding Outstanding Business of Company Sales Dividend Yield Growth Price of Stock Debt Equity Ratio Income Growth COMPANY & STOCK IMPORTANT NUMBERS
Age of company Dividend Yield EPS Number of Shares Outstanding Outstanding Business of Company Sales Dividend Yield Growth Price of Stock Debt Equity Ratio Income Growth Age of company Dividend Yield Return on Equity Income Sales Growth Cash Flow Growth Cash flow EPS Growth Number of Employees Sales Growth Return on Equity Income Sales Growth Cash Flow Growth Cash flow EPS Growth Number of Employees Sales Growth 5 Financial Ratios • PriceEarnings Ratio – P/E Ratio
= _Market Value per Share_ Earnings per Share (EPS)
P/E = stock price per share to earnings per share to earnings per share ratio • Earnings Per Share – EPS
= _______Net Income_______ Average Outstanding Shares Higher stock price higher P/E Lower stock price lower P/E Lower earnings higher stock price Higher earnings lower Class P/E average Exercise What is the Ratio P/E?
50 45 40 P/E Ratio
Price/Earnings Ratio
Stocks are very expensive What is happening here? 35 30 25 20 15 10 5 0 6 What can the weather tell us about the stock market? Has this past summer been, on thi average, cooler or warmer than usual? Given that this past summer has been, on average, warmer than usual, what do you think next summer will be? Cooler or warmer than usual? How many say cooler? Why? What is happening? REGRESSION TO THE MEAN!!! How many say warmer? How to Read a Stock Table 27 7 ...
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 Spring '11
 Lengkeek
 Standard Deviation, P/E ratio

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