evaluations/ investing/vocab Flashcards
cogs= more pencils I sell is a variable cost bc sometimes if you sell more it costs more to sell
grow = new sales/old sals-1
gross margins went down but what I sold was more expensive to me, for a company like this for very specific technology understand why gross margin went down say I am a restrauant company I can make my sales go up by opening a lot of stores but if those stores are unprofitable in a store by store basis, even though my sales numbers goes up we are losing money from all the other expenses we are incurring, so you have to understand how to build a communize income statement, so after I figure out my sales growth, then have to describe everything as % of sales to notice sales overtime*
so take each line item and ask what % of our sales is this
if you go from cost of sales being only 33∞ of my rev venue to being 37% we would also see that play out in our gross margin numbers we were at 67% but now at 63% that is worth further investigating
cogs= more pencils I sell is a variable cost bc sometimes if you sell more it costs more to sell
grow = new sales/old sals-1
gross margins went down but what I sold was more expensive to me, for a company like this for very specific technology understand why gross margin went down say I am a restrauant company I can make my sales go up by opening a lot of stores but if those stores are unprofitable in a store by store basis, even though my sales numbers goes up we are losing money from all the other expenses we are incurring, so you have to understand how to build a communize income statement, so after I figure out my sales growth, then have to describe everything as % of sales to notice sales overtime*
so take each line item and ask what % of our sales is this
if you go from cost of sales being only 33∞ of my rev venue to being 37% we would also see that play out in our gross margin numbers we were at 67% but now at 63% that is worth further investigating
we care about does it desrve to bemore expensive or less expensive and that is where judgements come in!
we care about does it desrve to bemore expensive or less expensive and that is where judgements come in!
DCF
gives us almost entirely intrinscit to company hey given past operating performance and what we think will happen with cash flows in the future, what is the actualy dollar value of that company today?
highly senesitive to our assumptions, projhections and our thoughts about the company in tis future, but that we can do mostly withut having to think abotu other stuff itself, w are really thinnking about company itself, so when w are trying to value a compnay, lets say I do all my fany analysis if itis 16.47 cents per share fair vlaue, there will obviously be a whole lot of room for error in that
so it is about coming up with a range, so on multiples it may be close to something 15 dollars a share, DCF 20 bucks a share need to build in a margin for yourself
grow = new sales/old sals-1
for income statement!
- grow = new sales/old sals-1
for ex from biotechnne fiscial quarter release 2024
- if you go from cost of sales being only 33∞ of my rev venue to being 37% we would also see that play out in our gross margin numbers we were at 67% but now at 63% that is worth further investigating
- not crazy yr over yr growth but cost of sales went up more than revenue did which isn’t a great thing more expensive for me to sell my water bottles, ok my cost went up bc of inflation or whatever possibility can I push that through in terms of my pricing as I sell to customers, some companies can and do some companies are less able to* so why did these costs go up would be worth of further investigation
so sales went up but cogs went up
for operating expenses like SGA our fixed costs went up by a meaningful amount what is happening there is that salary, so asking hey what is underneath that
legal infrastructure of business
now compare there stats to competitors* so is 4.5% sales growth a lot of a company like this or is it bad, so have to do cohort analysis look at other similar companies** look at whole universe of medical supply companies, ones that have the same kind of customers they have
net income is down* 11.61%
so last year for every dollar and sales they made they were keeping 18.41% of every dollar they made, this year they are only keeping 11.61%
forge in currenty translation income loss= for other comprehensive income (loss) also called AOIC, this just means ok we made stuff in a country with 1 currency and sold stuff in a country with a different currency and exchange rates change overtime in 2023 they were bad fo run 11,602 minus, but in 2024 foreign currency was good to us, some companies will have derivative instruments related to foreign currency and other stuff if you ar really really getting into teh weeds, again the only looking at 2 years it is diminimus for this year, if trying to hedge exposure to whatever this could be a thing worth understanding more do they just suck or is ti too small it doesnt matter
comprehensive income= net income and other nonoperating things*
EPS = once we start talking about valuation like a PE ratio
what we are doing with P/E gives us a standardized way to compare valuations across different companies, so if our price were at 21 dollars per share, and I had earnings per share of 0.21C that would be 100x PE ratio** so PE ratio is = share price / earnings per share
so trying to figure out how much the market values the earnings of a specific company avoids us having to belike is 21 cents per share is that a lot or a little, is the share price of 100 dollars a lot or a little, it depends, it depends on what hte earnings per share is, gives us a standardized way of going back to standardized measure across cohorts, lets say apple ha a PE of 25-30 and lets say amazon’s a PE of 35-40 that is the market saying we value amazon more highly than apple even if that isn’t true in apple or dollar amounts, we are willing to pay more for your earrings than other companies earnings
almost like Cz scoring I want a standardized measure by which I can compare different things to make an apples to apples comparison, lets say company XYZ and company ABC
SGA on their income statemetn
so sales went up but cogs went up
for operating expenses like SGA our fixed costs went up by a meaningful amount what is happening there is that salary, so asking hey what is underneath that
legal infrastructure of business
now compare there stats to competitors* so is 4.5% sales growth a lot of a company like this or is it bad, so have to do cohort analysis look at other similar companies** look at whole universe of medical supply companies, ones that have the same kind of customers they have
net income is down* 11.61%
so last year for every dollar and sales they made they were keeping 18.41% of every dollar they made, this year they are only keeping 11.61%
forge in currenty translation income loss= for other comprehensive income (loss) also called AOIC, this just means ok we made stuff in a country with 1 currency and sold stuff in a country with a different currency and exchange rates change overtime in 2023 they were bad fo run 11,602 minus, but in 2024 foreign currency was good to us, some companies will have derivative instruments related to foreign currency and other stuff if you ar really really getting into teh weeds, again the only looking at 2 years it is diminimus for this year, if trying to hedge exposure to whatever this could be a thing worth understanding more do they just suck or is ti too small it doesnt matter
comprehensive income= net income and other nonoperating things*
EPS = once we start talking about valuation like a PE ratio
what we are doing with P/E gives us a standardized way to compare valuations across different companies, so if our price were at 21 dollars per share, and I had earnings per share of 0.21C that would be 100x PE ratio** so PE ratio is = share price / earnings per share
so trying to figure out how much the market values the earnings of a specific company avoids us having to belike is 21 cents per share is that a lot or a little, is the share price of 100 dollars a lot or a little, it depends, it depends on what hte earnings per share is, gives us a standardized way of going back to standardized measure across cohorts, lets say apple ha a PE of 25-30 and lets say amazon’s a PE of 35-40 that is the market saying we value amazon more highly than apple even if that isn’t true in apple or dollar amounts, we are willing to pay more for your earrings than other companies earnings
almost like Cz scoring I want a standardized measure by which I can compare different things to make an apples to apples comparison, lets say company XYZ and company ABC
EPS
once we start talking about valuation like a PE ratio
what we are doing with P/E gives us a standardized way to compare valuations across different companies, so if our price were at 21 dollars per share, and I had earnings per share of 0.21C that would be 100x PE ratio** so PE ratio is = share price / earnings per share
so trying to figure out how much the market values the earnings of a specific company avoids us having to belike is 21 cents per share is that a lot or a little, is the share price of 100 dollars a lot or a little, it depends, it depends on what hte earnings per share is, gives us a standardized way of going back to standardized measure across cohorts, lets say apple ha a PE of 25-30 and lets say amazon’s a PE of 35-40 that is the market saying we value amazon more highly than apple even if that isn’t true in apple or dollar amounts, we are willing to pay more for your earrings than other companies earnings
almost like Cz scoring I want a standardized measure by which I can compare different things to make an apples to apples comparison, lets say company XYZ and company ABC
shipping ex eco tank
unles you reallu really know what you are talking about domt touch shipping
beta
line of best fit
beta is the slope of this line, it is a comparison of the stock itself to the market can have it of 2 or .5% may be good on downside only down by .5%
stock ABC has a beta of 2 based off of statistica analsis what is the beta of IBM stock
all that says is for this company the SPwhich is hte market goes up by 1% then the company itself goes up by 2% if beta of 2 then if market goes down by 1% stock goes down by 2 %
magnifies in each direction so beta just multiples market move and tells you what you could expect to happen with an individual stock
if we are diversified investors we limit our risks, when times are bad thats how you find out who is good at their job and who is not so for a certain stock. Stock I
Beta explanation
variance= measure of stock I
measure of stock itself and stock market itself proxy for economy
so variance says I care about how it moves in relation to the entire market, I only care about beta as my measure of risk if I am diversifid investor* if I am able to own things in tiny amounts across all asset classes**
we can limit risk but we can’t limit the entire economy impact on a good
vs soy bean farmer, if that is my reality I care about what is happenign with soy beans, if I am not diversified I care about soybeans but if I am diversified I care about hwo it moves in relation to other things***
warren buffet:
“Only when the tide goes out do you learn who has been swimming naked.”
if stock 1.5 beta
if market goes down by 1.5% stock goes down by 1.5%
if market goes up by 1.5% then stock goes up by 1.5%
Eugene fonda efficient markets
nobel peace prize GURU
if I want highe returns or more returns I have to take more risk**
but flip side of that like retail investors which has a prejorartive connotation but like UPS guy buying stocks
if you want more return than just putting money in SP then have to pout your money into stuff that is riskier and risk in our world is defined as beta
no such thing as a free lunch in markets
0 risk put money in treasury bond
this is a bond issued by the federal government still a bond
this is the risk free asset
1 billion is the sweet spot
say hedgefun is super small but still publicly traded companies, comanie worth 20 mill can’t ploy 1 billion dollars into it
so warren thinks its a great company all I can do is invest 100 million dollars that will not do much to my overal profolio
arbitratge.. too high too low
Arbitrage is when an asset (stocks, currencies, etc.) is bought in one market and sold in another for a higher price. The types of arbitrage are spatial, statistical, and merger arbitrage. The temporary price difference for the same asset between the two markets lets traders lock in profits.
funds like reninance tech identify miss pricing and try to close and identfy that gap, bc markets are efficient those gaps are hard to find and small these days so if you aren’t first that gap will get competed away by other people
this bond is priced at 100.05 and should be 100.01 try to caputre that 4 cents but I have to do it 10x times to make it worth my while
the ebst anaology is to pick up pennies infront of a steamroller*
use fancy math to idetnfiy mispricing, bc miss pricing is soo small use a ton of borrowed money to make it big, if I am tryign to make it worth my while I need 1 billion pennies to do it so have to put a huge amount of money in it
ex of guys 100 to 1 every 1 dollar of their moeny they borrowed 100 dollars of money from the banks. htey were the fancy hedgefund so all the banks were dyijng to lend them money, this was Long Term Capital- printing money for a while
long term capital ex
so treasury bonds government issues bonds with regularity but theoretically if two bonds had the same payment and same maturity and same everythign should have same price bc theroeticall they are basically identical, but turns out with quirk of market, investors lazily preferred the newest version of these as opposed to teh older versions of these even if the bonds were identical so these guys were like this makes no sense these prices should be the same, the one that is overpriced they would short and the one that was udnerpiced they woud buy in the hope that the gap would close elegan trade but pennies* so had to do a ton of leverage to do it* very vyer high risk but consistently profitable* then in 98 had asian fianncial currency crisis spread all throughout asia then russian debt default. they had absolte certaintiy and they were right but markets do crazy things and bc of those macro gloabl events everyone said risk off put my money in safest things possible, knock on affect to all those trades so instead of spread continuing to close like they hoped, it blew otu lost money in short side and long side and they were insolvent went out of busines*
markets can stay irrelational asl long as you can stay solvent, like silicon valley bank if can hold on for a couple years would have been fine
leverage is useful and important in a lot of ways
even if sure thing be careful
leverage means if I borrowed a bunch of money, if I put down 10 dollars for a 100 dollar house and I borrow 90 dollars from the bnak, when I buy the house it is worth 100 dollars
but if the value of the home goes down from 50 dollars- I still owe the bank 90 dollars os now I am underwater, so I have to pony up more money and or the banks would be lke this is looking bad give us our money now
this is what the business calls margin call you have lost a bunch of money you have to pony up some more so I know you can give it to me
big global economic things cause bad reactions I don’t want any risk can have these huge knock on effects through the entire economy, ppl are irrelational behavioral economics
eps
net income/ number of shares
so proportional part of total profits attribtuable to you if you own 1 unit of hte stock
basic vs diluted shares
when deciding btw which shares to use when talking about EPS can use either basic or diluted, basic is your normal basic share
diluted shares like chemistry dont dilute the active fluid to make its affect weaker
diluted= if all convertible securities were exercisable
so Basic is the same basic number of share sisnumber currently exists
diluted is the number if these debts are taken out so usually smaller
ex apple
45.7/5.47 basic = 8.35
v.s diluted
45.7/5.5= 8.31
eps does not equal dividend per share
eps is proportional part of total profits attributable to you if you own one unit if companby stock
dividend per share is what is actually paid out of hte company
ex. with apple basic EPS= 8.35
dividend per share is 2.18 is paid to ppl that is 26% of its profit the rest of the cash is kept inside company for future use
2.18
shipping 1
look at how many years it has lost money why would we invest in companies that actually lose money for a couple of years that is massive cyclical risk what makes shipping evenmore complicated than
shipping is levered 4 to 1 to teh economic downtern what happens when ppl finally have money re-emergence of covid and the crux of it is averge fraitor went from 42,000 to 10,000 -20,000 losing money obviously getting slaughtered the reason they were getting slaughtered is bc all the economies in the world were shut down, lose money for a year terribly
so then countries of the world reopen so have all this back log of demand and goods sitting at these ports in asia or manufactures in saia and then rates per day went from 110,000 to 200,000= 90,000 a day
then what happens is they build ships then when they buld ships the market collapses then they lose money again
shipping 2
14x ebidta when they trade
yoi dont invest in business models tha tose money every 4 years
semi conductors lose money every 4 years why would you invrst in these companies when you dont need to, look at earnings, can go back forward to 2028 holy smoke they lose money eveyr 3-4 yrs so what is the normalized earnings
on a greowth company we understand growth, taking share you dont have to ever worry abou them losing money
THIS IS JUST A TRADE
nividia is up 22,000%
this stock bounces around in course of numbers but don’t compound for you never create wealth for you, margins grow, earnings a little bit better
THIS IS JUST A TRADE
biast they want a story someone to come up with an idea this is just a trade* microscoft has gone up 50% in 22 years these other ones are trade*** look at it gpo max
beta patrick notes again
beta notes part c
What Is a Secured Creditor?
What Is a Secured Creditor?
A secured creditor is any creditor or lender associated with an issuance of a credit product that is backed by collateral. Secured credit products are backed by collateral. In the case of a secured loan, collateral refers to assets that are pledged as security for the repayment of that loan. In the event that a borrower defaults on the repayment of a secured loan, assets are forfeited to the secured creditor.
a secured creditor part 2
A secured creditor is any creditor or lender associated with an issuance of a secured credit product. A secured credit product is any credit product backed by collateral.
In the case of a secured loan, collateral refers to assets that are pledged as security for the repayment of that loan.
Secured creditors can be various entities, although they are typically financial institutions.
Secured creditors may offer several different types of credit products with the option of securing these offerings through collateral. These products include personal loans,; institutional loans for businesses; and corporate bonds.
unsecured creditor
Secured creditors can be various entities, although they are typically financial institutions. A secured creditor may be the holder of a real estate mortgage, a bank with a lien on all assets, a receivables lender, an equipment lender, or the holder of a statutory lien, among other types of entities.
If a borrower defaults on a secured credit product, the secured creditor has a legal right to the secured asset used as collateral. The secured asset may be seized by the secured creditor and sold to pay off any remaining obligations. The pledged collateral adds a second source of repayment for the creditor, which means that there is a lower risk to the creditor for extending the offer of credit (this is also why interest rates may be lower for secured credit products and secured loans)
Secured Personal Loans vs. Secured Institutional Loans vs. Secured Corporate Bonds
While financial institutions may issue secured loans to both consumers and businesses, the type of collateral they accept depends on the borrower.
Many financial institutions offer consumers the option of secured personal loans. Common types of collateral accepted by secured lenders include real estate, cars, jewelry, and art. Secured personal loans generally have lower interest rates because they are backed by collateral (and thus pose a lower risk for the lenders). This typically results in lower interest rates for the consumer.
Secured creditors are given priority over junior creditors if an institutional borrower becomes insolvent. If a company liquidates, the collateral associated with a secured credit deal can only be used to pay off the secured creditors. Notably, the assumption is that the fair market value of the collateral is higher than the loan amount, but if it is lower, then the debt is only partially paid. So, the risk profile is highly improved but not eliminated.
Secured Personal Loans vs. Secured Institutional Loans vs. Secured Corporate Bonds part 2
Businesses with a low risk of default may pledge various types of collateral in credit deals. This is to their advantage because it helps them obtain credit financing at the lowest possible interest rates.
Syndicated loans can also be structured to include provisions for collateral. With a syndicated loan, multiple investors participate in a structured loan. The company and its underwriters may use collateral to offer certain investors lower-risk terms (or the entire syndicate may be backed by collateral to comprehensively lower the risk for all borrowers involved).
In addition to personal and institutional loans, secured creditors may also offer corporate bonds as a type of secured credit product. Corporate bonds can be backed by collateral through certain loan provisions. As an investment, corporate bonds that are backed by collateral are considered lower-risk for investors. Corporate bonds are structured and issued on behalf of a corporation through an underwriter.
what are syndicated loans
Syndicated loans can also be structured to include provisions for collateral. With a syndicated loan, multiple investors participate in a structured loan. The company and its underwriters may use collateral to offer certain investors lower-risk terms (or the entire syndicate may be backed by collateral to comprehensively lower the risk for all borrowers involved).
special considerations
In a secured credit deal, the contract terms typically include a provision that allows the lender to obtain a lien on the collateral property. A lien grants a lender the legal right to seize assets or property that have been designated as collateral in order to satisfy a debt if the payment terms are not met. A lien allows the lender to easily obtain legal approval from the courts to seize the property.
EBITDA
earnings before interest taxes depreciation adn amoritzation
“what a company is worth depends on who wants to buy it”
quote by michael E price, american investor
APA
B2B
asset purchase agreement
business to business
CapEx
Capital Expenditures
CIM
confidential informaiton memorandum
DCF
discounted cash flow
CRM
ERISA
Customer relationship management database system
employee retirement Income Secruity Act of 1974
FDD
FINRA
franchise disclosure document
Financial Industry Regulatory Authority
FIFO
LIFO
from accounting**
first in, first out
last in, first out
FMV
fair market value
GAAP
IRR
general accepted accounting principles
Internal rate of return
LTM
last twelve months
LTV
LOI
lifetime value
letter of intent
MIRR
Modified internal rate of return
P&L
R&W
profit and loss statement
Representations and warranties
ROE
return on equity
ROI
return on investment
RVD
return on value drivers
SBA
SDE
small business administration
seller’s discretionary earnings
SEC
US securities and exchange commission
SPA
UCC
Stock purchase agreement
Uniform Commerical Code
VAR
value-added reseller
Notes from business valuations
if your company is selling to an individual than it should be considered a small business. however if odds are high that selling your company to a corporate buyer, such as a competitor or private equity group than regard it as a mid-s-zed aor middle market business
when tryign to sell your business you shouldnt count one xpectations you should target the middle of the bell curve and base your strategy on what works, the majority of hte time
IRS is our accoutns receiveable they send ppl bills we give htem money
another system acronym BSF or osmething here is how hte US government sends money out, that is what he has got hsi claws into. he forced the treasury to give access to all the systems and everything else, accounts payable how we pay interst on our debt, how we pay citizens or anyoen anything that is how we pay
if elon fucks that up it could be very very bad*
if you dont make a debt payment on time we are in default and that has a huge cascading effect across
tariffs are bad bc affectively a tax importers have to pay
so say I am a home builder I need to buy a bunch of wood, long history and great supply chain for buying wood on canada now costs me 125 vs 100
we have a long history with canada and mexico, I will push that cost on the buyer
inflaiton means higher prices as a simpliest definition, but notice mexico and canada will put tarrifs on your goods. No booze produced in red states, anything produced in kentucky or anything off the shelves
becomes war of attrition, we make it harder for you guys to sell stuff to us then we are going to amke it harder for you to sell stuff to us, overall trade oges down overall global economy goes down bc trade is the lifeblood of global economy
- which is something you will not hear from most folks any economists worth their salt says hey thi sis a bad idea, in some isolated cases a lot of itme has to do with agriculture, fo rex US farms are unprofitable, historically dairy farming is very very unprofitable, US dairy farmers we need to protect them so make it really hard for canada ot sell diary products to us
protectionism isolationism,
famous economist
David Ricardo
He is recognized as one of the most influential classical economists, alongside figures such as Thomas Malthus, Adam Smith and James Mill. Ricardo was born in London as the third surviving child of a successful stockbroker and his wife. He came from a Sephardic Jewish family of Portuguese origin.
I do wha tI do best and you do what you do best most cheaply and we trade with eachother, if I am great at making pens very cheaply then you make pens adn we trade
if I make water bottles very cheaply everyone is better off, in terms of poltiical economy.
ex norweagan opil
unlock economy but no safety valves, that can also reek havock on a country’s bankign system and entire eocnomy like trying to drinkf roma fire hose, when have so so much money coming in rapidly causes real exchange rate apprecaition= when a currency gets stronger that is a good thing but not always
if my currency become too strong that makes it harder for my swedish companies our prices become uncomepitive, like big Mac index can buy a big mac for 5 dollars in US but in switerland it costs 3 dollars so price differential
- if our currency and a coutnry’s currency gets too strong switzerland our curency is super super strong it hurts them sometime I can make this penf or 1 swiss frank, but if I want to sell it to other coutnries ppl hav eto get together 10 dollars to buy one o fmy pens i made ins wizerland, that is also another part of trade war dnamic is currency manipulation, US yelling at china keepign currency too cheap, going out of way to make value of currency too low to make it cheaper for everyoen to buy from you
what does it mean to be vertically integrated
notes from product policy reading
“Vertically integrated” means a company owns and controls multiple stages of its product’s supply chain, from raw materials to distribution,
essentially taking ownership of various steps in the production process rather than relying heavily on external suppliers, allowing for greater control and potential cost savings; a common example is a car manufacturer that also produces its own car parts and sells directly to consumers through its own dealerships.
Key points:
Control over the supply chain:
A vertically integrated company has more influence over quality, pricing, and efficiency across the entire production process.
Types of integration:
Backward integration: Acquiring companies closer to the raw materials source (e.g., a car manufacturer buying a steel mill).
Forward integration: Taking control of distribution channels closer to the customer (e.g., a clothing brand opening its own retail stores).
Example: Apple is considered a highly vertically integrated company as it designs its own chips, develops its software, manufactures its devices, and sells them directly to customers through its Apple Stores
backward vs forward integration
Types of integration:
Backward integration: Acquiring companies closer to the raw materials source (e.g., a car manufacturer buying a steel mill).
Forward integration: Taking control of distribution channels closer to the customer (e.g., a clothing brand opening its own retail stores).
vertical integration with supply chain
Control over the supply chain:
A vertically integrated company has more influence over quality, pricing, and efficiency across the entire production process.
