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Writing Shouldn’t be Hard.
When excitement strikes, write it down. It’s easy to go hour by hour throughout your day. Day by day. Week by week. I hate when people tell me “how soon time flies.” Time flies when we do not give attention to it. When we go through the motions day-in and day-out, we are living life…
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To Play the Short Game or Long Game?
In business, there is a tradeoff between focusing on short-term and long-term financial performance. Companies can choose to generate short-term cash flows. How so? Sell what sticks today. Sell high margin products. Cut back on operating expenses. Reduce capital expenditures. This helps (i) expand margins and (ii) increase free cash flow generated. But a sole…
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A Pizza Party with all your Uninvited Neighbors. Diluted Equity Value
Diluted equity value. A pizza party with all your uninvited neighbors. Dilution. It seems bad. But, what does it really mean for shareholders? Dilution means that more people are involved, so you get less value. Say I have a pizza party. I would want the fewest number of people showing up. Why? Because I want…
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Mindset limits skill set. Skill set limits mindset.
Here’s a new formula for you. A formula I try to preach day in, day out through my writing. OUTPUT = MIN (MINDSET , SKILL SET) What does this really mean? Simple. You are only as good as the lesser of your skills or mindset. If you have no limiting beliefs, your output is limited…
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How does EPS Capture all Changes?
We often hear that EPS captures all the effects of a transaction. What does this really mean? Well, it refers to the fact that EPS captures the full cost of capital. It does so in a way that other income statement metrics wouldn’t like net income, EBIT, EBITDA, gross profits, or revenue. What do we…
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Why Divide Earnings by Share Count?
Why do we divide earnings by the number of shares outstanding? We know that we cannot compare earnings of one company to another because that does not tell us how cheap or expensive a company is. Just because DropoutEdu has $100M in net income and UnlearnEdu has $50M in net income, we cannot conclude that…
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We’re Hiring!
We’re hiring interns 🥳 7 years ago, I started working my first job. And, that was the start of my teaching career. After instructing thousands of students, I could not have asked for it any differently. I signed up for the experience to help me stand out when applying to colleges. This was wrong. Rather,…
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4/11/24 Minute Markets
Key Events 👉 Headline and core CPI both increased 0.4% month over month in March. This is hotter than expectations for a 0.3% increase. Core services were driving the hotter number – transportation and medical care services. What does this mean? Inflation is ahead of expectations. Means the fed needs to stay patient. Fewer rate…
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Is EPS Just Wall Street Jargon?
Why do journalists and investors use earnings per share? It tells us the amount of earnings a company generates. But, why don’t we just look at net income. Why create a new line that companies must report under GAAP accounting. There is a mathematical difference between net income and EPS. Take this example. DropoutEdu earns…
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More Shares Don’t Matter
Share count is completely arbitrary. Just because a company has more shares than another, does not mean it is bigger. Just because a company has fewer shares than another, does not mean it is smaller. Why? Because the value of equity of a company is a function of two things. (i) Share price (ii) Shares…
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Why do the Rich Hang Around the Rich?
It’s not worth explaining. This might juxtapose what you would expect to hear from me. As an educator. Isn’t my job to teach and explain things in simple and intuitive ways? Yes. But, I am not referring to teaching in the traditional sense. I am talking about explaining the unacquainted. I have learned the hard…
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Flexibility is Valuable
Flexibility leads to value. Imagine that you have an assignment due at 11:59pm. That assignment is worth 50% of your grade. It is currently 11:00pm and you haven’t started. You are panicking. Say I am the professor of that class. How much would you pay me to give you the option to submit the homework…
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An Asset-light Premium
Why do asset-light, IP business trade so high? In recent years, the separation of asset-heavy from IP business units has increased. This phenomenon is known as Nikefication. Nikefication was pioneered by, hint, Nike. This operational strategy separates design from production and distribution. Corporations adopt a decentralized approach by outsourcing various functions like production and distribution…
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Does competition stifle improvement?
Does competition stifle improvement? Last night, I was running a mid-distance workout. On my third split, I had a thought come to mind that I jotted down after the workout. When I used to run competitively in high school, I resented running. It was extremely painful because I was very competitive. I wanted to be…
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4/9 Question of the Day
When does an item show up on the income statement? A) The revenue or expense recognized or incurred in the period listed on the statement. B) When the cash is transferred from one party to another. C) Earnings to equity investors are affected. D) When cash is expected to be transferred from one party to…
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4/9/24 Minute Markets
Key Events 👉 March Non-farm Payroll (NFP) ahead of expectations +300k jobs added and unemployment rate falling. Labor market is strong, and we see Fed is comfortable remaining patient before pulling back rates. They need more confidence that inflation will ease. 2 rate cuts are now priced for 2024, down from 3 cuts. 👉 Blackstone is in…
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All things converge over the long-term
Life is totally unfair. And, that’s perfectly fine. Those that accept it win. I was in Chicago this weekend. And, spent a decent amount of time walking around the city and thinking. Just looking around you see people from all-walks of life. One thing that is clear is that everyone goes about their own life. …
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How can Companies with Negative Accumulated Earnings Operate?
How can a company operate with an accumulated deficit? First, when does this happen? The simple answer – the company keeps losing money. Why? Probably because the company is not economically viable. Something about the business model makes it unprofitable. The lack of profitability accumulates. Specifically, on the company’s balance sheet. Under retained earnings. Retained…
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Is Negative Shareholder Equity Bad?
Can the value of shareholder equity be negative? Not really. But, it depends. It depends on how we define shareholder equity. First, equity refers to residual ownership in a company. Similar to your net worth. It’s the assets net the liabilities. It’s what you own less what you owe. The value that is left over…
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Are Index Funds Really Passive?
Are there antitrust concerns that arise from index fund managers? There are the big three. Vanguard State Street BlackRock They are by far the largest passive investors. Look, they own almost 5-15% in every public company through the indices they provide investors. It’s simple. They create indices. These indices are passive funds, meaning that they…
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Why can’t monopolies exist?
If capitalism is great… Why does the government have a vested interest in limiting it? Specifically, when it comes to monopolistic behaviors amongst firms. What defines this behavior? Any attempt to establish or maintain monopoly power within a certain market. Monopoly power exists when a single company controls a significant portion of the market, allowing…
