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Accounting: In an Accounting Course, Far, Far Away... 1 Views
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Transcript
- 00:00
Accounting Allah shmoop in an accounting course far far away
- 00:09
You love Star Wars The original Obviously you remember that
- 00:13
scene with Luke semi blindfolded in the beginning with his
- 00:16
lightsaber fending off little laser shots from the hovering drone
- 00:20
practising to be a soldier a dreaming of someday not
Full Transcript
- 00:23
being a farmer that hovering drone was pretty grabby right
- 00:27
It had a flexibility and in a way intelligence that
- 00:30
was captivating Alright roll the clock forward a couple of
- 00:33
decades to the scene at the New York Stock Exchange
- 00:35
Right here You're banging the opening bell gavel thinking you've
- 00:39
just taken your drone company Blade Runner Public Your drones
- 00:43
are expensive at retail They cost about two thousand dollars
- 00:46
with the works including the cameras sensors extended battery power
- 00:49
in all the controls But those who loved your drone
- 00:52
love it a lot and most paid up for the
- 00:54
works model Every geek a kid wants one and it's
- 00:59
the parents who will generally pay for them Roll the
- 01:01
clock forward three more years Great AIPO stock skyrocketed from
- 01:05
eighteen bucks a share where you raise thirty six million
- 01:08
dollars for your company by selling two million shares to
- 01:10
the public to now trading at fifty dollars a share
- 01:13
Almost three acts Baby The masses love your product and
- 01:17
through innovation you've been able to take your costs of
- 01:20
twelve hundred dollars a unit on the works model to
- 01:23
eleven hundred dollars Right You saved a hundred bucks a
- 01:25
unit You wholesale the product to places like Target and
- 01:28
Walmart and Amazon for fifteen hundred dollars where they Mark
- 01:31
it up 2:2 grand and then sell it So three
- 01:33
years after the AIPO you are making roughly four hundred
- 01:36
dollars on a fifteen hundred dollars wholesale price Right so
- 01:40
fifteen hundred minus eleven hundred cost US four hundred contribution
- 01:43
The company is profitable but not hugely so and you
- 01:46
have a ton of competition coming You know that the
- 01:49
onslaught will test the value of whatever brand equity I'ii
- 01:53
customer loyalty you've built Thus far you have twenty million
- 01:56
shares outstanding in a fifty dollars a share It values
- 01:58
your company at one billion dollars You have no debt
- 02:02
You have fifty million in cash on the books with
- 02:04
twenty million and earnings This year you'll have a dollar
- 02:06
a share in net income and at fifty bucks a
- 02:09
share Your company trades at well about fifty times earnings
- 02:12
or forty seven point five times If you x out
- 02:16
the net cash on the balance sheet there All right
- 02:18
well how do we get that number Well it's called
- 02:20
the equity capitalization of the company and its nine hundred
- 02:24
fifty million dollars market capitalization is a billion dollars right
- 02:28
It's just twenty million shares times fifty dollar price at
- 02:30
some market cap that includes everything And it includes the
- 02:33
cash but get better transparency A lot of investors like
- 02:36
toe look att the equity capitalization in the company where
- 02:39
they basically subtract out the net cash and or add
- 02:42
back Then that debt that a company has to in
- 02:45
this case company has net cash of fifty million dollars
- 02:47
and you'd say the equity capitalization of the company is
- 02:50
nine fifty Okay if company is earning twenty million bucks
- 02:54
this year well then to get to its multiple we
- 02:56
divide that nine hundred fifty million dollars Buy twenty million
- 02:59
to get a price to earnings ratio of forty seven
- 03:02
point five times this year's earnings Well guess what Nobody
- 03:05
pays fifty ish times Earnings for anything when people are
- 03:09
buying your stock They're expecting your earnings to grow or
- 03:12
come pound at a very high rate And the whisper
- 03:15
number on the street is that you'll earn two dollars
- 03:18
a share next year up from a dollar now like
- 03:21
the hammer or a brokerage or key analyst covering your
- 03:24
stock might publish in writing that you'll earn a dollar
- 03:28
forty three next year But the number everyone is whispering
- 03:31
about is closer to two bucks meaning that your stock
- 03:33
is whispering Lee poised to go up a lot at
- 03:37
least in theory So the whisper number believing bulls are
- 03:41
saying that at fifty dollars a share you're actually only
- 03:44
trading at about twenty five times earnings and they believe
- 03:47
you'll generate another thirty million in cash in the next
- 03:50
year so that you'd have eighty million dollars in cash
- 03:52
on the books You know up from fifty and you
- 03:55
can look through that on the balance sheet but you
- 03:57
have to prove these numbers You know consumers are fickle
- 04:00
at this moment You have fifty million dollars in net
- 04:02
cash and for a regular Joe that would seem like
- 04:04
it's one of money But for a globally distributed high
- 04:07
end toy maker It's not a lot of money by
- 04:10
way of comparison Just the marketing budget of one Hollywood
- 04:14
summer movie is way more than fifty million dollars So
- 04:17
you have to think carefully about that dough and a
- 04:19
bunch of questions taunt you at night Should I sell
- 04:22
another ten percent of my company to the public and
- 04:24
raise a one hundred million of cash at a billion
- 04:27
dollars in market capitalization Ten percent is the one hundred
- 04:30
million bucks How do I feel about my stock at
- 04:32
fifty times earnings It feels expensive on today's Numbers I'm
- 04:36
nervous All print 80 cents a share instead of two
- 04:38
dollars in the stock will crash I will have sold
- 04:41
a lot of shares to people who trusted me Then
- 04:44
at fifty dollars when it'll then be worth probably more
- 04:47
like ten bucks or less Well what are the ethics
- 04:49
here Is it ethical to not sell shares If I
- 04:52
feel minor overpriced right Or is it unethical to do
- 04:56
so Because then I stick the share Buying public was
- 04:58
shares of my stock at fifty dollars that they should
- 05:01
have only paid ten dollars for Who do I work
- 05:04
for who Do I owe the ethical consideration here Or
- 05:08
should I just take out debt to have the extra
- 05:10
cash And don't worry about all this stuff What would
- 05:12
I spend the money on anyway if I had an
- 05:14
extra hundred million bucks laying around on this last question
- 05:18
is what you will awake to issue carefully review the
- 05:21
distribution elements of your business But yeah if you don't
- 05:24
ask yourself these questions well you might just fall prey 00:05:27.67 --> [endTime] to the dark side
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