Finance and Investing Lecture Notes

Overview

• Presenter: Martin Shkreli
• Joined by two finance students and expert Quinn.
• Focused on finance basics, investing, and financial statements.

Recap of Previous Lesson

• Discussed investing basics and personal experiences related to finance.
• Key takeaway: Investing is a full-time job with a high failure rate.
• Emphasized realistic return expectations (20% or even 10% as significant success).
• Importance of understanding fees and the concept of investing other people's money.

Important Concepts Discussed

Self-Improvement in Investing

• Study successful investors from the past.
• Utilize resources such as financial journals and notable books (e.g., Seth Klarman's Margin of Safety).

Asset Classes

• Focused on equity (stocks).
• Key metrics to analyze: Stock price, shares outstanding, market cap, cash, debt, and enterprise value.
• Enterprise Value: Important but complex concept that requires thorough understanding.

Financial Statements

• Noted that financial statements can be dry but are essential for analysis.
• Introduced the Holy Trinity of financial statements:
  • Income Statement (IS)
  • Balance Sheet (BS)
  • Cash Flow Statement (CF)

Examination of Apple's Financials

• Initial step: Accessing SEC filings for analysis.
  • Key documents: Form 10Q (quarterly) and Form 10K (annual).
• Apple's 10Q Example:
  Sales reported at $75 billion for the quarter ending December 26, 2015.

Understanding Financial Metrics

• Balance Sheet Basics:
  • Assets listed in order of liquidity (cash, marketable securities, receivables).
  • Accounts receivable: Money owed to Apple from customers, net of bad debt.
  • Inventories consist of raw materials and finished goods.
  • Property, Plant, and Equipment (PP&E): Long-term physical assets.

Key Financial Figures for Apple

• Current Assets: $76 billion.
• Cash: $16 billion.
• Marketable Securities: $21 billion.
• Total Assets: Approximately $293 billion.

Liabilities

• Accounts Payable: Money Apple owes for services, etc.
• Liabilities Total: $165 billion, with shareholder equity around $130 billion.
• Enterprise Value Calculation: Market Cap - Cash + Debt.

Income Statement Analysis

• Revenue: $75 billion in Q4 2015.
• Cost of Goods Sold (COGS): $45 billion.
• Gross Profit: $30 billion.
• Operating Expenses: $6 billion.
• Net Profit: $18 billion.
• Earnings Per Share (EPS): $3.28.

Discounting Future Cash Flows

• Importance of understanding discount rates in finance.
• Discount rate influences the present value of cash flows.
• Risk Assessment: Higher risks lead to higher discount rates.

Applications and Theoretical Implications

• How external factors (e.g., political stability) impact risk and discount rates.
• Discussion of corporate finance and risk management as it relates to dividends and stock pricing.

Closing Notes

• Importance of mastering these concepts for successful investment and finance careers.
• Future lessons will expand on these fundamental principles, especially in valuing cash flows and investments.