­­FIN301 Class Web Page, Spring ' 25

Instructor: Maggie Foley

Jacksonville University

 

The Syllabus    PDF file     Risk Tolerance Test (FYI)     Term Project Guidelines  

 

 

Weekly SCHEDULE, LINKS, FILES and Questions

Chapter

Coverage, HW, Supplements

-       Required

References

 

 

Marketwatch Stock Trading Game (Pass code: havefun)

 
1. Use the information and directions below to join the game.

1.      URL for your game: 
 https://www.marketwatch.com/game/fin301-25spring   

 

2.    Password for this private game: havefun

3.      Click on the 'Join Now' button to get started.

·        If you are an existing MarketWatch member, login. If you are a new user, follow the link for a Free account - it's easy!

·        Follow the instructions and start trading!

 

3. Risk Tolerance Test (FYI)

 

4.     Mutual Fund Selection Game (FYI)

 

 

5.     Order Type Explained Game (FYI)

 

 

 

How To Win The MarketWatch Stock Market Game (youtube, FYI) – finviz example

 

How Short Selling Works (Short Selling for Beginners) (youtube, FYI)

 

 

image001.jpg

 

 

Chapter  1: Introduction

 

ppt

 

 

 Note:

Flow of funds describes the financial assets flowing from various sectors through financial intermediaries for the purpose of buying physical or financial assets.

*** Household, non-financial business, and our government

 

Financial institutions facilitate exchanges of funds and financial products.

*** Building blocks of a financial system. Passing and transforming funds and risks during transactions.

*** Buy and sell, receive and deliver, and create and underwrite financial products.

*** The transferring of funds and risk is thus created. Capital utilization for individual and for the whole economy is thus enhanced.

 

 

Part 1 - Who Wants to Chair the Fed?   Quiz 1

 

Gamehttps://lewis500.github.io/macro/

 

The Federal Reserve (Fed) often faces the challenging dilemma of balancing economic growth with price stability - commonly referred to as the trade-off between controlling inflation and minimizing unemployment.

1. Inflation vs. Unemployment

  • Raising Interest Rates: Helps control inflation by slowing down spending and investment. However, this can increase unemployment as businesses cut back on hiring or production.
  • Lowering Interest Rates: Boosts economic growth and reduces unemployment by encouraging spending and investment. However, it can lead to rising inflation if demand outpaces supply.

2. Long-term Stability vs. Short-term Relief

  • The Fed must make decisions that sometimes prioritize long-term economic health (e.g., curbing inflation) over short-term relief for the economy (e.g., reducing unemployment), or vice versa.

3. Uncertainty and Lag Effects

  • Monetary policy decisions take time to affect the economy, making it hard to predict their full impact.
  • External factors, such as global economic conditions or supply shocks, add to the complexity.

In the game, you play as the Fed chair and must make interest rate decisions to strike this delicate balance while keeping inflation and unemployment within acceptable ranges. Success depends on how well you manage these competing goals over time.

Factors to Consider:

1.     Current Inflation Rate:

    • Is inflation above or below the Fed’s target (usually 2%)?
    • Lowering interest rates could worsen inflation if it's already too high.

2.     Unemployment Rate:

    • Is unemployment high? If so, a rate cut might stimulate job creation and economic activity.

3.     Economic Growth:

    • Is the economy slowing down? If GDP growth is sluggish or negative, lowering interest rates can help boost investment and spending.

4.     Consumer and Business Confidence:

    • Are businesses and consumers optimistic about the future? A rate cut might encourage more borrowing and spending if confidence is low.

5.     Financial Market Conditions:

    • Are financial markets signaling distress? A lower interest rate could stabilize markets by making borrowing cheaper.

6.     Global Economic Trends:

    • Are there external pressures, such as a global slowdown or trade disruptions, that might justify lowering rates to cushion the economy?

7.     Lag Effects of Monetary Policy:

    • How quickly will the rate cut affect the economy? Policy changes take time, so we should consider the timing of their decision.

8.     Federal Reserves Dual Mandate:

    • The Fed is tasked with promoting maximum employment and stable prices. Which goal is more at risk currently?

In-Class Debate: Should the Fed Reduce Interest Rates Soon, or Is It Better to Wait?

  • Support your decision with evidence based on the factors above.
  • Play the game to help decide.

The next Federal Open Market Committee (FOMC) meeting is scheduled for January 2829, 2025. Let’s wait and see what unfolds leading up to this critical decision.

 

 

Chapter 2 Introduction of Financial Market

 

ppt     quiz 2

 

1.     What are the six parts of the financial markets

Money:

·       To pay for purchases and store wealth (fiat money, fiat currency)

Financial Instruments:

·       To transfer resources from savers to investors and to transfer risk to those best equipped to bear it.  

Financial Markets:

·       Buy and sell financial instruments

·       Channel funds from savers to investors, thereby promoting economic efficiency

·       Affect personal wealth and behavior of business firms. Example?

Financial Institutions.

·       Provide access to financial markets, collect information & provide services

·       Financial Intermediary: Helps get funds from savers to investors

Central Banks

·       Monitor financial Institutions and stabilize the economy

Regulatory Agencies

·       To provide oversight for financial system.

 

2.     What are the five core principals of finance

  • Time has value
  • Risk requires compensation
  • Information is the basis for decisions
  • Markets determine prices  and allocation resources
  • Stability improves welfare

 

 

 

No homework for chapters 1, 2

The Implications of Trump's Return on U.S. Trade Policy: Will Tariffs and Trade Wars Resurface? (FYI)

 

Background

Trump's presidency (2017-2021) featured aggressive trade policies, including significant tariffs on China and other trading partners, renegotiations of trade agreements, and discussions about protecting American manufacturing through quotas and tariffs.

 

 

 

Industry

Impact of Tariff

Jobs

Cost of Living

Availability of Goods

Automotive

Tariffs on imported cars or car parts increase production costs.

o   Potential job growth in U.S. car manufacturing.

o    Cars become more expensive due to higher production and import costs.

o   Fewer car options for consumers, especially for foreign brands.

o   - Job losses in assembly plants dependent on imports.

Technology

Tariffs on electronics (e.g., phones, laptops) increase prices for imported components and products.

·        May encourage domestic tech manufacturing, creating new jobs.

·       Higher prices for electronics like smartphones and laptops.

·       Slower availability of new tech or limited models due to disrupted global supply chains.

·        Job losses in export-dependent sectors.

Agriculture

Tariffs on imports like fruits, vegetables, and grains benefit U.S. farmers but lead to retaliation abroad.

o   Job growth in domestic farming.

o   Food prices increase (e.g., fruits, vegetables, meat) due to higher import costs or reduced supply.

o   Seasonal produce may become scarce without imported goods.

o   Job losses in export-heavy states if foreign markets retaliate.

Steel & Aluminum

Tariffs on steel and aluminum imports protect U.S. industries but increase input costs for manufacturers.

·       Job creation in steel and aluminum production.

·       Higher prices for goods like cars, appliances, and construction materials.

·       Domestic materials may meet demand, but global quality or price competition decreases.

·       Job losses in industries that use steel (e.g., construction).

Textiles & Apparel

Tariffs on imported clothes and fabrics raise production costs for retailers.

o   Some job growth in U.S. textile production.

o   Clothes and shoes become more expensive, especially for foreign brands.

o   Fewer affordable clothing options for budget-conscious consumers.

o   Retailers may downsize due to higher costs.

Pharmaceuticals

Tariffs on medicine ingredients from abroad increase drug manufacturing costs.

·       Minimal direct impact on jobs; limited reshoring possible due to high costs.

·       Higher prices for essential medicines, potentially unaffordable for low-income households.

·       Slower production and potential shortages of life-saving drugs.

Energy (Oil & Gas)

Tariffs on imported crude oil or equipment for renewable energy increase domestic production costs.

o   Job growth in U.S. oil and gas extraction.

o   Higher energy costs (e.g., gas, electricity) due to increased input costs.

o   Renewable energy projects may be delayed, reducing clean energy options.

o   Potential slowdown in renewable energy projects.

Consumer Goods

Tariffs on items like furniture, appliances, and toys raise retail prices.

·       Few new jobs created, as these goods are often not manufactured domestically.

·       Significant price hikes for everyday items, burdening consumers.

·       Limited options for foreign brands; delays in availability of popular goods.

Luxury Goods

Tariffs on imported cars, wine, cheese, or designer goods impact high-end consumers and businesses.

o   Minimal impact on jobs, as luxury production is already niche.

o   Luxury items become much more expensive (e.g., European cars, wines, and fashion).

o   Reduced availability of high-end imported goods.

 

Key Insights

1.     Jobs:

    • Tariffs generally boost domestic jobs in industries like steel, aluminum, and farming.
    • Export-dependent industries (e.g., agriculture, tech) face potential job losses due to retaliation.

2.     Cost of Living:

·       Prices rise for everyday goods (e.g., food, clothes, electronics) when tariffs increase import costs.

·       Higher energy costs can have widespread effects across industries.

3.     Availability of Goods:

·       Imported goods (e.g., seasonal produce, luxury cars, and tech gadgets) may become limited or delayed.

·       Domestic alternatives might not match global competition in terms of quality, price, or innovation.

 

Now, let’s work on this survey about tariffs. Tariff Survey

 

Game: Tariff Trade Simulation   A simple game

 

What Determines the Strength of the US Dollar? (self-produced video)

 

 

 

 

Swiss franc carry trade comes fraught with safe-haven rally risk (FYI)

By Harry Robertson

September 2, 20241:03 AM EDTUpdated 5 months ago

https://www.reuters.com/markets/currencies/swiss-franc-carry-trade-comes-fraught-with-safe-haven-rally-risk-2024-09-02/

 

 

LONDON, Sept 2 (Reuters) - As investors turn to the Swiss franc as an alternative to Japan's yen to fund carry trades, the risk of the currency staging one of its rapid rallies remains ever present.

The Swiss franc has long been used in the popular strategy where traders borrow currencies with low interest rates then swap them into others to buy higher-yielding assets.

Its appeal has brightened further as the yen's has dimmed. Yen carry trades imploded in August after the currency rallied hard on weak U.S. economic data and a surprise Bank of Japan rate hike, helping spark global market turmoil.

 

The Swiss National Bank (SNB) was the first major central bank to kick off an easing cycle earlier this year and its key interest rate stands at 1.25%, allowing investors to borrow francs cheaply to invest elsewhere.

By comparison, interest rates are in a 5.25%-5.50% range in the United States, 5% in Britain, and 3.75% in the euro zone.

"The Swiss franc is back as a funding currency," said Benjamin Dubois, global head of overlay management at Edmond de Rothschild

 

STABILITY

The franc is near its highest in eight months against the dollar and in nine years against the euro , reflecting its status as a safe-haven currency and expectations for European and U.S. rate cuts.

But investors hope for a gradual decline in the currency's value that could boost the returns on carry trades.

Speculators have held on to a $3.8 billion short position against the Swiss franc even as they have abruptly moved to a $2 billion long position on the yen , U.S. Commodity Futures Trading Commission data shows.

 

"There is more two-way risk now in the yen than there has been for quite some time," said Bank of America senior G10 FX strategist Kamal Sharma. "The Swiss franc looks the more logical funding currency of choice."

BofA recommends investors buy sterling against the franc , arguing the pound can rally due to the large interest rate gap between Switzerland and Britain, in a call echoed by Goldman Sachs.

 

The SNB appears set to cut rates further in the coming months as inflation dwindles. That would lower franc borrowing costs and could weigh on the currency, making it cheaper to pay back for those already borrowing it.

Central bankers also appear reluctant to see the currency strengthen further, partly because of the pain it can cause exporters. BofA and Goldman Sachs say they believe the SNB stepped in to weaken the currency in August.

"The SNB will likely guard against currency appreciation through intervention or rate cuts as required," said Goldman's G10 currency strategist Michael Cahill.

 

'INHERENTLY RISKY'

Yet the Swissie, as it is known in currency markets, can be an unreliable friend.

Investors are prone to pile into the currency when they get nervous, thanks to its long-standing safe-haven reputation.

Cahill said the franc is best used as a funding currency at moments when investors are feeling optimistic.

A quick rally in the currency used to fund carry trades can wipe out gains and cause investors to rapidly unwind their positions, as the yen drama showed. High levels of volatility or a drop in the higher-yielding currency can have the same effect.

The SNB and Swiss regulator Finma declined to comment when asked by Reuters about the impact of carry trades on the Swiss currency.

As stock markets tumbled in early August, the Swiss franc jumped as much as 3.5% over two days. The franc-dollar pair has proven sensitive to the U.S. economy, often rallying hard on weak data that causes U.S. Treasury yields to fall.

 

"Any carry trade is inherently risky and this is particularly true for those funded with safe-haven currencies," said Michael Puempel, FX strategist at Deutsche Bank.

"The main risk is that when yields move lower in a risk-off environment, yield differentials compress and the Swiss franc can rally," Puempel added.

A gauge of how much investors expect the Swiss currency to move , derived from options prices, is currently at around its highest since March 2023.

"Considering the central banks, you can see how there may be more sentiment for some carry players to prefer the franc over the yen," said Nathan Vurgest, head of trading at Record Currency Management.

"The ultimate success of this carry trade might still be dependent on how quickly it can be closed in a risk-off scenario," Vurgest said, referring to a moment where investors cut their riskier trades to focus on protecting their cash.

Get the latest news and expert analysis about the state of the global economy with the Reuters Econ World newsletter. Sign up here.

Reporting by Harry Robertson; Editing by Dhara Ranasinghe and Alexander Smith

 

Key Insights from the Article:

1.     Swiss Franc as a Funding Currency:

    • The Swiss franc has gained popularity as a funding currency for carry trades due to its low-interest rate (1.25%), particularly as the yen has become less favorable after recent volatility and a surprise rate hike by the Bank of Japan.

2.     Carry Trade Dynamics:

    • Investors borrow currencies with low interest rates (e.g., the Swiss franc) and invest in higher-yielding currencies like the British pound or U.S. dollar.
    • The attractiveness of the Swiss franc is tied to its low borrowing costs and the potential for a gradual decline in its value.

3.     Safe-Haven Risks:

    • The Swiss franc's safe-haven status introduces risk for carry trades. In times of market stress, investors flock to the franc, causing it to rally and potentially wiping out carry trade gains.
    • This was evident when the franc jumped 3.5% over two days in early August during stock market turmoil.

4.     Central Bank Influence:

    • The Swiss National Bank (SNB) is expected to cut rates further, which could lower borrowing costs for the franc and make it cheaper for carry trades.
    • The SNB appears to actively intervene in the currency market to prevent excessive appreciation, supporting exporters and stabilizing the economy.

5.     Strategist Views:

    • Bank of America and Goldman Sachs favor the Swiss franc as a funding currency over the yen due to reduced volatility and predictability.
    • BofA and Goldman Sachs recommend buying higher-yielding currencies like sterling against the franc to benefit from interest rate differentials.

6.     Risks of Swiss Franc Carry Trades:

    • Sudden rallies in the franc (often triggered by safe-haven demand or weak U.S. data) pose significant risks to carry trades.
    • Yield compression in risk-off scenarios can amplify losses for traders.

7.     Investor Sentiment:

    • The success of Swiss franc carry trades depends on investor optimism and the ability to close trades quickly during market stress.
    • Volatility expectations for the franc are currently elevated, reflecting concerns about market risks.

This analysis highlights the opportunities

Chapter 5 Time value of Money

ppt                  Quiz 3                 Quiz 4

Key Topics Covered:

1.     Future Value (FV):

·       Definition: The amount of money an investment will grow to after earning interest over a specific period.

·       Formula: See the column to the right for details.

·       Application: Learn how to calculate the future value of savings or investments.

2.     Present Value (PV):

·       Definition: The current worth of a future sum of money or cash flow, discounted at a specific rate.

·       Formula: See the column to the right for details.

·       Application: Understand how to assess the value of future payments or investments today.

3.     Payment (PMT):

·       Definition: The fixed payment required to repay a loan over time, including interest.

·       Formula: See the column to the right for details.

·       Application: Learn how to calculate payments for loans, such as car loans or mortgages.

4.     Interest Rate (Rate):

·       Definition: The rate of return or cost of borrowing, expressed as a percentage.

·       Formula: See the column to the right for details.

·       Application: Learn how to determine the interest rate needed to achieve a financial goal.

5.     Number of Periods (NPER):

·       Definition: The number of time periods required for an investment to reach a specific future value or for a loan to be paid off.

·       Formula: See the column to the right for details.

·       Application: Determine how long it will take to save or grow your money.

6.     Net Present Value (NPV), Net Future Value (NFV)

·       Net Present Value (NPV): The difference between the present value of cash inflows and outflows over a period of time. It is used to assess the profitability of an investment or project.

·       Net Future Value (NFV): The future value of all cash inflows and outflows accumulated at a specific interest rate. It provides a measure of the total future worth of an investment.

7.     Effective Annual Rate (EAR) and Annual Percentage Rate (APR)

·       Effective Annual Rate (EAR):
The actual annual interest rate, accounting for compounding periods. It represents the true cost of borrowing or return on investment.

·       Annual Percentage Rate (APR):
The nominal annual interest rate that does not account for compounding within the year. It is commonly used for loans and credit products to standardize interest rate disclosures.

8.     Ordinary Annuity (PMT) and Annuity Due (PMT, type=1)

        Ordinary Annuity (PMT):
Payments are made at the end of each period. Used for loans, retirement savings, and mortgages.

        Annuity Due (PMT, type=1):
Payments are made at the beginning of each period. Common in lease agreements and insurance premiums.

 

 

Real-World Applications:

1.     Planning for the Future:

o   Use TVM concepts to plan for retirement, save for large purchases, or achieve financial goals.

2.     Loan Management:

o   Calculate loan payments for car loans, mortgages, or student loans.

o   Compare loans and understand the cost of borrowing.

3.     Credit Card Decisions:

o   Evaluate interest rates and payment terms to choose the best credit card.

4.     Investment Opportunities:

o   Compare investment options by calculating present and future values.

 

Key Takeaways:

  • Money has a time value, meaning it grows with interest or decreases in purchasing power due to inflation.
  • Understanding TVM concepts helps in making informed financial decisions, like choosing investments or managing debt.
  • Practical applications include savings growth, loan payments, and credit card evaluation.

 

 

 

The time value of money - German Nande (video)

 

Tutoring of Time Value of Money calculation in Excel video

 

 

Chapter 5 – Escape Room – To Earn Fake Etherum and Meme Coins

 

Questions in the escape room exercises:

1.     You are investing $5,000 (Present Value) in an account that earns 4% annual interest (Rate) for 8 years (Number of Periods). What is the Future Value of your investment? (fv=abs(fv(4%, 8, 0, 5000)), or fv =5000*(1+4%)^8)

2.      You are investing $3,000 (Present Value) in an account that earns 3% annual interest (Rate) for 12 years (Number of Periods). What is the Future Value of your investment? (fv=abs(fv(3%, 12, 0, 3000)), or fv =3000*(1+3%)^12)

3.     You need $20,000 in 10 years (Future Value) and can earn 3% annual interest (Rate). What is the Present Value of your investment? (pv=abs(pv(3%, 10, 0, 20000)), or pv =20000/(1+3%)^10)

4.     You need $15,000 in 5 years (Future Value) and can earn 2% annual interest (Rate). What is the Present Value of your investment? (pv=abs(pv(2%, 5, 0, 15000)), or pv =15000/(1+2%)^5)

5.      You invested $5,000 (Present Value) and it grew to $6,500 (Future Value) in 5 years. What was the annual interest rate? (rate=rate(5, 0, 5000, -6500)), or rate = ln(6500/5000)^(1/5)-1)

6.      You invested $8,000 (Present Value) and it grew to $10,000 (Future Value) in 6 years. What was the annual interest rate? (rate=rate(6, 0, 8000, -10000)), or rate = ln(10000/5=6000)^(1/6)-1)

7.      You invested $5,000 (Present Value) at an annual interest rate of 4% and it grew to $6,000 (Future Value). How many years did it take? (nper = nper(4%, 0, 5000, -6000), nper = ln(6000/5000)/(ln(1+4%))

8.      You invested $10,000 (Present Value) at an annual interest rate of 5% and it grew to $15,000 (Future Value). How many years did it take? (nper = nper(5%, 0,10000, -15000), nper = ln(15000/10000)/(ln(1+5%))

9.      You take a $30,000 loan (Present Value) at 4% annual interest (Rate) for 5 years (Number of Periods). What is your monthly payment? (pmt=pmt(4%/12, 5*12, 30000, 0))

10. You take a $20,000 loan (Present Value) at 3% annual interest (Rate) for 10 years (Number of Periods). What is your monthly payment? (pmt=pmt(3%/12, 10*12, 20000, 0))

 

 

Chapter 5 Homework (due with the first mid term)

 

1.     You deposit $5,000 in a saving account at 10% compounded annually. How much is your first year interest? How much is your second year interest? (500, 550)

 

2.     What is the future value of $5,000 invested for 3 years at 10% compounded annually? ( 6,655)

 

3.     You just bought a TV for $518.4 on credit card. You plan to pay back of $50 a month for this credit card debt. The credit card charges you 12% of interest rate on the monthly basis. So how long does it take to pay back your credit card debt? (11 months)

 

4.     You are going to deposit certain amount in the next four years. Your saving account offers 5% of annual interest rate.

First year:       $800

Second year:   $900

Third year:      $1000

Fourth year:    $1200.

How much you can withdraw four years later? (4168.35) (hint: refer to  https://www.jufinance.com/nfv/ )

 

5.     You are going to deposit certain amount in the next four years. Your saving account offers 5% of annual interest rate.

First year:       $800

Second year:   $900

Third year:      $1000

Fourth year:    $1200.

How much is the lump sum value as of today (NPV)? (3429.31) (Hint: use npv function in excel)

 

6.     Ten years ago, you invested $1,000. Today it is worth $2,000. What rate of interest did you earn? (7.18%)

 

7.     At 5 percent interest, how long would it take to triple your money? (22.52)

 

8.     What is the effective annual rate if a bank charges you 12 percent compounded monthly? (12.68%) (hint: use effect function in excel)

 

9.     Your father invested a lump sum 16 years ago at 8% interest for your education. Today, that account worth $50,000.00. How much did your father deposit 16 years ago? ($14594.52)

 

10.  You are borrowing $300,000 to buy a house. The terms of the mortgage call for monthly payments for 30 years at 3% interest. What is the amount of each payment?  ($1264.81)

 

11.  You deposit $200 at the beginning of each month into your saving account every month. After two years (24 deposits total), your account value is $6,000. Assuming monthly compounding, what is your monthly rate that the bank provides?  (1.74%)

 

12.   You want to buy a fancy car. For this goal, you plan to save $5,500 per year, beginning immediately.  You will make 4 deposits in an account that pays 8% interest.  Under these assumptions, how much will you have 4 years from today? ($26,766.31)

 

13.  The Thailand Co. is considering the purchase of some new equipment. The quote consists of a quarterly payment of $4,740 for 10 years at 6.5 percent interest. What is the purchase price of the equipment? ($138,617.88)

14.  Today, you are purchasing a 15-year, 8 percent annuity at a cost of $70,000. The annuity will pay annual payments. What is the amount of each payment? ($8,178.07)

15.  Shannon wants to have $10,000 in an investment account three years from now. The account will pay 0.4 percent interest per month. If Shannon saves money every month, starting one month from now, how much will she have to save each month? ($258.81)

16.  Trevor's Tires is offering a set of 4 premium tires on sale for $450. The credit terms are 24 months at $20 per month. What is the interest rate on this offer? (6.27 percent)

17.  Top Quality Investments will pay you $2,000 a year for 25 years in exchange for $19,000 today. What interest rate are you earning on this annuity? (9.42 percent)

18.  Around Town Movers recently purchased a new truck costing $97,000. The firm financed this purchase at 8.25 percent interest with monthly payments of $2,379.45. How many years will it take the firm to pay off this debt? (4.0 years)

19.  You just received a credit offer in an email. The company is offering you $6,000 at 12.8 percent interest. The monthly payment is only $110. If you accept this offer, how long will it take you to pay off the loan? (82.17 months)

20.  What is the future value of weekly payments of $25 for six years at 10 percent? ($10,673.90)

Summary of math and excel equations

 

Math Formula

FV = PV *(1+r)^n

PV = FV / ((1+r)^n)

N = ln(FV/PV) / ln(1+r)

Rate = (FV/PV)1/n -1

Annuity:

N = ln(FV/C*r+1)/(ln(1+r))

Or

N = ln(1/(1-(PV/C)*r)))/ (ln(1+r))

 

image001.jpg

 

 

 

 

Excel Formulas 

 

To get FV, use FV function.   

      =abs(fv(rate, nper, pmt, pv))

 

To get PV, use PV function                           

     = abs(pv(rate, nper, pmt, fv))

 

To get r, use rate function                          

     = rate(nper,  pmt, pv, -fv)

 

To get number of years, use nper function       

     = nper(rate,  pmt, pv, -fv)

 

To get annuity payment, use PMT function

     = pmt(rate, nper, pv, -fv)

 

To get Effective rate (EAR), use Effect function

 = effect(nominal_rate, npery)

 

To get annual percentage rate (APR), use nominal function

 = nominal(effective rate,  npery)

 

 

NPV NFV calculator(FYI, might be helpful)

www.jufinance.com/nfv

 

 

 

Time Value of Money Calculator

http://www.jufinance.com/tvm/

 

Chapter 3 Financial Statement Analysis

 

Ppt           Quiz on BS and IS                Quiz on Cash Flow Statement

 

Explaining 4 Financial Statements (youtube)

 

 

************* Introduction ***************

 

Let’s compare Nike with GoPro based on 10K (www.nasdaq.com)

https://www.nasdaq.com/market-activity/stocks/nke/financials

 

 

https://www.nasdaq.com/market-activity/stocks/nke/financials

 

Nike’s Income Statement

 

Period Ending:

5/31/2024

5/31/2023

5/31/2022

5/31/2021

Total Revenue

$51,362,000

$51,217,000

$46,710,000

$44,538,000

Cost of Revenue

$28,475,000

$28,925,000

$25,231,000

$24,576,000

Gross Profit

$22,887,000

$22,292,000

$21,479,000

$19,962,000

Operating Expenses

 

 

 

 

Research and Development

--

--

--

--

Sales, General and Admin.

$16,576,000

$16,377,000

$14,804,000

$13,025,000

Non-Recurring Items

--

--

--

--

Other Operating Items

--

--

--

--

Operating Income

$6,311,000

$5,915,000

$6,675,000

$6,937,000

Add'l income/expense items

$228,000

$280,000

$181,000

($14,000)

Earnings Before Interest and Tax

$6,700,000

$6,201,000

$6,651,000

$6,661,000

Interest Expense

--

--

--

--

Earnings Before Tax

$6,700,000

$6,201,000

$6,651,000

$6,661,000

Income Tax

$1,000,000

$1,131,000

$605,000

$934,000

Minority Interest

--

--

--

--

Equity Earnings/Loss Unconsolidated Subsidiary

--

--

--

--

Net Income-Cont. Operations

$5,700,000

$5,070,000

$6,046,000

$5,727,000

Net Income

$5,700,000

$5,070,000

$6,046,000

$5,727,000

Net Income Applicable to Common Shareholders

$5,700,000

$5,070,000

$6,046,000

$5,727,000

 

Nike’s Balance Sheet

 

Period Ending:

5/31/2024

5/31/2023

5/31/2022

5/31/2021

Current Assets

 

 

 

 

Cash and Cash Equivalents

$9,860,000

$7,441,000

$8,574,000

$9,889,000

Short-Term Investments

$1,722,000

$3,234,000

$4,423,000

$3,587,000

Net Receivables

$4,427,000

$4,131,000

$4,667,000

$4,463,000

Inventory

$7,519,000

$8,454,000

$8,420,000

$6,854,000

Other Current Assets

$1,854,000

$1,942,000

$2,129,000

$1,498,000

Total Current Assets

$25,382,000

$25,202,000

$28,213,000

$26,291,000

Long-Term Assets

 

 

 

 

Long-Term Investments

--

--

--

--

Fixed Assets

$7,718,000

$8,004,000

$7,717,000

$8,017,000

Goodwill

$240,000

$281,000

$284,000

$242,000

Intangible Assets

$259,000

$274,000

$286,000

$269,000

Other Assets

--

--

--

--

Deferred Asset Charges

$4,511,000

$3,770,000

$3,821,000

$2,921,000

Total Assets

$38,110,000

$37,531,000

$40,321,000

$37,740,000

Current Liabilities

 

 

 

 

Accounts Payable

$9,110,000

$8,825,000

$9,800,000

$9,205,000

Short-Term Debt / Current Portion of Long-Term Debt

$1,006,000

$6,000

$510,000

$2,000

Other Current Liabilities

$477,000

$425,000

$420,000

$467,000

Total Current Liabilities

$10,593,000

$9,256,000

$10,730,000

$9,674,000

Long-Term Debt

$7,903,000

$8,927,000

$8,920,000

$9,413,000

Other Liabilities

$2,566,000

$2,786,000

$2,777,000

$2,931,000

Deferred Liability Charges

$2,618,000

$2,558,000

$2,613,000

$2,955,000

Misc. Stocks

--

--

--

--

Minority Interest

--

--

--

--

Total Liabilities

$23,680,000

$23,527,000

$25,040,000

$24,973,000

Stock Holders Equity

 

 

 

 

Common Stocks

$3,000

$3,000

$3,000

$3,000

Capital Surplus

$965,000

$1,358,000

$3,476,000

$3,179,000

Retained Earnings

--

--

--

--

Treasury Stock

$13,409,000

$12,412,000

$11,484,000

$9,965,000

Other Equity

$53,000

$231,000

$318,000

($380,000)

Total Equity

$14,430,000

$14,004,000

$15,281,000

$12,767,000

Total Liabilities & Equity

$38,110,000

$37,531,000

$40,321,000

$37,740,000

 

Nike’s Cash Flow Statement

 

Period Ending:

5/31/2024

5/31/2023

5/31/2022

5/31/2021

Net Income

$5,700,000

$5,070,000

$6,046,000

$5,727,000

Cash Flows-Operating Activities

 

 

 

 

Depreciation

$844,000

$859,000

$840,000

$797,000

Net Income Adjustments

$169,000

$425,000

($38,000)

$88,000

Changes in Operating Activities

 

 

 

 

Accounts Receivable

($329,000)

$489,000

($504,000)

($1,606,000)

Changes in Inventories

$908,000

($133,000)

($1,676,000)

$507,000

Other Operating Activities

($260,000)

($644,000)

($845,000)

($182,000)

Liabilities

$397,000

($225,000)

$1,365,000

$1,326,000

Net Cash Flow-Operating

$7,429,000

$5,841,000

$5,188,000

$6,657,000

Cash Flows-Investing Activities

 

 

 

 

Capital Expenditures

($812,000)

($969,000)

($758,000)

($695,000)

Investments

$1,721,000

$1,481,000

($747,000)

($3,276,000)

Other Investing Activities

($15,000)

$52,000

($19,000)

$171,000

Net Cash Flows-Investing

$894,000

$564,000

($1,524,000)

($3,800,000)

Cash Flows-Financing Activities

 

 

 

 

Sale and Purchase of Stock

($3,583,000)

($4,829,000)

($2,863,000)

$564,000

Net Borrowings

--

($500,000)

--

($197,000)

Other Financing Activities

($136,000)

($102,000)

($151,000)

($136,000)

Net Cash Flows-Financing

($5,888,000)

($7,447,000)

($4,836,000)

($1,459,000)

Effect of Exchange Rate

($16,000)

($91,000)

($143,000)

$143,000

Net Cash Flow

$2,419,000

($1,133,000)

($1,315,000)

$1,541,000

 

Nike’s Financial Ratios

 

Period Ending:

5/31/2024

5/31/2023

5/31/2022

5/31/2021

Liquidity Ratios

 

 

 

 

Current Ratio

239.61%

272.28%

262.94%

271.77%

Quick Ratio

168.63%

180.94%

184.46%

200.92%

Cash Ratio

109.34%

115.33%

121.13%

139.30%

Profitability Ratios

 

 

 

 

Gross Margin

44.56%

43.52%

45.98%

44.82%

Operating Margin

12.29%

11.55%

14.29%

15.58%

Pre-Tax Margin

13.04%

12.11%

14.24%

14.96%

Profit Margin

11.10%

9.90%

12.94%

12.86%

Pre-Tax ROE

46.43%

44.28%

43.52%

52.17%

After Tax ROE

39.50%

36.20%

39.57%

44.86%

 

Nike vs GoPro Financial Summary

 

Category

Nike (FY 2024)

GoPro (FY 2023)

Revenue Performance

Stable, slight increase in revenue ($51.36B)

Declining for three consecutive years ($1.01B)

Profitability

Strong, with improved profit margin (11.10%)

Negative profitability, with a net loss of $53.18M

Operating Income

Positive at $6.31B, indicating strong operations

Negative at -$75.46M, signaling inefficiency

Net Income

Increased to $5.70B, reflecting efficiency

Net loss of $53.18M, reversing 2022 gains

Profit Margin

Improved to 11.10%, showing better cost control

Negative (-5.29%), meaning GoPro is losing money

Liquidity (Current Ratio)

Strong (239.61%), ensuring financial flexibility

Declining (172.91%), reducing financial flexibility

Cash Flow from Operations

Strong positive at $7.43B

Negative (-$32.86M), showing cash burn

Financial Stability

Financially stable with strong cash flow and profit growth

Struggling with declining revenue and operational inefficiencies

Key Concerns

Slow revenue growth but strong liquidity and profitability

Revenue decline, weak profitability, and cash flow struggles

Overall Conclusion

Nike remains in a strong financial position with steady profitability and strong liquidity.

GoPro is in financial distress, with losses, declining revenue, and weakening financial stability.

 

 

 

Let’s find it out by comparing stock performance between the two firms.

 

Nike Stock Performance  (finance.yahoo.com)

https://finance.yahoo.com/quote/NKE/

 

image060.jpg

 

 

 

Metric

Nike

GoPro

1-Year Performance

-

-68.44%

Previous Close Price

$74.39

$1.00

Opening Price

$74.45

$1.01

Current Price

$76.66

$1.01

Market Cap

$113.38B

$156.31M

Beta (5Y Monthly)

1.03 (Stable volatility)

1.56 (Higher volatility)

P/E Ratio (TTM)

23.66

N/A

EPS (TTM)

$3.24

-$2.61

52-Week Range

$70.32 - $107.43

$1.00 - $3.15

Forward Dividend

$1.60 (2.08%)

None

1-Year Target Estimate

$86.78

$1.35

 

Observations:

  • Performance: Nike's stock is stable compared to GoPro's sharp decline of over 68% in one year.
  • Market Size: Nike is significantly larger with a market cap of $113.38B compared to GoPro's $156.31M.
  • Profitability: Nike's positive P/E ratio and EPS indicate profitability, while GoPro's negative EPS highlights ongoing losses.
  • Volatility: GoPro's higher beta reflects greater risk and price fluctuations compared to Nike's stable beta.
  • Dividends: Nike pays a consistent dividend, while GoPro does not.

 

 ******* Part I: Balance Sheet and Income Statement **************

Home Depot (Ticker in the market: HD) reported the following information for the year ended January 30th, 2011 (expressed in millions).

Sales: $67,977

Cost of goods sold: $44,693

Marketing, general and administrative expenses: $15,885

Depreciation expenses: $1,616

Interest expense: $530

Tax rate: 36.70%

Number of shares outstanding: 1,623

Dividends paid to stockholders: $1,569.

Use the above information to try to prepare the income statement of Home Depot for the year ended January 30th, 2011 

 

Home Depot (Ticker in the market: HD) reported the following information for the year ended January 30th, 2011 (expressed in millions).

Cash: $545

Accounts receivables: $1,085

Inventories: $10625

Other current assets: $1,224

Gross fixed assets: $38,471

Accumulated depreciation: $13,411

Other fixed assets: $1,586

Accounts payable: $9,080

Short term notes payable: $1,042

Long term debt: $11,114

Total common stock: $3,894

Retained earnings: $14,995

Use the above information to try to prepare the balance sheet of Home Depot for the year ended January 30th, 2011

 

 

 

https://www.nasdaq.com/market-activity/stocks/gpro/financials

 

 

 

 

GoPro

GoPro’s Income Statement

 

Period Ending:

12/31/2023

12/31/2022

12/31/2021

12/31/2020

Total Revenue

$1,005,459

$1,093,541

$1,161,084

$891,925

Cost of Revenue

$681,886

$686,713

$683,979

$577,411

Gross Profit

$323,573

$406,828

$477,105

$314,514

Operating Expenses

 

 

 

 

Research and Development

$165,688

$139,885

$141,494

$131,589

Sales, General and Admin.

$233,348

$227,988

$222,395

$219,744

Non-Recurring Items

--

--

--

--

Other Operating Items

--

--

--

--

Operating Income

($75,463)

$38,955

$113,216

($36,819)

Add'l income/expense items

$12,429

$1,740

($176)

($4,881)

Earnings Before Interest and Tax

($63,034)

$40,695

$113,040

($41,700)

Interest Expense

$4,699

$6,242

$22,940

$20,257

Earnings Before Tax

($67,733)

$34,453

$90,100

($61,957)

Income Tax

($14,550)

$5,606

($281,071)

$4,826

Minority Interest

--

--

--

--

Equity Earnings/Loss Unconsolidated Subsidiary

--

--

--

--

Net Income-Cont. Operations

($53,183)

$28,847

$371,171

($66,783)

Net Income

($53,183)

$28,847

$371,171

($66,783)

Net Income Applicable to Common Shareholders

($53,183)

$28,847

$371,171

($66,783)

 

GoPro’s Balance Sheet

Period Ending:

12/31/2023

12/31/2022

12/31/2021

12/31/2020

Current Assets

 

 

 

 

Cash and Cash Equivalents

$222,708

$223,735

$401,087

$327,654

Short-Term Investments

$23,867

$143,602

$137,830

--

Net Receivables

$91,452

$77,008

$114,221

$107,244

Inventory

$106,266

$127,131

$86,409

$97,914

Other Current Assets

$38,298

$34,551

$42,311

$23,872

Total Current Assets

$482,591

$606,027

$781,858

$556,684

Long-Term Assets

 

 

 

 

Long-Term Investments

--

--

--

--

Fixed Assets

$27,415

$35,146

$46,323

$55,271

Goodwill

$146,459

$146,459

$146,459

$146,459

Intangible Assets

--

--

--

$1,214

Other Assets