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America’s New Investor Class
• 54 percent of Americans own stocks, mutual funds and bonds; 73 percent college graduates; 83 percent post grads
• Internet Trading Tools; IRAs, 401Ks;
• Longer life spans; higher health care costs; college tuition
24-Hour Financial News?
• Wall Street Journal, Financial Times, Investor’s Business Daily
• Fortune, Forbes, Business Week, Barron's• CNBC, Fox Business, Bloomberg TV• The “Money Honey” and “Mad Money”
• AP, Dow Jones, Reuters, Bloomberg, TheStreet.com• Bloggers, Social Media and Chat rooms• PR Newswire, Business Wire, Internet Wire
24-Hour Global Markets
• NYSE-NASDAQ; US• FTSE (“Footsie”) UK• DAX (Germany)• CAC-40 (France)• Nikkei (Japan)• Hang Seng (Hong Kong)
Introducing the NYSE
• NYSE – Founded 1817• “The Big Board”• $14.2 trillion market cap • 2,304 listings• Venerable Companies• Ringing the Bell• Pounding the Gavel
Introducing the NASDAQ
• Founded in 1971
• “Electronic Exchange”
• $4.45 trillion market cap
• 2,784 listings
SEC Disclosure Rules
• Annual Report to Shareholders (10K)• Quarterly Earnings Reports (10Q)• Major Unplanned Announcements (8K)
– Upside / Downside Guidance Variations– Mergers and Acquisitions– Restructurings
• Annual Meeting of Shareholders• Prospectus for Planned IPO (S1)• Selling Additional Shares (S4)
Asking the Obvious Question
“…Sometimes the most obvious question really is the question. In Enron’s case: How do you make money?” – Bethany McLean, Fortune Magazine
Bull Market / Bear Market
• Bull Market: Stocks Advancing (2010-2013)• Bear Market: Stocks Retreating (2007-2009)• Stocks are a Leading – Rather than a Trailing –
Indicator• Market Hates FUD (Fear, Uncertainty, Doubt)
Quick Market Definitions
• GAAP: Generally Accepted Accounting Principles
• EPS: Earnings Per Share
• IPO: Initial Public Offering
• Market Capitalization: Share price x Number of Shares Outstanding = Value
• SEC: Securities Exchange Commission
What Does Wall Street Really Care About?
• Top Line• Bottom Line• Gross Margin• Year-over-Year• Cash• EPS• Dividends
Apple Q2 2013 Results
• Revenues: $43.6 billion• Cost of Sales: $27.25 billion• Gross Margin: $16.34 billion• R&D: $1.11 billion• SG&A: $2.67 billion• Operating Income: $12.35 billion• Taxes: $3.35 billion• Net Income: $9.54 billion• EPS: $10.09 per share (946,035 Shares)• Cash Dividend: $2.65 per share
Amazon Q4 2012 Balance Sheet
• Cash/Short-Term: $8.08 billion• Accounts Receivable: $3.81 billion• Inventories: $6.03 billion• Current Assets: $21.29 billion• PPE: $7.06 billion• Total: $32.55 billion• Accounts Payable: $13.31 billion• Current Liabilities: $19.00 billion• Long-Term Debt: $3.08 billion• Total Liabilities: $24.06 billion• Equity (Stock): $8.19 billion• Total Liabilities/Equity: $32.55 billion• 500 million shares
What is P/E Ratio What is the “Multiple”
• Company Stock Price Divided by Earnings Per Share
• How Many Times Earnings is the Stock Price? – The “Multiple”
• $60 price/$2.50 EPS = 24 Multiple
What is P/E Ratio?
• Ratio Used by Investors to Examine Performance of a Company Stock
• AAPL Share Price: $441.80• AAPL EPS: $41.89*• AAPL P/E: 10.5x*
• *TTL (Trailing Twelve Months)
Institutional vs. Retail Investors• Buy Side: Major mutual funds (Fidelity, Janus,
Putnam etc.); public employee retirement systems; “Institutional Investors”
• Sell Side: Investment firms (JP Morgan, Morgan Stanley)
• Retail Investors: Charles Schwab, TD Waterhouse, E-Trade
Doing Well vs. Doing Good
Fiduciary Responsibility
• ERISA Mandate• Investors Expect Returns• Employees Expect
Returns• Need to Stay in Business• Board Oversight• Potential Securities
Litigation
Corporate Social Responsibility
• Multiple Stakeholders• Giving Back• Heightened Trust• Benefit of the Doubt• Creative Capitalism• Counter to NGOs• No “Greenwashing”• No “Pinkwashing”
Sarbanes-Oxley Act 2002
● Public Company Accounting Oversight Board (PCAOB)
● Auditor Independence
● CEO and CFO Certification of Results
● Criminal Offenses for Fraud/Records Tampering
SEC Fair Disclosure
• Regulation FD provides that when a company discloses “material” nonpublic information to certain individuals or entities — such as stock analysts or shareholders — the company must make public disclosure of that information. In this way, the new rule aims to promote the full-and-fair disclosure.
• (Media Exempted)
GAAP vs. Pro Forma
• GAAP Greater or Equal Prominence to Pro Forma – SEC Reg. G
• GAAP: Generally Accepted Accounting Principles
• Pro Forma, Non-GAAP or Earnings Before Special Items
• Pro Forma: “For The Sake of Form”
• Pro Forma: Results from Continuing Operations
GAAP: Q1 Income StatementMallard.com (DUCK: NASDAQ)
• Revenues: $2 million• COGS: $1 million• Gross Margin: $1 million• SG&A: $250,000• R&D: $250,000• Amortization: $1 million• Operating Margin: ($500,000)• Taxes: $200,000• Net Loss: ($700,000)
Pro Forma: Q1 Income StatementMallard.com (DUCK: NASDAQ)
• Revenues: $2 million• COGS: $1 million• Gross Margin: $1 million• SG&A: $250,000• R&D: $250,000 • Operating Margin: $500,000• Taxes: $200,000• Net Income (Loss): $300,000
Common Questions on Deals• Size of Deal?
• Financing? $20.1 billion?
• How many are going to be laid off?
• Is the deal accretive or dilutive to EPS?
• Is there any product or customer overlap?
• How will you integrate the two companies?
• Anti-Trust Issues?
• Will you report the deal on a Pro Forma basis?
Financing the Deal?Paying a “Premium?”
• Cash from Balance Sheet
• Stock (1 for 1 or Ratio)
• S4 (Issue More Stock)
• LBO (Leveraged Buyout): Combo of Cash/Stock and Debt