I can't pay for summer classes this session, and instead of just sitting around and feeling bad about it, i feel like i am learning more from you than i would have if i was actually in school. You're making a real difference, and the way you teach is so fresh and forward. You speak without a bunch of jargon, and you're not condescending like many teachers are, so it makes it easier to actually listen to what you have to say. Thank you so much.
hey guys can you please help me? i was wondering in the case of CDOs, how does the bank account for the money it gets back from the SPE in its BS? Does it account for it as cash? caus in the video it is stated that the residual CDO is the traunch which was the most risky only. So i was wondering were the amount the CDOs were sold for goes in the BS.
I'm not fluency in english, but you makes me learn more about finance than my finance teacher here in Brazil, congratulation, you're making the difference
And that equity value, in perfect markets, would be the value of the shares - which is paid out to shareholders in either share repurchases or dividends, or shareholders can sell shares in the secondary market.
Bobbouwer - this is correct i guess assuming the shareholder holds the shares forever. Otherwise you need to take into account the sale of the security. A market value balance sheet takes both into account.
Comparing book value to market value is a way to check undervalued or overvalued companies.
Let us suppose that the book value of a company is one million euros and the stock value is 100 million euros. That means that somebody is telling you that if you give one guy one million euros, he is able to buy equipment, hire personal, sell stuff and get a company worth 100 million euros out of it... without returning benefits to the company, which would increase book value.
That being said, comparing a company's book value to market value is a strategy that lots of hedge funds use. Think about it: if a bank holds a ton of loans that you think are worth less than they do, you're shorting it in part on basis that the book value is less than stated. Same thing with a company that invests in another company....Think about all the writedowns related to corporate investment (think Clearwire)....
On the other hand, I think that it is a bit misleading
Investors value the companies according to their ability to generate cash flows, rather than according to book value.
An equity of one million dollars producing no benefits is worth less than one million dollars. A equity of 100.000 dollar generating benefits of one million dollars in one year is worth much more than one million dollars.
An equity of 1M dollars cost at last 1M, even if doesn't produce any benefits, because you can sell it for 1M and that is the future cash flow you are buying.
Although, book value is calculated according to accounting standards, which provide not exactly the same result than the money you would recover from the sale of the assets of a company.
We should rather talk about liquidation value.
But, we are making things too complicated...
Let us assume that book value is the value that you would get by selling the assets of a company. It is pretty close from the practical point of view.
someone would not pay 12 dollars per share because they think the book value is wrong. They would pay 12 dollars per share because a company has future earnings. but I like the vid and thank you
How ever, the earning power may be explained with the dividend discount model. The 12 dollars is just the sum of the future dividends, divided by the risk-factor. Let's say this bank is plans to pay out 1,50 per share, per year, in perpetuity. When one discounts the dividends at a hypothetical riskfactor of 12,5 % one gets: (1,50)/(0,125)= 12 Don't know why Sal talks about the diff. between book and market value. book value is not relevant for stock price estimation, future earnings are.
So I might be wrong, if so I hope someone corrects me, but I think that in an ideal market value balance sheet, the asset side of the balance sheet is essentially the present value of the company's future cash flows - its actual earnings or income is taken into account. There are two parties that have a claim to these assets or cash flows. Creditors (what they have a claim to comprises of the PV of the company's liabilities) and shareholders or owners (the remainder, or equity).
Ok, I gave your channel to Congressman Wexler in hopes he can get you to come to Congress to give them a primer on this Bailout mess. Perhaps you can educate Congress so that they can have a better understanding on what the proper way to handle this. I personally don't think many of them have any idea on the economics involved. Thank you for everything you do.
I thought the market value fluctuated based on future expectations about the company. I guess I'm wrong about this?
doublek321 2 weeks ago
This has been flagged as spam show
this is very simple math and concept
MrPEDOCTOR 1 month ago
I can't pay for summer classes this session, and instead of just sitting around and feeling bad about it, i feel like i am learning more from you than i would have if i was actually in school. You're making a real difference, and the way you teach is so fresh and forward. You speak without a bunch of jargon, and you're not condescending like many teachers are, so it makes it easier to actually listen to what you have to say. Thank you so much.
xsultrysongstress79x 8 months ago
hey guys can you please help me? i was wondering in the case of CDOs, how does the bank account for the money it gets back from the SPE in its BS? Does it account for it as cash? caus in the video it is stated that the residual CDO is the traunch which was the most risky only. So i was wondering were the amount the CDOs were sold for goes in the BS.
thanks
jennygozo 8 months ago in playlist Finance
its 12X 500mil = 6B, not 12X500B = 6B 08:39
foxconcept 1 year ago
@foxconcept he writes 0.500B
Toshirozawa 1 year ago
@Toshirozawa
ok ok..i didnt see the dot. =P
thanks :) and sorry for that...
ConferenceConnection 1 year ago
T Y
hostagelai 1 year ago
I'm not fluency in english, but you makes me learn more about finance than my finance teacher here in Brazil, congratulation, you're making the difference
walloliveira 1 year ago
Sal,its interesting,.you help a lot of people,(well of course im one of those) understand the market.
wmanger 1 year ago
Khan Academy FTW!
sucram7777 1 year ago
excellent videos the best i have seen on youtube without a doubt.
zaccoyne 2 years ago
The company can also buy back some of its outstanding shares, under the account know as treasury stock.
personova 2 years ago
SAL what's your twitter id? i want to make sure i follow the right one!
bananaminge 2 years ago
I'm learning loads here, I'm defanetly gonna watch the rest tomorrow.
PHILIP
PhilipK100 2 years ago 2
I went to a public school.
khanacademy 2 years ago
And that equity value, in perfect markets, would be the value of the shares - which is paid out to shareholders in either share repurchases or dividends, or shareholders can sell shares in the secondary market.
Bobbouwer - this is correct i guess assuming the shareholder holds the shares forever. Otherwise you need to take into account the sale of the security. A market value balance sheet takes both into account.
ermeni 2 years ago
In your opinion, what is the percentage of people who buy stock without even looking at they companies' balance sheets? (blind speculators)
draggeddownthehole 2 years ago
this is very simple math and concept
bluewater77777 2 years ago
I wanna be like this guy!!!!! though I would need a Harvard MBA
11141983 2 years ago
Trust me, you don't need a Harvard MBA. You'd be surprised how many MBA's don't understand most of this.
khanacademy 2 years ago 8
its an honor to get your reply!!!!!!!
I am a masters student, could you do something on First Order Logic and Econometrics??? Besides, what should I do to be as good as you at math?????
11141983 2 years ago
If you actually are a masters student the world is f#@ked. How could a masters student not be good at simple addition subtraction and division?
Pskawt 2 years ago
i think he means the math from his other videos!
Wrattenmusic 2 years ago
So it means that this is not the thing MBA's are interested in or they are not clever enough? :)
btw thanks for your videos a lot. It's 2in1 for me. I can study English and learn something interesting too :)
ewertoza 2 years ago
"I really should do videos on all these concepts" Please do!
Sconz32 3 years ago
Yes, please do! It would be great to have more videos on company valuation!!
zhtube1 2 years ago
Comparing book value to market value is a way to check undervalued or overvalued companies.
Let us suppose that the book value of a company is one million euros and the stock value is 100 million euros. That means that somebody is telling you that if you give one guy one million euros, he is able to buy equipment, hire personal, sell stuff and get a company worth 100 million euros out of it... without returning benefits to the company, which would increase book value.
GabrielAulaga 3 years ago
That being said, comparing a company's book value to market value is a strategy that lots of hedge funds use. Think about it: if a bank holds a ton of loans that you think are worth less than they do, you're shorting it in part on basis that the book value is less than stated. Same thing with a company that invests in another company....Think about all the writedowns related to corporate investment (think Clearwire)....
nelsonbostorm 3 years ago
I would like to congratulate you for this video.
On the other hand, I think that it is a bit misleading
Investors value the companies according to their ability to generate cash flows, rather than according to book value.
An equity of one million dollars producing no benefits is worth less than one million dollars. A equity of 100.000 dollar generating benefits of one million dollars in one year is worth much more than one million dollars.
GabrielAulaga 3 years ago
I don't think the author is saying that's the only way or "the way" to value a company. This is simply a way of explaining the current market.
nelsonbostorm 3 years ago
Comment removed
Hursty29 3 years ago
An equity of 1M dollars cost at last 1M, even if doesn't produce any benefits, because you can sell it for 1M and that is the future cash flow you are buying.
BoboMobo21 3 years ago
Yes, you are basically right.
Although, book value is calculated according to accounting standards, which provide not exactly the same result than the money you would recover from the sale of the assets of a company.
We should rather talk about liquidation value.
But, we are making things too complicated...
Let us assume that book value is the value that you would get by selling the assets of a company. It is pretty close from the practical point of view.
GabrielAulaga 3 years ago
that is such a mess.
As I know, IFRS rules requires to revaluate your assets according to theis market price while US GAAP doesn't.
BoboMobo21 3 years ago
someone would not pay 12 dollars per share because they think the book value is wrong. They would pay 12 dollars per share because a company has future earnings. but I like the vid and thank you
ahausheer 3 years ago
How ever, the earning power may be explained with the dividend discount model. The 12 dollars is just the sum of the future dividends, divided by the risk-factor. Let's say this bank is plans to pay out 1,50 per share, per year, in perpetuity. When one discounts the dividends at a hypothetical riskfactor of 12,5 % one gets: (1,50)/(0,125)= 12 Don't know why Sal talks about the diff. between book and market value. book value is not relevant for stock price estimation, future earnings are.
bobbouwer6 3 years ago
So I might be wrong, if so I hope someone corrects me, but I think that in an ideal market value balance sheet, the asset side of the balance sheet is essentially the present value of the company's future cash flows - its actual earnings or income is taken into account. There are two parties that have a claim to these assets or cash flows. Creditors (what they have a claim to comprises of the PV of the company's liabilities) and shareholders or owners (the remainder, or equity).
ermeni 2 years ago
omg I'm 17 and I think I understand this. LOL :)
darkwspyder 3 years ago
and I'm 15 and am understanding this
i6i85 3 years ago
Ok, I gave your channel to Congressman Wexler in hopes he can get you to come to Congress to give them a primer on this Bailout mess. Perhaps you can educate Congress so that they can have a better understanding on what the proper way to handle this. I personally don't think many of them have any idea on the economics involved. Thank you for everything you do.
pongman 3 years ago 2