MASTER THE BASICS, BEGIN WITH THE BASIC TERMS.
In this section, we will discuss the fundamentals of finance. how the market works, why it is necessary and the importance of investing. some of these terms you've seen before. some you haven't. Either way this is a necessity. Why? Have you ever watched a professional basketball player warm up before a game? They always do the basic exercises. investing is no different.
THE DISCOUNT RATES
Ever wonder what the future is worth? Well we calculate everyday in finance. Every. single. day.
Discount rates are a key concept in finance and are used to determine the present value of future cash flows. The discount rate represents the opportunity cost of investing in a particular project or asset, and reflects the expected rate of return that could be earned from an alternative investment with similar risk.
In financial analysis, the discount rate is used to calculate the present value of future cash flows, which is the value of those cash flows if they were received today. The higher the discount rate, the lower the present value of the future cash flows, and vice versa.
Discount rates are used in a variety of financial applications, including capital budgeting, valuing stocks and bonds, and assessing the affordability of loans and other financial obligations. They can also be used to evaluate the profitability of a project or investment, and to determine the rate at which future cash flows must grow in order to meet a specific investment objective.
Discount rates can be based on a variety of factors, including the prevailing market interest rates, the perceived risk of the investment, and the time horizon of the investment. It's important to choose an appropriate discount rate when evaluating investments, as the choice of discount rate can significantly impact the results of a financial analysis.
EQUITY VS DEBT
Now you might be wondering how stocks are valued. What impacts different values. Well let's break down two core security offerings: equity & debt
Equity is common stock. Debt are liabilities.
Equity and debt are two different types of securities that companies can use to raise capital. The main difference between equity and debt is the way they are structured and the rights and obligations of the parties involved. Equity refers to ownership in a company, represented by shares of stock. When an individual or institution buys equity in a company, they become a shareholder and own a portion of the company. Equity holders have the potential to earn a return on their investment through dividends and capital appreciation. However, they also bear the risk of the company's performance, as the value of their investment can decline if the company performs poorly. Debt, on the other hand, refers to borrowing, where a company borrows money from lenders, such as bonds or loans. When a company issues debt, it is obligated to repay the borrowed funds plus interest over a specified period of time. Debt holders have a claim on the company's assets and cash flow, but do not have ownership in the company. As a result, they have a higher level of certainty regarding their return on investment, but also have a lower potential for return compared to equity holders. In summary, equity represents ownership in a company and bears the risk of the company's performance, while debt represents borrowing and offers a lower level of risk and potential return.
This is arbitrary. No not made up.
Intrinsic value is a concept used in finance to describe the inherent or true value of an asset, separate from its market price. It is the value that an asset would have if all relevant information about it were considered.
The intrinsic value of a stock, for example, is often determined by analyzing the underlying financial and operational performance of the company, such as its earnings, cash flow, growth potential, and competitive position. The intrinsic value is then compared to the market price to determine whether the stock is overvalued or undervalued.
The intrinsic value of an asset can also be used to determine whether to buy, hold, or sell it. If the intrinsic value is higher than the market price, the asset is considered undervalued and may be a good investment opportunity. If the intrinsic value is lower than the market price, the asset is considered overvalued and may be a riskier investment.
It's important to note that intrinsic value is a subjective estimate and can vary depending on the method used to calculate it and the individual's assumptions and beliefs. Nevertheless, it is a key concept in finance and is widely used by investors, analysts, and financial professionals.
FUNDAMENTAL ANALYSIS VS. TECHNICAL ANALYSIS
buffett's famous saying about turning charts upside down
Fundamental analysis and technical analysis are two different approaches to evaluating securities, such as stocks, bonds, and other investments.
Fundamental analysis is a method of evaluating securities by analyzing the financial and economic characteristics of the underlying company or issuer. Fundamental analysis focuses on factors such as a company's financial statements, earnings, revenue, and growth potential, as well as macroeconomic factors such as interest rates, inflation, and economic growth. The goal of fundamental analysis is to determine the intrinsic value of a security and whether it is overvalued or undervalued compared to that value.
Technical analysis, on the other hand, is a method of evaluating securities based on the analysis of past market data, such as price and volume trends, patterns, and momentum indicators. Technical analysts use charts and technical indicators to identify trends and make predictions about future price movements. Technical analysis assumes that market trends, as shown by charts and other technical indicators, can help predict future market activity.
In summary, fundamental analysis focuses on a company's financial and economic fundamentals to determine its intrinsic value, while technical analysis focuses on market data and trends to make predictions about future price movements. Both approaches can be used to make investment decisions, and many investors use a combination of both techniques in their analysis.
THE BUSINESS MODEL, OPERATING MODELS
A business model refers to the way a company creates, delivers, and captures value. It outlines how a company generates revenue and profits by selling products or services to customers. There are many different business models, each with its own strengths and weaknesses, and companies may use a combination of models to achieve their goals. Here are a few of the most common business models:
Product/Service Model: A company sells a product or service to customers in exchange for revenue.
Freemium Model: A company offers a basic version of its product or service for free, with the option to upgrade to a paid premium version with additional features or benefits.
Subscription Model: A company provides access to its product or service in exchange for a recurring fee, usually on a monthly or annual basis.
Advertising Model: A company provides a product or service for free, but generates revenue through advertising or sponsorships.
Direct Sales Model: A company sells its products directly to customers, without intermediaries such as retail stores.
Retail Model: A company sells its products through retail stores or online marketplaces, earning a profit through the difference between the wholesale and retail price.
Licensing Model: A company allows other companies to use its technology or intellectual property in exchange for a licensing fee.
Franchise Model: A company allows others to use its business model, brand, and systems in exchange for a franchise fee and a percentage of the franchisee's revenue.
Platform Model: A company provides a platform or infrastructure that enables other businesses to operate and grow, earning revenue through transaction fees, advertising, or other means.
Hybrid Model: A company uses a combination of multiple business models to generate revenue and meet its business goals.
These are just a few of the many business models that companies can use to generate revenue and achieve success. The best business model for a company depends on a variety of factors, including its industry, target market, and overall strategy.
A competitive advantage in business refers to a unique advantage that a company has over its competitors, which allows it to produce goods or services at a lower cost or to offer a higher quality product. This advantage allows a company to differentiate itself from its competitors, attract and retain customers, and ultimately increase profitability.
There are several types of competitive advantage, including:
Cost advantage: A company has a lower cost structure than its competitors, allowing it to offer goods or services at a lower price while still earning a profit.
Differentiation advantage: A company offers a unique product or service that sets it apart from its competitors and appeals to a specific target market.
Network advantage: A company has established strong relationships with suppliers, customers, and other partners, giving it an edge in securing new business and retaining existing customers.
Brand advantage: A company has built a strong, recognizable brand that customers trust and prefer over its competitors.
Intellectual property advantage: A company has proprietary technology, trademarks, or patents that give it a competitive advantage in the market.
Competitive advantages can be temporary or sustainable, and they can change over time as market conditions and competition evolves. It's important for companies to continuously evaluate and strive to maintain their competitive advantage in order to remain successful in the long-term.
how is management
Management is important in a company because it provides the leadership, direction, and resources needed to achieve the company's goals and objectives. Effective management helps to ensure that a company operates efficiently, makes informed decisions, and stays on track to achieve its vision and mission.
Here are a few specific ways that management contributes to the success of a company:
Setting strategy: Management is responsible for setting the overall strategy for the company, including determining its goals, mission, and values, and deciding how best to allocate resources to achieve these goals.
Allocating resources: Management is responsible for allocating the resources needed to run the business, including people, capital, and technology.
Making decisions: Management makes important decisions that affect the company's direction and success, such as investing in new products or expanding into new markets.
Driving growth: Management drives the growth of the company by identifying and pursuing new opportunities, developing and launching new products, and expanding into new markets.
Building and leading a team: Management is responsible for building and leading a talented and motivated workforce, which is critical to the success of any company.
Monitoring performance: Management monitors the company's financial and operational performance to ensure that it is on track to achieve its goals and to make any necessary adjustments to its strategy or operations.
Maintaining stakeholder relationships: Management is responsible for maintaining relationships with important stakeholders, such as shareholders, customers, employees, and suppliers, to ensure the long-term success of the company.
In short, management is essential for the success of a company. By providing leadership, direction, and resources, management ensures that a company operates efficiently, makes informed decisions, and stays on track to achieve its goals and objectives.
what are the different
Corporate governance is the system of rules, practices, and processes by which a company is directed and controlled. It involves balancing the interests of a company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, government, and the community.
Corporate governance is important because it helps to ensure that a company is run in an effective and ethical manner, which benefits all stakeholders. Some specific reasons why corporate governance is important include:
Enhancing corporate performance: Effective corporate governance can lead to better decision making and improved performance, which benefits all stakeholders, including shareholders, employees, and customers.
Protecting shareholder interests: Corporate governance helps to ensure that a company's management acts in the best interests of shareholders and protects their rights and interests.
Improving accountability: Corporate governance provides a framework for accountability, which helps to ensure that a company's management and board of directors are accountable to its stakeholders.
Reducing the risk of corporate fraud: Effective corporate governance helps to reduce the risk of corporate fraud and abuse, by providing checks and balances that help to prevent unethical or illegal activities.
Increasing transparency: Corporate governance helps to increase transparency by providing information about a company's operations, finances, and decision-making processes to its stakeholders.
Attracting investment: Companies with good corporate governance practices are often more attractive to investors, as they are seen as having a lower risk of financial or operational problems.
Maintaining stakeholder trust: Corporate governance helps to maintain stakeholder trust by ensuring that a company operates in an ethical and responsible manner, which benefits all stakeholders.
In short, corporate governance is important because it helps to ensure that a company is run in an effective and ethical manner, which benefits all stakeholders. By balancing the interests of a company's many stakeholders and providing a framework for accountability and transparency, corporate governance helps to enhance performance, protect shareholder interests, and maintain stakeholder trust.
how do you view industry
The stock market is made up of a variety of different industries, each representing companies in a specific sector of the economy. Some of the major industries in the stock market include:
Technology: This industry includes companies involved in the production and distribution of computer hardware and software, as well as companies involved in the Internet and digital media.
Healthcare: This industry includes companies involved in the production and distribution of medical products, as well as companies involved in the research and development of new drugs and treatments.
Energy: This industry includes companies involved in the exploration, production, and distribution of oil, natural gas, and other forms of energy.
Consumer goods: This industry includes companies involved in the production and distribution of consumer goods, such as food, clothing, and personal care products.
Financial services: This industry includes companies involved in the banking, insurance, and investment industries.
Telecommunications: This industry includes companies involved in the production and distribution of telecommunications products and services, such as phones and Internet access.
Industrials: This industry includes companies involved in the manufacturing and distribution of industrial products, such as machinery, equipment, and materials.
Consumer services: This industry includes companies involved in the delivery of consumer services, such as retail and hospitality.
Utilities: This industry includes companies involved in the production and distribution of utilities, such as electricity, water, and gas.
Real estate: This industry includes companies involved in the ownership and management of real estate, as well as companies involved in the development and construction of new properties.
These are just a few of the major industries in the stock market. There are many other smaller industries as well, each representing companies in a specific sector of the economy. To learn more about investing in the stock market, it is important to understand the industries and the companies that make up these industries, as well as the trends and factors that may impact their performance.