Fundamentals of Finance & Economics for Businesses – Crash Course

💰 경제 및 금융 심층 탐구

경영학 경제학

1. 📊 강의 소개

• 스마트한 투자 결정 및 글로벌 경제 이해를 돕는 종합 비디오 강좌
• 이론과 실제 통찰력 결합으로 금융 분야 자신감 향상
• ==스리람 찬디 강사의 경제, 금융 강좌==

2. 📚 주요 학습 내용

2.1. 🏦 핵심 개념

==– 비즈니스 핵심 개념
– 자본 시장
– 주식 가치 평가
– 비즈니스 전략 및 재무제표==

2.2. 📈 분석 및 예측

==– 재무제표 분석
– 자본 예산 및 현금 흐름
– 경기 순환 및 산업 분석
– ESG
– 거시경제학
– 포트폴리오 다각화
– 대체 투자 유형==

• 다양한 분야 주제 학습 및 상호 연관성 이해

3. 👨‍🏫 강사 소개: 스리람 찬디

• 유튜브 채널: 체인지 메이커스 미디어
• 십대들의 긍정적인 영향력 공유 및 지원 방법 소개

4. 💰 경제 및 금융 핵심 개념

4.1. 🎁 마법 상자 실험

– 매일 1달러를 영원히 지급하는 마법 상자에 대한 지불 금액은?

4.2. 🏦 저축 계좌 예시

– 연 ==1.05% 이자율의 저축 계좌에서 매일 1달러를 받으려면 얼마를 예치해야 할까?
– 엑셀 분석 결과: 34,761달러 투자 필요==

4.3. 🏡 주택 구매 예시

– 주택 시장 가격: ==10만 달러==– 다운페이먼트: ==2만 달러==, 모기지: ==8만 달러==– 연간 ==9,396달러 납입 시 모기지 상환 기간은?
– 실제: 20년 소요 (연 10% 이자율 적용)
– 초기 납입금 대부분이 이자 상환에 사용됨==

5. 🔑 주요 개념

5.1. 💰 투자 수익률 (ROI)

==– 투자 효율성 비교 도구
– ROI 공식: (현재 투자 가치 - 투자 비용) / 투자 비용==

5.1.1. 📈 ROI 중요성

==– 다양한 자산 비교 및 백분율로 표현
– 투자 수익성 비교를 위한 기본 척도==

5.1.2. ⚠️ ROI 제한

– 시간 고려 부족: 투자 기간에 따른 수익률 차이 간과

5.2. ⏳ 화폐의 시간 가치

==– 현재 돈의 가치가 미래보다 높음
– 잠재적 수익 창출 능력 때문
– 인플레이션 등 거시경제 요인으로 화폐 가치 하락==

5.2.1. 💵 현재 1달러 vs 미래 1달러

– 현재 1달러 선호: 잠재적 수익 및 인플레이션 회피

5.3. 💸 순현재가치 (NPV)

==– 모든 현금 유입 및 유출의 순 가치
– 자산 가치 결정 중요 도구
– NPV > 0: 긍정적 투자, 좋은 수익 창출==

5.3.1. 📉 할인율

==– 미래 현금 흐름의 현재 가치 계산에 사용되는 이자율
– 연준의 단기 대출 이자율 활용
– 인플레이션 등 거시경제 정책으로 인한 화폐 가치 하락 반영==

5.3.2. vending machine 예시

graph LR
    A[자판기 구매] --> B(비용: $10,000);
    B --> C{1년차 수익: $2,000};
    C --> D{2년차 수익: $3,000};
    D --> E{3년차 수익: $5,000};
    E --> F{4년차 수익: $7,000};
    F --> G(할인율 고려 시 NPV: $4,704);
    G --> H{NPV > 0};
    H --> I(자판기 투자 가치 있음);

6. 📊 모기지 상환 시뮬레이션 (구글 시트 활용)

6.1. 🏡 주택 구매 예시

– 주택 가격: ==15만 달러==– 다운페이먼트: ==3만 달러==, 대출: ==12만 달러==– 연 이자율: ==10%====, 20년 모기지
– 연간 납입액: 13,896달러==

6.2. 📉 원금 변화

==– 초기 납입금 대부분 이자 상환에 사용
– 시간이 지날수록 원금 상환 비중 증가==

6.3. 💸 이자 비용의 영향

– ==12만 달러 대출 → 총 277,904달러 상환 (====157,904달러 이자)==

7. 🏦 자본 및 금융 시장

7.1. 🤝 금융 시장

==– 재화/서비스 교환 장소 (물리적/가상)
– 예시: 식료품점, 넷플릭스 구독 페이지==

7.2. 🌱 금융 시장의 중요성

==– 기업 성장 및 소비자 욕구 충족에 필수적
– 소비자는 다양한 상품/서비스 접근 가능
– 기업은 수익 창출 및 성장 가능==

8. 📈 주식 및 채권 시장

8.1. 주식

==– 기업 소유 지분 증권
– 공개/비공개 회사에서 구매 가능==

8.1.1. 🏢 주식 발행 목적

==– 자금 조달 (확장, 재고 확보 등)
– 주식 = 지분 (Equity)==

8.1.2. 🦈 Shark Tank 예시

– 케빈: ==40만 달러 투자 → 820만 달러 기업 가치 중 4.8% 지분 확보==

8.2. 채권

==– 투자자가 빌려주는 차용증서
– 기업, 정부, 기관에서 발행==

8.2.1. 📜 채권 주요 특징

– 발행 가격, 액면가, 쿠폰 이율, 지급일, 만기일

8.2.2. 🚧 채권 발행 목적

==– 프로젝트 자금 조달
– 인프라 개발 (건물, 도로 등)
– 정부 자금 부족 시 채권 발행==

8.2.3. 🌡️ 채권과 이자율의 관계

– 반비례 관계: 이자율 상승 시 채권 가격 하락

9. ⚖️ 주식 vs 채권

9.1. 📈 주식

==– 위험: 높음 (시장 변동성)
– 발행 주체: 기업
– 소유권: 회사 소유
– 수익: 배당금, 가치 상승
– 의결권: 일부 행사 가능==

9.2. 📉 채권

==– 위험: 낮음 (고정 지급액)
– 발행 주체: 기업, 정부, 기관
– 소유권: 채무 (Debt)
– 수익: 고정 이자
– 의결권: 없음==

9.3. 📉 그래프 비교

==– 주식: 변동성 높음
– 채권: 안정적인 성장==

10. 估 자산 가치 평가

10.1. 💰 주요 요소

==– 예상 현금 흐름
– 위험 (손실 가능성, 파산 위험)==

10.2. 📉 주식 가치 평가

==– 불확실성 높음
– 다양한 평가 방법 존재

• 할인된 현금 흐름 (DCF)
• 지속 성장 배당 할인 모델
• 유사 기업 비교 (Comps)
• 주가 수익률 (P/E)
• 주가 순자산 비율 (P/B)
• 주가 매출액 비율 (P/S)
  – 표준 측정 방법 부재, 정보 활용 중요==

11. 💸 할인된 현금 흐름 (DCF)

11.1. 💰 DCF 정의

==– 미래 예상 현금 흐름을 현재 가치로 환산
– 화폐의 시간 가치 고려==

11.1.1. ✅ DCF 장점

==– 이론적으로 가장 건전한 방법 (가정 정확 시)
– 시장 상황, 비경제적 요인 영향 적음
– 경쟁사 부족 시 유용==

11.1.2. ❌ DCF 단점

==– 예측 기반 → 결과 범위 넓음
– 시간 소모적
– 미래 예측 어려움==

12. 👬 유사 기업 비교 (Comps)

12.1. 📊 Comps 정의

==– 동일 산업 내 기업 비교
– P/E, P/B 등 지표 활용
– 유사 산업 내 기업은 유사한 특징 공유
– 산업 내 기업 가치 평가 및 상대적 가치 판단==

12.1.1. ⏱️ Comps 장점

==– 비율 계산 → 시간 절약
– 기업 재무제표 기반 → 신속 비교==

12.2. 🌟 주요 Comps 지표

==– 주가 수익률 (P/E)
– 기업 가치 / EBITDA==

13. 🏢 비즈니스 전략

13.1. 🎯 비즈니스 전략 정의

==– 기업 목표 달성을 위한 계획 및 정책
– 미래 성공 보장==

13.1.1. 📜 미션 스테이트먼트

==– 기업 목표 및 가치 요약

• 목적, 대상 고객, 비즈니스 설명, 차별성, 가치==

13.2. 🔍 SWOT 분석

– 기업 강점, 약점, 기회, 위협 분석

graph LR
    A["강점 (Strengths)"] --> B(경쟁 우위, 자산, 우수 제품);
    C["약점 (Weaknesses)"] --> D(경쟁사 대비 부족, 자원 제약);
    E["기회 (Opportunities)"] --> F(신기술, 언론 홍보, 미개척 시장);
    G["위협 (Threats)"] --> H(법규 변화, 경쟁 심화, 소비자 변화);

13.3. 🐄 BCG 매트릭스

– 제품 포트폴리오 평가 도구

graph LR
    A["별 (Stars)"] --> B(고성장 시장, 높은 점유율);
    C["젖소 (Cash Cows)"] --> D(낮은 성장 시장, 높은 점유율);
    E["물음표 (Question Marks)"] --> F(고성장 시장, 낮은 점유율);
    G["개 (Dogs)"] --> H(낮은 성장 시장, 낮은 점유율);

13.4. 🧰 Porter의 일반적 전략

– 경쟁 우위 확보 전략

graph LR
  A["비용 우위 (Cost Leadership)"] --> B("최저 비용 생산")
  C["차별화 (Differentiation)"] --> D("독특한 제품/서비스")
  E["비용 집중 (Cost Focus)"] --> F("특정 시장 최저 비용")
  G["차별화 집중 (Differentiation Focus)"] --> H("특정 시장 독특한 제품/서비스")

14. 📜 재무제표

14.1. 📃 재무제표 종류

==– 손익계산서 (Statement of Profit or Loss)
– 재무상태표 (Statement of Financial Position)
– 현금흐름 예측 (Cash Flow Forecast)==

14.2. 📈 손익계산서

==– 일정 기간 동안의 수익, 비용, 손익 요약
– 수익 → 매출원가 → 총이익 → 비용 → 세전이익 → 세금 → 당기순이익
– 과거 데이터 비교를 통한 기업 성장 분석==

14.3. 📊 재무상태표

==– 특정 시점의 자산, 부채, 자본 상태 표시

• 자산 = 부채 + 자본
  – 자산: 비유동 자산 (1년 이상 보유), 유동 자산 (1년 이내 보유)
  – 부채: 유동 부채 (1년 이내 상환), 비유동 부채 (1년 이상 상환)==

14.4. 💸 현금흐름 예측

==– 일정 기간 동안의 현금 유입/유출 예측
– 월별 비교를 통한 기업 운영 효과 분석==

14.5. 📢 재무제표의 중요성

==– 투자자에게 정보 제공 (투명성 확보)
– 기업 내부 의사 결정 도구 (수익성 분석 등)
– 공개 기업은 재무제표 공개 의무==

15. 🔎 재무제표 분석

15.1. 🔢 비율 분석

– 수익성 비율, 유동성 비율, 활동성 비율, 레버리지 비율

15.1.1. 💰 수익성 비율

– 투자 수익률 측정 (총이익률, 순이익률, 총자산 이익률, 자기자본 이익률)

15.1.2. 💧 유동성 비율

– 단기 채무 상환 능력 측정 (유동 비율, 당좌 비율)

15.1.3. ⚙️ 활동성 비율

– 자산 활용 효율성 측정 (재고 회전율, 매출채권 회전율)

15.1.4. 🔩 레버리지 비율

– 부채 사용 정도 측정 (부채 비율, 부채 자산 비율)

15.1.5. ❗ 비율 분석 시 유의사항

– 산업별 특성 고려: 동일 산업 내 기업 비교

15.2. ↔️ 수평 분석 (Horizontal Analysis)

==– 일정 기간 동안 재무 항목의 변화 추이 분석
– 연도별 비교를 통한 성장 분석
– 매출액, 이익 등 항목의 변화율 분석==

15.3. 📐 수직 분석 (Common Size Analysis)

==– 재무제표 각 항목을 특정 항목 대비 비율로 표시
– 비율로 표시하여 기업 규모 차이 보정
– 경쟁사 비교 용이
– 총자산 대비 비율, 매출액 대비 비율 등 활용==

16. 🏢 자본 예산 (Capital Budgeting)

16.1. 🎯 자본 예산 정의

==– 장기 투자 프로젝트 평가 및 선정
– 투자 가치 극대화 및 위험 최소화
– 태양광 패널 설치 예시==

16.2. 💰 기업의 투자 이유

– 생산 능력 증대, 규제 충족, 혁신 추구 등

16.3. 💸 자본 예산의 중요성

==– 자원 배분 효율성 증대
– 장기 계획 수립 용이
– 위험 관리 및 수익 극대화
– 화폐의 시간 가치 고려==

16.4. 🏦 투자 자금 조달 방법

– 현금 흐름, 부채, 자기자본

16.5. 📊 IRR (Internal Rate of Return, 내부 수익률)

==– 투자 또는 프로젝트의 수익성 평가 지표
– 안전 자산 수익률보다 높으면 투자 가치 有==

16.6. 🪜 자본 예산 절차

– 프로젝트 제안 -> 경영진 검토 및 우선순위 결정 -> 자금 배분 -> 결과 추적 -> 평가 및 개선

16.7. 🧮 현금 흐름 변화

– 초기 투자 비용, 운영 현금 흐름, 자산 매각 대금 등

16.7.1. ➕ 운전자본 증가

– 현금 유입 (Source of Cash)

16.7.2. ➖ 운전자본 감소

– 현금 유출 (Use of Cash)

16.8. 🛠️ 투자 결정 방법

==– 회수 기간법 (Payback Period): 투자 회수 기간 계산
– 순현재가치 (NPV): 미래 현금 흐름을 현재 가치로 환산
– 내부 수익률 (IRR): 투자 수익률 계산==

16.9. ☀️ 태양광 패널 설치 예시

– 초기 비용: ==10,000달러====, 예상 현금 흐름 분석

• 2,000달러, 2,500달러, 3,000달러, 4,000달러, 4,500달러
  – 자본 비용 (Cost of Capital): 12%====- 다른 투자 대비 수익률 비교
  – NPV 계산 결과: 1,219달러 (자본 비용 초과 → 투자 가치 有)==

graph LR
    A[할인율 12%] --> B{태양광 패널 NPV: 1,219달러};
    C[할인율 20%] --> D{태양광 패널 NPV 감소};
    E[할인율 5%] --> F{태양광 패널 NPV 증가};
    G[초기 비용 20,000달러] --> H{NPV 감소};
    I[현금 흐름 증가] --> J{NPV 증가};

17. 🌍 거시경제학 (Macroeconomics)

17.1. 🎯 거시경제학 정의

==– 경제 전체의 행동 연구
– 경제 성장, 인플레이션, 실업, 국민 소득 등 분석
– 정책 및 사건이 경제 전체에 미치는 영향 분석==

17.2. 🔄 경기 순환 (Business Cycle)

==– 경제 활동의 반복적인 변동 패턴

• 저점 (Trough) → 확장 (Expansion) → 정점 (Peak) → 수축 (Contraction/Recession)==

graph LR
  A["저점 (Trough)"] --> B("경제 활동 최저점")
  B --> C("확장 (Expansion): 생산, 고용, 소비 증가")
  C --> D("정점 (Peak): 경제 활동 최고점, 성장 둔화")
  D --> E("수축 (Contraction/Recession): GDP, 고용, 소비 감소")
  E --> A

17.3. 🔑 거시경제 주요 지표

==– GDP (Gross Domestic Product, 국내 총생산)
– 고용/실업 (Employment/Unemployment)
– 인플레이션 (Inflation)
– 이자율 (Interest Rates)==

17.4. 🏢 산업 및 경기 순환

==– 경기 민감 산업 (Cyclical Industries): 경기 변동에 민감 (호텔, 여행 등)
– 경기 방어 산업 (Defensive Industries): 경기 변동에 둔감 (헬스케어, 필수 소비재 등)==

17.5. 👨‍работные 실업 (Unemployment)

==– 경기적 실업 (Cyclical Unemployment): 경기 침체로 인한 실업
– 구조적 실업 (Structural Unemployment): 기술 변화로 인한 산업 구조 변화 및 기술 부족으로 인한 실업
– 마찰적 실업 (Frictional Unemployment): 구직 과정에서 발생하는 일시적 실업==

17.6. 💹 인플레이션 (Inflation)

==– 물가 상승 → 화폐 가치 하락
– 명목 GDP와 실질 GDP의 차이 발생
– 실질 GDP = 명목 GDP - 인플레이션 영향==

17.7. 🏛️ 거시경제 주체

==– 정부 (Fiscal Policy, 재정 정책)
– 중앙은행 (Monetary Policy, 통화 정책)==

17.8. 🏦 통화 정책 (Monetary Policy)

==– 중앙은행이 통화량 및 이자율 조절 → 경제 활동에 영향

• 금리 조정, 공개 시장 운영 등
  – 확장적 통화 정책 (Expansionary): 이자율 인하 → 차입 촉진 → 소비 증가
  – 긴축적 통화 정책 (Contractionary): 이자율 인상 → 차입 감소 → 소비 감소
  – 일본의 마이너스 금리 정책 사례==

17.9. 🧾 재정 정책 (Fiscal Policy)

==– 정부가 세금 및 지출 조절 → 경제 활동에 영향
– 확장적 재정 정책 (Expansionary): 정부 지출 확대 → 경기 부양
– 긴축적 재정 정책 (Contractionary): 정부 지출 축소 → 인플레이션 억제
– 정부 지출 예시: 군사 투자, 인프라 투자, 사회 복지 프로그램
– 통화 정책이 재정 정책보다 효과 빠름==

18. 🌱 ESG (Environmental, Social, and Governance)

18.1. 🌍 ESG 정의

==– 기업의 환경, 사회, 지배 구조 성과 평가 프레임워크

• 환경 (Environmental): 탄소 배출량, 자원 관리, 폐기물 처리 등
• 사회 (Social): 직원 관계, 다양성, 지역사회 기여 등
• 지배 구조 (Governance): 이사회 구성, 윤리, 투명성 등==

18.2. ⏳ ESG의 기원

– 20세기 중반 기업의 사회적 책임 논의 -> 윤리적 투자 -> UN PRI 출범

18.3. 👍 ESG의 중요성

==– 장기적 지속 가능성 및 성공
– 위험 관리, 혁신 촉진, 평판 향상, 규제 준수==

18.4. 💰 현대 투자 관점

==– 윤리적 가치와 재무적 이익 동시 추구
– ESG 성과 우수 기업은 불확실성에 강함
– 장기 투자 관점에서 긍정적
– 사회적 영향 투자 가능==

18.5. 🤝 이해관계자 영향

– 직원 만족도 향상, 고객 충성도 강화, 지역사회 기여, 투자자 신뢰 구축

18.6. 🌎 글로벌 영향

– 기후 변화 완화, 생물 다양성 보존, 빈곤 퇴치, 불평등 해소

18.7. 📝 ESG 평가 방법

– ESG 평가 기관 활용, ESG 표준 준수, 투명한 정보 공개, 중요 ESG 요소 집중

18.8. 🏢 ESG 경영 도입 방법

– 경영진의 강력한 의지, 이해관계자 참여, 명확한 목표 설정, 직원 교육, 혁신 장려

18.9. 🌟 ESG vs 비ESG 주식

==– ESG 기업은 위험 관리 우수, 장기적 수익률 잠재력 높음, 투자자 관심 증가, 규제 리스크 감소
– ESG 투자는 사회적 책임 투자 및 지속 가능한 소비 트렌드와 부합==

18.10. 🏢 ESG 모의 사례

==– 재생 에너지 기업 vs 화석 연료 기업 비교

• ESG 기업은 긍정적 평판, 규제 혜택, 투자 유치 유리
• 비ESG 기업은 부정적 평판, 규제 리스크, 투자 유치 불리
  – 다양성을 중시하는 기업 vs 그렇지 않은 기업 비교
• 다양성 중시 기업은 직원 동기 부여, 긍정적 평판 유리
• 그렇지 않은 기업은 비판 직면==

19. 💸 포트폴리오 구성 및 다각화

19.1. 📈 다각화 (Diversification) 정의

==– 다양한 자산군에 투자하여 위험 분산
– 계란을 한 바구니에 담지 않는 전략
– 포트폴리오 내 자산 수를 늘려 위험 감소==

graph LR
    A[자산 수 증가] --> B(비체계적 위험 감소);
    B --> C(체계적 위험은 잔존);

19.2. ⚠️ 위험 (Risk) 종류

==– 체계적 위험 (Systematic Risk): 시장 전체에 영향을 미치는 위험 (이자율, 인플레이션, 경기 침체 등)
– 비체계적 위험 (Unsystematic Risk): 특정 기업 또는 산업에 영향을 미치는 위험 (사업 위험, 재무 위험, 유동성 위험 등)==

19.3. 📏 포트폴리오 성과 측정

==– 벤치마크 (Benchmark) 활용

• 포트폴리오 위험 수준 측정 도구==

19.4. ⚖️ 시간 가중 수익률 vs 달러 가중 수익률

==– 시간 가중 수익률: 투자 시점과 무관하게 투자 자체의 성과 측정
– 달러 가중 수익률: 투자 시점에 따른 투자자의 실제 수익률 측정==

19.5. 📐 포트폴리오 위험 측정

==– 표준 편차 (Standard Deviation) 활용

• 포트폴리오 수익률 변동성 측정==

graph LR
    A[표준 편차 높음] --> B(수익률 변동성 큼);
    B --> C(위험 높음);

19.6. 🕹️ 액티브 vs 패시브 운용

==– 패시브 운용 (Passive Management): 벤치마크 지수를 따라가는 전략 (저비용, 세금 효율적)

• 인덱스 펀드, ETF 활용
  – 액티브 운용 (Active Management): 벤치마크 지수 초과 수익 추구 (고비용, 높은 회전율)
• 주식 선택, 시장 예측 활용
  – 혼합형 운용: 액티브 + 패시브 전략 조합==

20. 💰 대체 투자 (Alternative Investments)

20.1. 💎 대체 투자 정의

==– 전통적인 주식, 채권 외 비전통적 자산에 투자

• 부동산, 사모 펀드, 벤처 캐피털, 원자재, 암호화폐, NFT 등==

20.2. 📈 대체 투자 특징

– 낮은 유동성, 높은 위험-수익, 기관 투자자 중심, 비공개 자산

21. 🎓 강의 요약

• 시간 가치, 투자 수익률, 자본 시장, ESG 등 핵심 개념 학습

• 재무제표 분석, 포트폴리오 구성, 거시경제 정책 등 실무 지식 습득

• 경제, 금융, 비즈니스 상호 연관성 이해

• 이 핸드북은 복잡한 금융과 경제의 세계를 명확하게 안내합니다.

• 돈의 시간 가치부터 시작해 자본 시장, 기업 분석, 거시 경제, 그리고 ESG 투자에 이르기까지 핵심 개념을 깊이 있게 다룹니다.

• 실용적인 예시와 분석 기법을 통해 누구나 자신감 있게 금융 지식을 쌓고 현명한 투자 결정을 내릴 수 있도록 돕습니다.

금융의 핵심 기초 다지기: 돈의 시간 가치와 투자 결정의 기본 원리

금융과 경제의 세계에 오신 것을 환영합니다. 이 핸드북은 단순히 용어를 나열하는 것을 넘어, 돈이 어떻게 움직이는지, 그리고 그 흐름 속에서 어떻게 가치가 창출되는지를 근본적으로 이해하는 데 초점을 둡니다.

1.1 돈의 시간 가치 (Time Value of Money)

돈의 시간 가치(TVM)는 금융의 가장 기초적이면서도 중요한 개념입니다. 이 원리는 오늘의 1달러가 미래의 1달러보다 더 가치 있다는 것을 설명합니다. 왜냐하면 오늘의 1달러는 이자를 창출하거나 다른 곳에 투자되어 수익을 낼 수 있는 잠재력을 가지기 때문입니다. 반대로, 미래의 1달러는 인플레이션 등의 거시 경제 효과로 인해 구매력이 감소합니다.

이 개념을 이해하는 가장 좋은 방법은 복리(Compound Interest)의 힘을 살펴보는 것입니다. 매년 10%의 이자를 주는 계좌에 1달러를 투자한다고 가정해봅시다. 20년 후 이 계좌의 가치는 초기 투자금의 6.73배인 6.73달러가 됩니다. 이처럼 시간의 흐름 속에서 돈이 스스로 불어나는 현상을 돈의 시간 가치라고 부릅니다. 이 원리는 모든 투자 결정의 근간이 됩니다.

1.2 투자 수익률 (Return on Investment, ROI)

투자 수익률(ROI)은 특정 투자의 효율성을 측정하는 가장 기본적인 도구입니다. 이는 투자한 자본 대비 얼마나 많은 수익을 얻었는지를 백분율로 나타냅니다. ROI는 다음과 같은 간단한 공식으로 계산합니다.

ROI=투자 비용(현재 가치 − 투자 비용)​

예시: 100,000달러에 주택을 구입했고, 현재 가치가 150,000달러가 되었다면, ROI는 50%가 됩니다.

ROI=100,000(150,000 − 100,000)​=0.5=50%

ROI는 투자 대상이 다르더라도 그 수익성을 비교할 수 있게 해주는 유용한 지표입니다. 그러나 ROI의 한계는 시간의 요소를 고려하지 않는다는 점입니다. 1년 만에 20%의 ROI를 달성한 투자와 3년 만에 40%의 ROI를 달성한 투자를 단순 비교할 때, 후자가 더 좋아 보일 수 있지만, 연간 수익률을 따져보면 이야기가 달라집니다. 따라서 ROI는 다른 지표들과 함께 복합적으로 분석해야 합니다.

1.3 순현재가치 (Net Present Value, NPV)

순현재가치(NPV)는 미래에 발생할 현금 흐름의 현재 가치를 모두 합산하여 투자의 가치를 판단하는 기법입니다. 이는 투자로 인해 발생할 모든 미래 수익과 비용을 현재 시점의 가치로 환산해 계산합니다.

NPV=∑t=1n​(1+i)tRt​​−초기 투자 비용

여기서 Rt​는 미래의 현금 흐름, i는 할인율, t는 기간입니다.

NPV가 0보다 크면 해당 투자는 긍정적인 가치를 창출하며, 투자를 진행할 가치가 있다는 의미입니다. 반대로 NPV가 0보다 작으면 투자가 손실을 초래할 수 있음을 나타냅니다.

**할인율(Discount Rate)**은 미래의 현금 흐름을 현재 가치로 환산할 때 사용하는 이자율입니다. 이는 인플레이션, 투자 위험, 기회비용 등을 반영하여 돈의 가치가 시간이 지남에 따라 어떻게 감소하는지를 나타내는 중요한 요소입니다.

예시: 태양광 패널 설치에 10,000달러를 투자할지 결정하는 상황을 가정해봅시다. 이 패널은 향후 5년간 매년 현금 흐름을 창출할 것으로 예상됩니다. 할인율을 12%로 설정하고 현금 흐름을 예측하면 다음과 같습니다.

연도	현금 흐름 ($)	할인율 (12%)	현재 가치 ($)
0	-10,000 (초기 비용)	-	-10,000
1	2,000	(1+0.12)1	1,785.71
2	2,500	(1+0.12)2	1,992.99
3	3,500	(1+0.12)3	2,490.69
4	4,000	(1+0.12)4	2,542.49
5	4,500	(1+0.12)5	2,553.84
총합	7,000	-	1,365.72 (NPV)

위 계산 결과 NPV는 1,365.72달러로 0보다 크므로, 이 태양광 패널 투자는 가치가 있는 것으로 판단됩니다.

자본 시장과 투자 상품의 이해

금융 시장은 자본이 흐르는 통로이며, 경제 성장의 핵심 동력입니다. 이 시장은 기업과 정부가 자금을 조달하고, 개인이 자산을 증식하는 중요한 장소입니다.

2.1 금융 시장의 역할과 종류

금융 시장은 크게 자본 시장과 화폐 시장으로 나뉩니다. 이 핸드북에서는 장기 자금 거래가 이루어지는 자본 시장에 집중합니다. 자본 시장의 주요 구성 요소는 주식 시장과 채권 시장입니다.

2.2 주식 시장: 기업의 소유권을 사고파는 곳

주식은 회사의 소유권 일부를 나타내는 증권입니다. 주식 시장은 크게 공개 시장과 비공개 시장으로 구분됩니다.

• 공개 기업: 주식을 누구나 사고팔 수 있는 공개 플랫폼(예: 아마존, 테슬라)에 상장된 회사입니다.

• 비공개 기업: 소수의 소유주(보통 창업자 및 가족)가 주식을 보유하며, 공개 시장에서 거래되지 않습니다.

기업이 주식을 발행하는 주요 목적은 자금 조달입니다. 기업은 이 자금을 사업 확장, 재고 구매, 또는 신규 프로젝트에 사용합니다. 주식은 종종 **자기자본(Equity)**이라고 불리며, 주식을 소유한 투자자는 기업의 이익에 대한 권리와, 일부의 경우 의사결정 권한을 가지게 됩니다.

2.3 채권 시장: 돈을 빌려주고 이자를 받는 곳

채권은 투자자가 발행자(기업, 정부, 주 등)에게 돈을 빌려주는 것을 나타내는 일종의 차용증서입니다. 주식과 달리 채권은 소유권이 아닌 **부채(Debt)**의 형태를 띠며, 발행자는 정해진 기간 동안 이자(쿠폰)를 지급하고 만기 시 원금을 상환합니다.

채권에는 다음과 같은 주요 특징이 있습니다.

• 액면가 (Face Value): 만기 시 투자자에게 상환되는 원금입니다.

• 쿠폰율 (Coupon Rate): 채권에 대해 지급되는 이자율입니다.

• 만기일 (Maturity Date): 원금이 상환되는 날짜입니다.

채권의 가격은 시장 금리와 반비례 관계를 가집니다. 시장 금리가 오르면 상대적으로 낮은 쿠폰율의 기존 채권의 매력이 떨어져 가격이 하락하고, 시장 금리가 내리면 채권의 가격은 상승합니다.

기업 가치 평가와 재무 분석의 기술

기업의 가치를 평가하는 것은 투자의 성공 여부를 결정하는 핵심 단계입니다. 가치 평가를 위한 다양한 기법과 더불어 기업의 전략과 재무 상태를 분석하는 도구들을 알아봅니다.

3.1 기업 가치 평가의 다양한 방법

3.1.1 현금흐름할인법 (Discounted Cash Flow, DCF)

DCF는 미래에 예상되는 현금 흐름을 현재 가치로 환산하여 기업의 내재 가치를 추정하는 방법입니다. 이 방법의 장점은 이론적으로 가장 타당성이 높다는 점입니다. 미래 예측에 대한 분석가의 가정이 정확하다면 시장의 일시적인 변동에 영향을 받지 않고 기업의 본질적 가치를 파악할 수 있습니다. 그러나 단점은 미래 현금 흐름을 예측하는 것이 매우 어렵고, 분석가의 가정에 따라 가치가 크게 달라질 수 있다는 점입니다.

3.1.2 컴퍼러블 (Comparables, Comps)

컴퍼러블은 동일 업종 내 유사 기업들의 재무 지표를 비교하여 기업 가치를 평가하는 기법입니다. 이 기법은 PER (주가수익비율), PBR (주가순자산비율), EV/EBITDA 등 다양한 비율을 활용합니다. 컴퍼러블은 DCF보다 훨씬 빠르고 간편하게 가치를 계산할 수 있어 널리 사용됩니다. 그러나 동일 업종 내에서도 기업의 특성은 다를 수 있어, 단순 비교만으로 정확한 가치 평가를 하기는 어렵습니다.

3.2 기업 경영 전략의 핵심 도구

기업은 시장에서 경쟁 우위를 확보하고 장기적인 성공을 위해 체계적인 전략을 수립합니다.

3.2.1 미션 스테이트먼트

미션 스테이트먼트는 기업의 존재 이유, 목표, 그리고 핵심 가치를 간결하게 요약한 선언문입니다. 이는 기업의 모든 의사결정과 행동의 나침반 역할을 수행합니다.

3.2.2 SWOT 분석

SWOT 분석은 기업의 내부 및 외부 환경을 분석하는 전략적 도구입니다.

구분	내부 환경 (Internal)	외부 환경 (External)
긍정적	강점 (Strengths)	기회 (Opportunities)
	- 경쟁 우위, 독점적 자산 등	- 새로운 기술, 시장 트렌드, 미개척 시장 등
부정적	약점 (Weaknesses)	위협 (Threats)
	- 경쟁사 대비 부족한 점, 자원 제약 등	- 새로운 경쟁자, 규제 변화, 소비자 태도 변화 등

3.2.3 BCG 매트릭스

BCG 매트릭스는 시장 성장률과 상대적 시장 점유율을 기준으로 제품 포트폴리오를 평가하는 도구입니다.

구분	높은 시장 점유율	낮은 시장 점유율
높은 시장 성장률	스타 (Stars)	문제아 (Question Marks)
낮은 시장 성장률	현금 젖소 (Cash Cows)	개 (Dogs)

• 스타: 시장 점유율이 높고 빠르게 성장하는 시장에 있는 제품으로, 막대한 수익 잠재력을 가집니다.

• 현금 젖소: 시장 성장은 낮지만 시장 점유율이 높아 안정적인 현금 흐름을 창출하는 제품입니다.

• 문제아: 시장 성장률은 높으나 시장 점유율이 낮은 제품으로, 투자를 늘려 ‘스타’로 키울지, 아니면 포기할지 결정해야 합니다.

• 개: 시장 성장률과 시장 점유율이 모두 낮은 제품으로, 기업의 자원 효율성을 위해 처분될 가능성이 높습니다.

3.2.4 포터의 일반적 경쟁 전략

마이클 포터는 기업이 경쟁 우위를 확보할 수 있는 세 가지 주요 전략을 제시했습니다.

• 원가 우위 (Cost Leadership): 경쟁사보다 낮은 비용으로 제품이나 서비스를 생산하여 시장에서 우위를 점하는 전략입니다.

• 차별화 (Differentiation): 독특한 제품 디자인, 브랜드 이미지, 또는 고객 서비스 등을 통해 경쟁사와 차별화된 가치를 제공하는 전략입니다.

• 집중화 (Focus): 특정 시장이나 고객층에 집중하여 원가 우위 또는 차별화 전략을 추구하는 것입니다.

3.3 기업의 재무 상태를 보여주는 3가지 재무제표

모든 공개 기업은 투자자와 대중에게 투명성을 제공하기 위해 세 가지 주요 재무제표를 공개합니다.

3.3.1 손익계산서 (Statement of Profit or Loss)

손익계산서는 특정 기간 동안 기업의 수익, 비용, 그리고 순이익을 요약한 문서입니다. 이는 기업의 경영 성과를 보여주며, 가장 상단에 있는 매출부터 시작하여 각종 비용을 차감한 후 최종적으로 순이익을 계산합니다.

3.3.2 재무상태표 (Statement of Financial Position)

재무상태표는 특정 시점(보통 회계 연도 말)에 기업이 소유하고 있는 자산(Assets)과 그 자산을 조달하기 위해 사용한 부채(Liabilities) 및 자본(Equity)의 상태를 보여줍니다. 핵심 공식은 자산 = 부채 + 자기자본입니다.

3.3.3 현금흐름표 (Cash Flow Forecast)

현금흐름표는 특정 기간 동안 기업에 현금이 유입되고 유출된 내역을 보여줍니다. 이는 기업의 현금 유동성을 파악하는 데 필수적이며, 손익계산서 상의 이익과 실제 현금의 흐름이 다를 수 있기 때문에 매우 중요한 문서입니다.

3.4 재무제표 분석의 3가지 핵심 기법

재무제표는 그 자체로만 의미를 갖지 않습니다. 다양한 분석 기법을 통해 기업의 재무 건전성과 성장성을 파악해야 합니다.

3.4.1 재무 비율 분석

재무 비율 분석은 재무제표의 항목들을 조합하여 계산하는 지표입니다.

• 수익성 비율: 순이익률, ROA (총자산이익률), ROE (자기자본이익률) 등으로 기업의 수익 창출 능력을 측정합니다.

• 유동성 비율: 유동비율, 당좌비율 등으로 기업이 단기 부채를 상환할 능력을 평가합니다.

• 활동성 비율: 재고자산회전율 등으로 기업이 자산을 얼마나 효율적으로 사용해 수익을 내는지 분석합니다.

• 레버리지 비율: 부채비율 등으로 기업의 부채 수준과 자금 조달 구조를 파악합니다.

3.4.2 수평적 분석 (Horizontal Analysis)

수평적 분석은 특정 재무제표 항목의 값을 여러 회계 기간에 걸쳐 비교하는 기법입니다. 이를 통해 기업의 성장 추세나 특정 항목의 변화율을 한눈에 파악할 수 있습니다. 예를 들어, 테슬라의 매출액이 2018년부터 2022년까지 어떻게 변해왔는지 연도별로 비교하면 기업의 성장 속도를 알 수 있습니다.

3.4.3 수직적 분석 (Vertical Analysis)

수직적 분석은 재무제표의 모든 항목을 기준 항목에 대한 백분율로 나타내는 기법입니다. 손익계산서에서는 매출액을, 재무상태표에서는 총자산을 100%로 설정하고 각 항목이 차지하는 비중을 계산합니다. 이를 통해 기업의 내부 구조를 파악하거나, 다른 기업과의 재무 구조를 비교할 수 있습니다.

포트폴리오 구축과 위험 관리 전략

현명한 투자는 단순히 좋은 종목을 고르는 것을 넘어, 위험을 효과적으로 관리하고 분산하는 데 있습니다.

4.1 포트폴리오 다각화의 중요성

다각화(Diversification)는 모든 달걀을 한 바구니에 담지 말라는 격언으로 잘 알려진 투자 전략입니다. 여러 다른 자산군에 분산 투자함으로써 특정 자산의 가치 하락으로 인한 손실 위험을 줄이는 것을 목표로 합니다.

• 비체계적 위험 (Unsystematic Risk): 특정 회사나 산업에만 영향을 미치는 고유한 위험입니다. 예를 들어, 한 회사의 신제품 실패, 또는 특정 산업의 규제 변화 등이 이에 해당합니다. 다각화를 통해 이 위험은 상당 부분 제거할 수 있습니다.

• 체계적 위험 (Systematic Risk): 전체 시장에 영향을 미치는 위험으로, 다각화로 제거할 수 없는 위험입니다. 인플레이션, 금리 변화, 경기 침체, 전쟁 등이 이에 속합니다.

4.2 투자 관리 스타일: 액티브 vs. 패시브

투자 포트폴리오를 관리하는 방식에는 크게 두 가지가 있습니다.

4.2.1 패시브 (Passive) 투자

패시브 투자는 특정 시장 지수(예: S&P 500)의 성과를 그대로 추종하는 전략입니다. 종목 선정이나 시장 타이밍을 예측하려 하지 않고, 단순히 지수를 구성하는 모든 종목을 보유합니다. 이 방식은 낮은 수수료와 세금 효율성이 장점이며, 장기적으로 시장 평균 수익률을 얻는 것을 목표로 합니다.

4.2.2 액티브 (Active) 투자

액티브 투자는 전문 펀드 매니저가 적극적으로 종목을 선정하고 매매 시점을 결정하여 시장 지수보다 더 높은 수익을 내려고 시도하는 전략입니다. 이 방식은 높은 수익 잠재력을 가지지만, 높은 운용 보수와 잦은 거래로 인한 세금 부담이 단점입니다. 대부분의 액티브 펀드가 장기적으로 시장 지수를 이기지 못한다는 연구 결과도 많습니다.

많은 전문가들은 단순히 한 가지 방식만을 고집하기보다, 패시브와 액티브 투자를 적절히 조합한 하이브리드 전략을 권장합니다. 이는 포트폴리오의 안정성을 유지하면서도 초과 수익을 추구할 수 있는 균형 잡힌 접근 방식입니다.

거시 경제의 흐름과 ESG의 부상

투자는 개별 기업의 성과뿐만 아니라 거시 경제의 큰 흐름 속에서 이루어집니다. 이 섹션에서는 거시 경제의 주요 동력과 최근 중요성이 커지고 있는 ESG(환경, 사회, 지배구조) 개념을 알아봅니다.

5.1 거시 경제의 핵심 개념

5.1.1 거시 경제학의 정의

거시 경제학은 개별 시장이나 소비자가 아닌, 국가 전체의 경제 활동을 연구하는 학문입니다. 주요 관심사는 경제 성장, 인플레이션, 실업률, 국가 소득 등입니다.

5.1.2 비즈니스 사이클 (Business Cycle)

비즈니스 사이클은 경제 활동이 시간이 지남에 따라 반복적으로 상승과 하락을 거듭하는 현상을 말합니다.

• 확장 (Expansion): 경제가 성장하고 고용이 증가하며 소비자 신뢰가 높아지는 시기입니다.

• 정점 (Peak): 경제 활동이 최고점에 도달하는 시기입니다.

• 수축 (Contraction): 경제 활동이 둔화되고 고용이 감소하며 경기 침체로 이어질 수 있는 시기입니다.

• 저점 (Trough): 경제 활동이 가장 낮은 수준에 도달하는 시기입니다.

5.1.3 주요 경제 지표

• 국내총생산 (GDP): 일정 기간 동안 한 국가에서 생산된 모든 최종 재화와 서비스의 시장 가치를 합산한 지표입니다. 경제 규모와 성장을 측정하는 가장 중요한 척도입니다.

• 실업률: 일할 의사와 능력이 있지만 일자리를 찾지 못하는 인구의 비율입니다. 실업률은 경기 순환에 따라 변동하는 경기적 실업, 기술 발전이나 산업 구조 변화로 인해 발생하는 구조적 실업, 그리고 이직이나 구직 활동 중에 발생하는 마찰적 실업으로 나뉩니다.

• 인플레이션: 물가가 전반적으로 지속해서 상승하는 현상입니다. 인플레이션은 화폐의 구매력을 감소시키므로, 투자 결정에 매우 중요한 요소입니다.

5.2 정책적 대응: 통화 정책 vs. 재정 정책

정부와 중앙은행은 경제를 안정시키기 위해 다양한 정책을 사용합니다.

5.2.1 통화 정책 (Monetary Policy)

중앙은행이 화폐 공급량과 이자율을 조절하여 경제 활동에 영향을 미치는 정책입니다.

• 확장적 통화 정책: 경기 침체 시 이자율을 낮춰 차입과 투자를 장려하고 소비를 촉진합니다.

• 수축적 통화 정책: 인플레이션 억제 시 이자율을 높여 돈의 유통을 억제하고 경제를 둔화시킵니다.

5.2.2 재정 정책 (Fiscal Policy)

정부가 세금과 지출을 조절하여 경제에 영향을 미치는 정책입니다.

• 확장적 재정 정책: 경기 침체 시 정부 지출을 늘리거나 세금을 인하하여 경제를 활성화합니다.

• 수축적 재정 정책: 경제 과열 시 정부 지출을 줄이거나 세금을 인상하여 인플레이션을 억제합니다.

5.3 ESG 경영과 투자의 새로운 패러다임

ESG는 환경(Environmental), 사회(Social), 지배구조(Governance)의 약자로, 기업이 지속 가능한 성장을 위해 고려해야 할 세 가지 핵심 요소를 의미합니다.

• E (환경): 탄소 배출, 자원 관리, 오염 통제 등 기업의 환경적 영향에 대한 평가입니다.

• S (사회): 직원 처우, 다양성 및 포용성, 지역 사회 참여 등 사회적 관계와 책임에 대한 평가입니다.

• G (지배구조): 이사회 구성, 경영 투명성, 윤리적 책임 등 기업의 내부 관리 구조에 대한 평가입니다.

ESG의 중요성: ESG는 단순한 사회적 책임 활동을 넘어, 기업의 장기적인 위험 관리와 성장 잠재력을 판단하는 중요한 척도가 되었습니다. 강력한 ESG 경영을 실천하는 기업은 규제 위험, 평판 손상, 그리고 운영상 비효율성을 줄일 수 있어 투자자들에게 매력적인 투자처가 됩니다.

ESG와 비ESG 기업의 성과 비교: 최근 연구에 따르면 장기적으로 ESG를 잘 실천하는 기업들은 그렇지 않은 기업들보다 더 나은 재무적 성과를 보이는 경향이 있습니다. 이는 ESG 경영이 기업의 회복탄력성을 높이고, 혁신을 촉진하며, 사회적 가치를 창출하기 때문입니다.

새로운 투자 기회: 대안 투자

주식과 채권과 같은 전통적인 투자 자산 외에도 다양한 대안 투자(Alternative Investments) 상품들이 존재합니다.

6.1 대안 투자의 정의와 특징

대안 투자는 전통적인 자산군에 속하지 않는 모든 투자 상품을 총칭합니다. 이들은 일반적으로 다음과 같은 특징을 가집니다.

• 낮은 유동성: 주식처럼 쉽게 현금화하기 어려운 경우가 많습니다.

• 높은 위험/높은 보상: 변동성이 크지만, 잠재적 수익률 또한 높습니다.

• 전문가 대상: 일부 상품은 일반 투자자가 아닌 ‘적격 투자자’에게만 제공됩니다.

6.2 다양한 대안 투자 상품

• 부동산: 토지나 건물을 직접 매입하거나 부동산 펀드에 투자합니다.

• 사모펀드 (Private Equity): 상장되지 않은 비공개 기업에 투자합니다.

• 벤처 캐피털 (Venture Capital): 성장 잠재력이 높은 초기 단계 스타트업에 투자합니다.

• 헤지 펀드 (Hedge Funds): 다양한 복잡한 전략을 사용하여 수익을 추구하는 사모 투자 펀드입니다.

• 원자재: 금, 은, 석유, 알루미늄 등 실물 상품에 투자합니다.

• 수집품: 미술품, 희귀 와인, 빈티지 자동차 등 시간이 지남에 따라 가치가 상승하는 품목에 투자합니다.

• 암호화폐 및 NFT: 최근 주목받는 디지털 자산으로, 매우 높은 변동성을 가집니다.

대안 투자는 포트폴리오의 다각화를 높이고 초과 수익을 추구하는 데 유용할 수 있지만, 높은 위험과 복잡성을 내포하므로 충분한 지식과 신중한 접근이 필요합니다.

대본

dive deep into the world of finance and economics with this comprehensive video course whether you want to make smarter investment decisions or you're looking to grasp the intricacies of global economies this course lays a great Foundation the course combines Theory with practical insights Paving the way for you to navigate the financial realm with confidence sriram originally taught this course in person and now is put together an excellent video course on these important topics hello everyone my name is Shram chandi and I'll be taking you through this course on economics and finance and how they're relevant for businesses throughout this course we'll be learning a variety of topics starting with the key concepts for business Capital markets valuation of stocks business strategies and financial statements how to analyze these financial statements and things like Capital budgeting and cash flow we'll also discuss things at the business cycle and Industry analysis ESG macroeconomics portfolio diversification and alternative investment types throughout this course you'll learn a variety of different topics in all three of these disciplines and understand the interconnected nature of Mac economics finance and business in this world I also have a YouTube channel called change makers media which you can see in the comments I would greatly appreciate it if you guys could subscribe there I share stories on how teens are making an impact in the world and how you can go ahead and support them welcome to the first class on economics and finance so a thought experiment to start imagine you had a magic box and it outputs a dollar a day or five dollars or twenty dollars how much ever you want and it runs forever how much would you pay for this box some people say a million dollars some people say a billion well let's look at it from a statistical standpoint instead of a box let's imagine we have a savings account and it gives you 1.05 interest annually how much would you have to put into the savings account to generate a dollar a day while using Excel we can identify that the principal or the original amount we'd have to invest is thirty four thousand dollars 761. this is a large amount and fairly so this is due to the small interest rate that we're getting on in our savings account let's look at another example imagine you want to buy a house and the market price is a hundred thousand dollars you contribute twenty thousand dollars towards this down payment and take out an eighty thousand dollar mortgage which is a loan how much would you have to pay to get rid of the mortgage well if you have an annual contribution of nine thousand three hundred ninety six dollars you would assume it would take just about eight or nine years to pay off a mortgage but in reality it takes 20 years and this is due to the interest rate of ten percent applied on this mortgage if you look towards the bottom over the course of our Pavements you notice that from 2019 to 2020 our ballots or the principal only drops by 1 400-ish dollars this is because the majority of our nine thousand dollar contribution is going towards paying off interest on the mortgage and we see this effect persisting throughout the course of our payments however it does diminish as the size of the principal decreases and our interest payments decrease so our key concepts for today's class return on investment and time value of money and Net Present Value so would you rather make in a return of one thousand dollars or twenty five percent on an investment you can't really compare the apples and towards so what is ROI ROI is a tool that allows you to compare the efficiency of one investment to another investment thus allows you to compare apples and oranges Roi measures the amount of return and investment generates relative to the amount that you invested so this is the formula for paternal and investment current value and investment minus the cost divided by the cost so let's see the example of the house again imagine you purchased it for a hundred thousand dollars up front and now the market value of the house is a hundred fifty thousand dollars using the ROI formula we can deduce that you had a fifty percent return on investment so why is Roi important because it allows you to compare assets of different classes and express it as a percentage it also provides a basic measure that's Universal to compare an investment's profitability as a basic element in all analysis and decisions for companies and individuals but it is limited so let's look at this example an investment one you invest one thousand dollars and some real estate and sell it for one thousand two hundred dollars a year later so your Roi is twenty percent in investment two you bought two thousand dollars of stock and sold it for two thousand eight hundred dollars three years later using the formula you have a forty percent ROI so according to Roi the second investment is better but when you look at the time considerations you spend three times as much time to make that forty percent ROI as you did to the twenty percent ROI hence Roi is not the say all be all measure of the value of an investment okay now let's look at the time value of money continuous compounding so let's assume you have a savings account and itinerates 10 interest per year over 20 years initially you invest one dollar into this account over the course of 20 years with that 10 interest rate the value of your accountable rise to 6.73 that's 6.73 times the amount you initially invested and this is the power of continuous compounding or compound interest so time value of money this concept says that money is worth more today than in the future because of the potential earning capacity that money has as seen in the example and because the power of money decreases due to macroeconomic effects such as inflation so would you prefer one dollar today or one dollar in five years time with our previous example we could reduce that we would like one dollar today this is because we have the potential to have flows that money can create during the Spy period as well as the avoiding of the potential effects of inflation now we have Net Present Value the last of our three key concepts for this section of the video so Net Present Value is a pretty straightforward concept and as the name suggests the net of all cash inflows and cash outflows to determine the value of an asset cash inflows and cash outflows essentially represent the income and the sunken costs that an investment has taken so how do we calculate the net present value but before we can calculate it we need to understand Net Present Value is an important tool to determine the value of an investment if Net Present Value is greater than zero that means an investment was a positive investment generating good returns before we can calculate what Net Present Value is we have to understand something called the discount rate discount rate is the interest rate used to to determine the present value of future cash flows in a discounted cash flow analysis essentially it's the interest rate that the Federal Reserve charges on short-term loans we use it to calculate the value of money in the future due to macroeconomic policies like inflation which decrease the value of future cash flows so once we understand what the discount rate is we can accurately calculate the net present value so let's assume you purchased a vending machine to purchase the vending machine you had to spend ten thousand dollars this is reflected in year zero with a minus ten thousand dollar cash flow which is a negative cost in year one your vending machine refers you two thousand dollars in profits and in subsequent years it returns three thousand five thousand and seven thousand dollars so if you were to add up these numbers it would give you a seven thousand dollar Net Present Value however accounting for the discount rate which assumes the loss of money due to uh increasing interest rates our Net Present Value is only four thousand seven hundred and four dollars although it's less than the seven thousand dollars that we would have received if money didn't lose value it's still greater than zero which indicates that the vending machine is indeed a good investment okay so here we have a Google Sheets laid out with the payments of a mortgage you would make if you were to buy a house so referring to a similar example let's imagine we're buying a house for a hundred and fifty thousand dollars this time so you have a twenty percent down payment which is thirty thousand dollars which leaves you with a payment of a hundred twenty thousand dollars which you're going to be paying off with a loan so let's say your loan principal is 120 000 you have a yearly interest rate of ten percent this means your yearly payment for a 20-year mortgage would come out to thirteen thousand eight hundred and ninety six dollars so as you can see here over these 20 years you're going to be paying off this mortgage with your yearly payments so the first every year you pay off the exact same amount however the principal amount decreases so in the first year you start with 120 000. uh after your first payment you're left with 118 000 and so on so forth until you eventually reach zero at the end of your 20-year mortgage period however it's important to note the changes to the principal amount as time progresses if you notice from year zero to year one our principal only decreased by just shy of two thousand dollars even though you're making a payment for almost fourteen thousand dollars the reason for this is the majority of your payment is going towards paying off the yearly interest rate on your principal which is ten percent of a hundred twenty thousand dollars which is twelve thousand dollars so of your thirteen thousand eight hundred ninety six dollars twelve thousand is going towards the interest and only one thousand eight hundred ninety six is going towards paying off your principal this goes to show you how interest rates uh can actually end up costing you a lot of money so 120 000 loan ends up costing two hundred and seventy seven thousand nine hundred four dollars by the end to pay off the principal and the interest so that means you're paying a hundred and fifty seven thousand dollars 940 on interest all right so what are capital and financial markets what is Capital Finance and who provides it and how do businesses and governments obtain Financial Capital through these markets so the financial Market is a place where two or more people come together to exchange goods or services they can be physical places like a grocery store or Supermarket or virtual places like for example the Netflix subscription page although this is less obvious of a Marketplace it is still an area where two parties the individual purchasing the subscription and Netflix come together to exchange goods and services or in this example a Netflix subscription which is a service so the importance of financial markets financial markets are vital for growth of firms as well as achieving individual consumers as desires many firms produce goods and services that individuals would not be able to acquire themselves as a result it's important for financial markets to exist so consumers can have access to these Goods it's also important for firms this is because unless they're able to trade their goods and services they won't be able to make Returns on what they're producing and grow as a result so now we'll go over the stock and bond markets so first of all what is a stock so a stock is a security that represents a portion of ownership in a company so people can only purchase stocks from a public or private type of company public companies are companies that trade their stock on a public platform or anybody can purchase it examples are Amazon apple and Tesla if you wanted to right now you can go and purchase their stock private companies on the other hand are held by certain owners typically the people who started the company in certain situations they may choose to sell their stock but not on a public platform only privately to maybe their friends and family so the what are stocks issued stocks are issued by companies to raise finances for their goals these may be expansion raising money for inventory and so on stocks are also referred to as equity and as many of you have seen in the Shark Tank show we see the term Equity thrown around in this example Kevin offers four hundred thousand dollars for an 8.2 million dollar valuation so the company's total Equity or stock is worth 8.2 million dollars and Kevin's offering four hundred thousand dollars which represents 4.8 percent of that total Equity so he would be owing 4.85 of the total stock of that company so now what is a bond a bond is an instrument that represents a loan made by an investor which is you and a borrower so bonds can be issued by a variety of places unlike stocks which are only issued by firms bonds can be issued by firms governments States and other government-affiliated organizations bonds have four main features their issue price which is what you buy it for the face value which includes the price you're buying it for as well as the interest payments the coupon rate or the interest rate which is the set of payments you'll be receiving over the course of the bond the coupon date which is when these payments will be made to you and the maturity date which is when the lifetime of the bond is expended and the issue price is returned to you so bonds are used typically to fund projects for these organizations they only last for a certain period of time as determined by the maturity rate when the bond is issued and they either have fixed or variable payments something interesting about bonds is that they're inversely related to interest rates in the market this is because as interest rates rise the lower coupon rate of the bonds become less desirable as a result Bond issuers lower their price an example of a government-funded project could be developing infrastructure such as buildings schools Paving roads and so on if the government doesn't already have enough funds to do this project they may issue bonds to race capital and pursue these projects so the differences between stocks and bonds so typically stocks are more risky this is due to the volatility of the stock market resulting in companies values appreciating and appreciating additionally stocks are only issued by firms or companies stocks also give you ownership over a company and you get paid in the form of dividends and appreciation in the value of the company Dividends are when companies may choose to offer you some money that they make from their profits and appreciation is when the total value of the company Rises as a result when you purchase a sock for say for example when the company stock is worth a hundred dollars and it appreciates to 120 you make money off of that 20 appreciation additionally stocks give you ownership over a company and in some situations will give you decision making power so now bonds bonds are seen as less risky because they have fixed payments which are determined when the bond is purchased and they they give you a maturity once they mature you get your initial payment back bonds are issued also by firms and governments along with other organizations bonds are in the form of debt not ownership so when you purchase a bond the person that you purchase the bond from will be making you payments furthermore bonds don't give you any decision-making power since they're only debt and not ownership we can see the risk between bonds and stocks in this example so here these stocks are represented by the dark blue line whereas the bonds are represented by the light purple the stock prices are very volatile as they're swinging up and down cyclically almost whereas bonds are on a steady much lesser volatile growth rate this represents how stocks are much more volatile and when at certain dates if you choose to sell a stock you may make a negative return whereas if you choose well bonds you can't sell but once your bond reaches a maturity you're almost guaranteed to make profits unless the company or organization that you purchase the bond from defaults or goes bankrupt so how do we value stocks on any asset in general well there's two main factors that we have to include when it when trying to value a stock or Bond or any asset for that matter the expected cash flows and the risk associated with the value as we discussed earlier cash flows are the total revenues we'll be making along with the sunken costs of purchasing an asset and risk risk can be represented with the chance for financial losses or the chance that a company even goes bankrupt and you lose your value okay so stock valuation there is a lot of uncertainty when valuing a stock and part of this is due to the fact that there's so many different ways to value a stock for example there's a discounted cash flow method which we'll be looking into next there's the constant growth divided by dividend discount method and there's also techniques called comparables which we'll also be discussing such as price to earnings price to books and prices sales as a result there's no standard convention to measure a stock and when people are comparing stocks it's best to use the most information you have available to you and try and do all these techniques which is of course unviable in the real world though so the discounted cash flow method discounted cash flow method is similar to what we discussed in the previous section where we take all the expected cash flows for an asset from including the sunken costs and the revenues that it would like to generate in the future and discount these values meaning we adjust these the value of money in accordance with uh macroeconomic features like inflation and so on to ensure that the future value of money is converted to the present value of money so what are the pros of this technique theoretically this is the most sound method if the analyst is confident in their assumptions and forecasts additionally it's not significantly influenced by temporary market conditions or non-economic factors like if the industry is suffering from a temporary lack of resources this technique ensures that those factors are overcome when calculating the value and this is especially useful when there when this Com when a company you're valuing is in an industry where there's no other competitors or very limited competitors so that way there's limited or no comparable information as a result you only base your forecast off the individual company the cons of this technique are that it can vary over a wide range of values because the predictions are based on forecasts which are likely to be inaccurate additionally it's very time intensive compared to the other evaluation techniques which we'll discuss later and additionally forecasting future performance is very difficult since it requires lots of statistical tools and again it is likely to be inaccurate or imprecise so evaluation Frameworks we'll be looking at comps now so what are comps comps are also called comparables or multiples and it is a valuation technique that is based on comparing companies within an industry it involves using metrics such as price to earnings price to books and other relevant ratios to that of similar companies in the same industry the rationale behind using comps lies in the principle that companies within the same industry tend to have similar financial and operational characteristics due to Shared market and economic factors by evaluating the valuation of a company against its peers investors can gain insights into its performance within the industry and whether it's over under or fairly valued so the two most popular forms of comps are price to earnings ratio and something called Enterprise Value to edicta or ebitda so these are examples of certain types of comps we have price earnings price to sales Enterprise Value to earning before interest tax and depreciation price to cash flow and price to earnings the reason these are better than discounting cash flow in terms of time is that their ratios so they can be calculated very quickly all you have to do is go to the financial documents of a company look at their numbers that they're reporting and calculating them which allows for Swift and easy comparison between companies within the same industry all right in this section we'll be going over business strategy any of the financial documents related to it so first what is business strategy well it's a plan of action or a policy designed to achieve the major or overall aim of a company so at the time to develop a coherent economic strategy and the plans to ensure the future success of the company in both its goals and financial success so one key aspect of the business strategy is the mission statement the mission statement is the summary of the aims and the values of a company the key elements of a mission statement are the purpose the target audience and explanation of the business how the business is unique and the values that the business has and it has to do all of these things in just a couple sentences so let's look at a couple examples here we have Microsoft and their business statement is to empower every person in every organization on the planet to achieve more we have Honda maintaining a global Viewpoint we are dedicated to supplying products of the highest quality yet at a reasonable price for worldwide customer satisfaction and Walmart to save people money so that they can live better across these three statements there's common features one they're short two they're easy to remember and three they showcase the core values and missions of these companies okay so the next part about a company analysis there's various tools that companies include to create their business statement and one of these principal tools is a SWOT analysis A SWOT analysis helps the company position themselves and understand where they are in the marketplace against their competitors there are four key elements of SWOT analysis strengths weaknesses opportunities and threats which thus produce the name SWAT so the strengths of a company are its competitive Advantage the assets that it had that are proprietary and products that are performing well these are the trends because they are unique features of a company that other competitions don't have the weaknesses of a company are things that they lack that their competitors have things that their competitors do better and any resource limitations that a company may be experiencing so strengths and weaknesses are within the company and its operations then we have opportunities and threats uh threats are new legislature which threatens their company's operations any new emerging competition and changes to Consumer attitudes and opinions opportunities are a technologies that a company can integrate to improve its processes emerging press and media which can help our company generate any publicity and underserved markets that a company can integrate themselves into resident opportunities are not directly involved in the company and are external and can be affected the company over time so here we have a bit more of a detailed explanation what strengths and weaknesses are so strengths are the internal attributes and resources of a company that Propel the company towards success it represents the area where your organizational outperforms others evident by both your competitors and your customers weaknesses are the facets that hinder favorable outcomes for your business they pinpoint areas that require improvements shedding light on where your company falls short compared to its competitors opportunities Encompass external elements that can be leveraged to your advantage these are prevailing market trends that when capitalized upon using your strengths can enhance revenue and provide a Competitive Edge threats denote external factors that jeopardize your organization's success these Encompass advantages held by competitors to mitigate these risks it's crucial to employ your strengths strategically SWOT analysis when used can help an accompany understand where it is now in its industry and what the future holds and how the company can progress itself in a beneficial way one more tool that a business can use to help it understand the importance of certain products or Services cells is the BCG Matrix so the BCG Matrix otherwise known as the Boston Consulting Group Matrix is a business analysis tool that helps organizations assess their product portfolios performance and potential so as you can see on the diagram there are four different categories Stars cash cows question marks and dogs and you can categorize products depending on their market growth rate and their relative market share so Stars these are products with high market shares that are growing in fact that are in fast growing markets they they have the potential to generate significant profits due to their position in this industry so if a company dominates 90 of the market share for it for it in for a niche that is growing very fast the product that they're selling is likely to be a star cash cows are products that have high market shares in markets that aren't growing so fast they're um while they may not have as much growth potential they generate steady cash flow which is often a desirable for businesses so similar to stars but they don't have the future potential and instead they're making money right now question marks are products that country may have low market share in however the Market's likely to expand in the future they require consideration as to whether a company should invest in it to develop its market share and potentially create it into a star or to let it go and become a dog and dogs are products that have a loan market share and a market growth in a market that isn't growing they won't generate significant profits for the company and if a company needs to reduce some of its uh products or services that it's offering the dogs are the first to go the BCG Matrix can help a company allocate its resources effectively by suggesting strategies for products or services that fall into each specific quadrant and the last strategic business tool we'll talk about is Porter's generic strategies supporters genetic strategies are a set of strategic approaches developed by Michael Porter as the name suggests to help businesses understand where they stand in the industry and to help them gain a competitive advantage so again there are four quadrants in this industry in this uh diagram there's cost leadership differentiation cost focus and differentiation Focus so cost leadership is a strategy that focuses on becoming the lowest cost producer in a in any in an industry this is achieved by economies of scale efficient operations and cost controls uh this can attract a wide consumer customer base and potentially deter new entrants from the industry then we have differentiation differentiation aims to create a unique or distinctive product unlike others on the market and this can be achieved through unique product design branding or even customer service by offering something that's valuable and unique companies can often charge premium prices and customers will be willing to pay and then it's removed the bottom there are the focus or Niche strategies in the niche market these strategies often involve concentrating efforts on a specific Market or a specific segment this can be done either through cost Focus or through differentiation Focus which means becoming the lowest cost leader in a niche and offering a uniquely tailored product in a nation respectively by focusing on smaller specialized markets companies can build stronger relationships with their customers and it's much easier to maintain these relationships by choosing one of these generic strategies businesses can align their operations marketing efforts and resource allocations to create a sustainable competitive advantage so now we'll be looking at the three main financial statements that all companies need to report or financial documents rather so we have the statement of profare loss the statement of financial position and the cash flow forecast it's important to note that these documents do have different names that they're referred to as I've indicated some of the popular other forms in parenthesis so if you do go on the internet and you come across an income statement or Prof or loss statement please do know that they're the same thing so each of these statements has a different purpose which we'll be exploring soon and when combined together they provide an in-depth look at the through the lens of finances and performance and how a company is performing and whether its stock is good and also keep in mind that all publicly traded companies need to report these three documents to ensure transparency with the public and their investors whereas private companies don't need to report this also note that in these documents any negative numbers or losses will be represented with parenthesis around them or in earlier examples I used the color red however in financial documents it's important to know all negative numbers are in parenthesis all right so first we have the statement of profit or loss the statement of profit or loss is a financial statement that summarizes the revenues costs and expenses of a company over a period of time so just to start with all of these financial documents have this opening section it'll of course include the title the company and what type of financial document it is and more importantly the period of time that is coming from so in this example we have the end of the year at this whatever year okay so the statement of profit or loss is also known as the statement of operations statement of financial results or income the earning statement the expense statement income statement and so on it's important to compare this profit and loss statement over time to see changes within a company so this example we only have it for one year but investors typically look at several years and compare it on a horizontal analysis which we'll look at later to see the growth of a company over time so whenever we're looking at this document it's important to start from the top so we look at the sales revenue and we as we go we slowly reduce the uh the total sales revenue until we receive the retained profit so starting at cost of sales this includes the cost of manufacturing goods and the pro and the cost through which you would have to sell it this includes lighting at the store and so on this leads you to your gross profit then after expenses you get your profits before interest and tax after paying interest you get profits before tax after paying your taxes you get profit for your period so this is essentially all the Surplus that a company has left over then you pay your dividends to your shareholders and this leaves the retained profit for the company so it's important to note that this is for a profit making entity even non-profit making entities do report these statements however in place of profit they use the term Surplus since they aren't well for-profit and then right so the statement of financial position this statement's a bit longer so we'll look at it in two parts assets and liabilities but essentially this statement says at the end of a financial period where do you as a company stand so the first half the assets so again looking from the top we have the name of the company title of the document and the peer that is reporting for so in this section we look at the assets and assets are split into non-current and current assets so non-curred assets are assets that a company will be holding for a period greater than a year this includes things like the factory that is built on any of the technical equipment they have and so on current assets on the other hand are things that our assets that company will hold for less than a period of for less than a period of a year this includes things like cash debtors and stock so when you calculate the total value of your non-current assets you get 800 year and current assets is a one thousand one hundred so your total assets add up to 1900. one thing that you may notice is accumulated depression depreciation and it's in parentheses and it's a negative factor although it's beyond the uh scope of this course I'll give you a quick look at what depreciation is it's an accounting technique used by companies to reduce their overall assets which can help them in terms of tax breaks and so on but yeah when you add your non-trans assets and your current assets you get your total assets of 1900. now liabilities again liabilities are split into current liabilities and non-current liabilities current liabilities are liabilities that the company will hold for a period less than a year and non-current are liabilities that a company will hold for a period greater than you things like Bank overdraft which are essentially drawing from a bank account until it gets to a negative point or is a current liability trade Predators is when a company is trading with another company and the person you're trading with allows you to pay later essentially like an IOU and we also have short-term loans which we which will be paid back in a period less than a year and these add up to your total current liabilities other non-current liabilities are just long-term loans which you would take out from the bank and these add up to your total liabilities your net assets are your total assets minus your total liabilities so your total assets are 1900 and your total liabilities are 800. so 1900 minus 800 gives you 1 100 which is your net assets and an important calculation to know to see if you've done this the financial position correct is to take your assets and equate them to liabilities plus shareholder Equity if this comes out equal then you get it right shareholder Equity essentially the sheer Capital that your the value of your shares and the retained earnings of a company for the period so yeah that's your statement of financial position and now we have the cash flow forecast the cash flow forecast is debt is for a shorter period of time and it talks about all the money going in and out of a company for in this case three months so yeah it allows advisors to assess the individual inflows and outflows of a company to determine how important certain things in the company are and how expensive they are and how they can be cut down to improve the total net cash flow of a company it also allows the company uh it also allows for a month by month comparison to see the growing effects of the company's operations so as you see here in January the opening balance is 800 however the total cash outflows which are 306 are greater than the inflows which are 300 and as a result the closing balance decreases by six million so you have a closing balance of 2 million and we see this negative cash flow uh going over a period of three months which allows us to see that operating at this state for this company has negative effects and that suggests that some outflows need to be decreased or inflows need to be increased otherwise companies may need to take out other for um incorporate other forms of finances so the importance of these forms these reforms as I stated earlier need to be made public for publicly traded companies it's important that companies ensure uh transparency with their investors and with the public so that investors can make informed decisions whether they should invest in the company these are all these documents are also important for people within the company to ensure that uh to create calculations like return on it Equity or Roe and you can only do that by comparing across these documents or cross-referencing so yeah even now you can search up a certain publicly traded company and find these financial documents on the internet however you won't be able to do so with private companies so now we'll be looking at how to analyze this financial statements that we've just discussed so there's three techniques that we can use you can use ratios a horizontal analysis and a common size technique so first we'll go over ratios which are in my opinion the simplest way and the quickest way to analyze so there's four types of ratios profitability ratios which measure your return on investment your liquidity ratios which measure how easily you can move your money around activity ratios which are representation of your day-to-day operations and leverage ratios which represent how well you can utilize debt so we have profitability ratios profitability ratios are Financial indicators used to evaluate a company's ability to generate profits relative to its Revenue assets and equity key profitability ratios include the gross profit margin as you can see on screen which measures profit after deducting production costs or cost of goods sold and the net profit margin which assesses overall profit after all expenses we also have return on assets and return on equity which are common ratios that show how efficiently a company generates profits from its assets and shareholder Equity respectively these ratios help investors in stock stakeholders gauge a company's profitability and its Effectiveness in turning Revenue into earnings so as you can see I have the formulas for each of these profitability ratios listed on screen and the major at all this information can obviously be found from the three financial documents next we have liquidity ratios liquidity ratios are Financial metrics that assess the company's ability to meet its short-term Financial Obligations they measure the abilities the firm's ability to convert assets Into Cash quickly to recover or cover immediate liabilities common liquidity ratios include the current ratio which divides the current assets by current liabilities and the quick ratio which excludes less liquid assets like inventory these ratios provide insights into a company's Financial Health and its capacity to handle unexpected expenses or downturns high liquidity ratios generally indicate better short-term Financial stability and flexibility however they aren't in the ultimate analysis technique for liquidity activity ratios um so activity ratios are also known as asset utilization ratios and they analyze how efficiently a company manages to use its assets to generate Revenue they provide insights into how well a company utilizes its resources and operations for example we have inventory turnover which measures how quickly inventory is sold and replenished and things like average collection period activity ratios help businesses optimize their operations manage working capital and identify areas where improvements can lead to increased productivity and profitability finally we have debt leverage ratios debt ratios are Financial metrics that evaluate a company's level of debt in relation to its Equity or assets these ratios offer insights into a company's financial leverage and risk common debt ratios include the debt to asset ratio which measures debt relative to the total assets a company has this ratio helps assess the company's ability to handle its debt obligations and also provides valuable information for investors and creditors regarding the firm's Financial stability and transfer risk all right so there's nuances to these ratios although these ratios are super simple and easy to calculate they aren't that useful when you're comparing firms across Industries so for example we have Walmart and Honda if we take the example of the liquidity ratio uh liquidity ratios with the quick ratio you can't compare Honda and Walmart it's likely that one of the companies will have very different styles of inventory and the ways they process their equipment is very different however it these ratios are useful when you're comparing companies within the same industry in the same position all right so now we can go through a quick simplified version to of a Consolidated income statement and all these financial documents to calculate two ratios the gross profit margin and the net profit margin for Tesla so I got this data from The Wall Street Journal and it's just a Consolidated income statement of Tesla with all this information here so to calculate the gross profit margin I have the formula right here so it's the revenues minus the cost of goods sold divided by the total revenues so using Excel we can use the minus function to take the revenues which is right here and subtract it from the cost of goods sold which is right here and this gives us twenty thousand eight hundred fifty three and now we can use the divide function to divide this value by the total revenues which is the formula right here and this gives us the gross profit margin ratio of 0.255 and so on and now we can do the same thing with the net profit margin but this is much more simple this is just the net income divided by revenues so we take the divide function and we look for the net income which is right here and you take this and you divide it by the revenues which is right here again I'm using Excel we can calculate it to be 0.15446 so this is a super simplified example the information on this Excel sheet is very basic in reality when you're calculating some of the other ratios you're going to need to wrap cross-reference these financial documents because lots of the information is located on the cash flow forecast some is required reporting the income statement and so on so as a result it becomes a lot more complicated but if you have access to all the files which you should for publicly traded companies you'll be able to do these calculations no problem the next technique is horizontal analysis or Trend analysis so horizontal analysis of financial statements involves comparing financial ratios and benchmarks or any item over a number of accounting periods this method is also known as Trend analysis so horizontal analysis allows the assessment of relative changes in different aspects of the financial statements to be seen over time so let's look at this example one thing to notice when you're reading these financial statements over time is that the most recent years represented on the leftmost column and the most and the oldest years on the right most column which kind of goes against our left or right reading Style in English so it's important to keep that in mind but if we look at the numbers we see a growth in the sales growth in the cost of sales a growth and profit and so on so this can be calculated so the change the numerical change can be calculated and listed in this column and the percentage change can be listed here the percentage change is calculated by taking the difference and dividing it by the overall amount so that's also called the year over year change so returning to our Consolidated income statement for Tesla that we saw in the previous example we can see the same changes happening over time so the leftmost column is the most recent year which is 2022 and the rightmost column is 28t so this records data for Tesla over the course of five years keep in mind that this some of this data happened during the covid-19 pandemic which may have skewed results so that shows you that it's important to realize that macroeconomic effects like a pandemic or other industrial shocks can affect this data but in large it's not that big of a contribution at least a Tesla so if we look we see a growth in sales revenue so from 20 to 21 000 24 000 31 000 and then rapid growth from 2020 to 2022 with 20 000 uh growth and then 30 000 Euros at the same processes can be seen across various other factors or various other items and this goes to show you how this horizontal statement can be used to analyze growth over time even with Tesla the last tool we'll be discussing in this section is common size analysis which is a Financial State okay the last technique we'll be discussing in this section is common size analysis common size financial statements show each line item expressed as a percentage of a base figure within the statement and it's used for vertical analysis so a common size financial statements help to analyze and compare a company's performance over several periods the comments as percentages can subsequently be used to compare those with competitors and determine how a company is performing relative to the rest of the industry a common size income statement is an income statement in which each line item is expressed as a percentage of the value of Revenue or sales a common size balance sheet is a balance sheet that displays both a numeric value and relative percentage for total assets so in the following example we'll be looking over a common size statement for an income statement or balance sheet okay so here we have a generic example of what one would look like as you can see we have the normal side of a balance sheet or Finance statement of financial position except one more column is added that expresses everything as percentages in this example you would think percentages aren't too helpful and you'd be right and that's because the numbers here are very straightforward the total assets are a hundred thousand which makes a hundred percent and all these numbers are very straightforward however in a situation where numbers are much more miscellaneous and intricate these percentages help to clarify and watch more information here this is extremely helpful because it can show us what percent of our assets for example our current assets are at which four so in this example for our current assets the majority is in the form of total cash and inventory whereas the rest is in the form of prepaid expenses and accounts receivables this can suggest that the company may need to invest its total cash into other assets that can generate revenue and it may have an inventory issue turning inventory into actual Revenue and if we look at our non-current assets the majority of our assets are in our planned property and Equipment whereas very little is in our Goodwill this can help us identify what value certain parts of our business bring and what parts aren't as helpful so in the non-current example we see how we have so much value in our equipment our property in our plan whereas the brand name and value which is Goodwill isn't that strong this can also help us identify which parts of our liabilities are the greatest and which parts are the weakest and how we can take future steps to address these and prevent any other issues from rising the same thing can be seen for other forms of shapements like the income statement which I mentioned earlier but it's essentially the same thing just in another financial statement all right so let's say you have the opportunity to install solar panels on your house the solar panel company says it's going to cost you ten thousand dollars to install solar panels but they say in the long run you're going to be able to save money should you make the investment well in this class we're going to be in this section we're going to be talking about capital budget Inc so what is capital budgeting why do we do it and how is it done and with these tools we can answer whether we should make the investment for the solar panels so first what is capital budgeting Capital budgeting is the process of evaluating and selecting long-term investment projects like solar panels that involve significant financial outlays it's a decision-making processes for businesses and individuals to determine which projects are worth pursuing based on their potential to generate returns or benefits over an extended period Capital budgeting helps organizations and individuals allocate their Financial Resources effectively maximizing the value of Investments and minimizing the risk of making poor choices it's a systematic approach that considers not only the immediate costs and returns but also the long-term impact on financial performance and overall strategic goals of an individual or business okay so first of all why do companies even make investments in fixed assets well Investments can increase capacity they can overcome some regulations they are Innovative which can give companies a unique advantage and there's so many other reasons but why is capital budgeting imported for valuation Capital budgeting is important for several reasons but I'll give you three main reasons first of all it helps the resource allocation there's limited financial resources and capital budgeting can help ensure a company's focus on the most promising Investments it also helped for long-term planning this is because it allows companies to plan for the future by considering the effects of their investment using tools that we'll discuss later over extended period and manage risk while maximizing returns and it also considers the time value of money again which we'll discuss further but Capital budgeting considers the time value of money recognizing that a dollar today is worth more than a dollar in the future this also ensures that cash flow predictions are properly discounted okay so how do companies pay for Investments they pay for it in three ways using cash flow debt and equity so before we continue there's two more Concepts you need to understand before we're able to discuss Capital budgeting and how to actually consider it internal rate of return or irr for short and cost of capital the internal rate of return or irr is a finance term that helps us assess how lucrative an investment or project could be irr is the annual growth that an investment is expected to make if the irr is higher than what you could earn from a safe investment like in like a bank deposit or investing in some safe stocks then the project might be worth the risk in short irr helps us decide if a business idea is a good investment so the steps of capital budgeting first a project proposal is developed this involves either individuals or businesses looking at an opportunity to make an investment and thinking it's a good idea then management reviews and prioritizes projects based on their economic viability so after looking at the potential cash flow projections management will either decide if an investment is positive or negative for the company and thus decide to prioritize or ignore it then funds are allocated on these projects to ensure the development and the results are tracked to see if the projections are accurate if projections are inaccurate they're either funds are either removed reduced or increased after the investment is completed companies can reflect on the process and re and decide whether future similar Investments should be made so Capital cash flows the value of an ambition initial investment is equal to the cost of the new asset plus the installations cost associated with the new asset minus the after tax proceeds from selling the old asset keep in mind the after tax proceeds from selling an old asset is equal to the sale price minus the tax on capital gain which is a bit Advanced for this course but all you need to understand is that that is considered when calculating the price of the initial investment so Capital budgeting results in changes in working capital if a current asset increases in value it's a use of working capital if current liabilities increase it's a source of work in capital that means current assets are cash so or in inventory which are uses of a capital and liabilities are things like invest and Loans which are sources of working capital an increase in networking Capital means it's a source of cash for the company and a decrease is a use of cash so Capital budgeting are the three main methods that we use to decide whether we should invest are payback period which we'll discuss next Net Present Value which we've discussed earlier and irr which you've all just discussed so payback period it's a very basic concept and it essentially discusses how long it takes for a company to recoup its Investments on a fixed asset so in this example we have a Ford factory initially it costs five thousand dollars to invest in the Sport Factory however as the years go on it generates positive cash flows so payback period essentially looks at how long it takes for the company to generate to retrieve a net positive cash flow and as you can see initially the cash flows the cumulative cash flow is negative until year four when it finally breaks positive okay so now let's return back to our example our solar panel costs ten thousand dollars should we make the investment so using Capital budgeting techniques we can predict the cash flows so the cash flows over the years are two thousand two thousand five hundred three thousand five hundred four thousand and four thousand five hundred with an initial cost of ten thousand should we install these panels well if you look at the cost of capital which is twelve percent that means any other investment we could invest in would generate one thousand two hundred dollars in Net Present Value if our investment on these solar panels is greater than our other cost of capital then it's a good investment so using discounting our cash flows we can find a value we find that the value of the solar panels the net present value of the solar panels is 1219 which is greater than the value of odd which is greater than our cost of capital so here we can see how we calculate our Net Present Value and how it shifts based on our discount rate and our cash flows so this Excel function is set up so that the discount rate is called percent which is our cost of capital and our cash flows are accounted for and you can do this by typing equals npv just click on the discount comma and selecting our cash flows which yields the same number here and here so if we wanted to adjust our factors to see how it would be in different scenarios we can change these numbers and see how it would work so if our discount rate was instead of 12 20 and you can see how our Net Present Value has decreased this suggests that other Investments which have higher which are better cost of capital could have been a better investment than investing in these solar panels however if we decrease our cost of capital of something like five percent we see the Net Present Value increases even greater this shows how different costs of capital can affect the net present value of our investment by comparing alternative Investments additionally we can look at how cash flow affects a Net Present Value if our initial cost was 20 000 instead of ten thousand thus essentially meaning the cost was double our Net Present Value decreases significantly this shows how the price of investment can also affect the value and that increasing our invest increasing our cash flows significantly increases our Net Present Value all right in this section we'll be talking about Mac reconautics so first of all what is macroeconomics macroeconomics is the branch of Economics that studies the overall behavior of an economy focusing on large-scale factors like economic growth inflation unemployment and national income it examines how policies and events impact the economy as a whole rather than individuals such and individual businesses or individual markets some of the key factors in macroeconomics are the size of the economy economic growth government policy fiscal policy monetary policy inflation and international trades most of these which we'll touch upon so one thing that we should understand is the business cycle the business cycle is very intertwined with economics everything is cyclical so the business cycle also known as the economic cycle is the recurring pattern of fluctuations and an economy's overall activity over time it can be divided into four main free phases as you guys can see in this diagram it's so in this example it starts with the trough or the lowest point so the trough is the lowest point in the business cycle um at this point economic economic activity is at its lowest and economic conditions are the worst however at this point the economy uh sets the stage for a potential turnaround as it moves into the expansion stage features of this stage is monetary and fiscal policy employed by the central banks and government which we'll touch upon later uh starting to rise in economic growth an increase in employment and manufacture manufacturing from this trough and a gradual shift towards increases in profits next we have the expansion phase during his phase economic activity such as production employment and consumer spending is on the rise as said by the trough businesses are expanding and there's a general sense of optimism and an increase in consumer confidence throughout the economy growth is driven by an increase in consumer demand investment and also by monetary and fiscal policy as you can see the effects of fiscal and monetary policy are starting to benefit however the governments and central banks are drawing back on their intervention economic growth is also still positive however it's not as rapid as it was during the trough at this stage companies are still hiring and Manufacturing activity is ongoing and margins of companies also start to increase then we reach the peak the peak is the highest point of economic activity in the business cycle at this stage growth begins to slow and even starts to decrease and the economy reaches a state of Maximum output however signs of potential inflationary pressures May begin to emerge at this point fiscal and monetary policies employed by the central banks and governments may go in the opposite direction to prevent too much growth which is inflation additionally economic growth stagnates and employers have trouble finding workers and wages increase in value this is an effective inflation additionally earnings start to disappoint workers against high expectations due to economic growth this leads into a recession or a contraction so following the peak the enemy the economy enters this contractionary phase economic indicators like GDP employment and consumer spending which we touched upon earlier start to decline businesses cut down on production start laying off employees and this may result in a decrease in consumer conflicts this phase is commonly referred to as a recession however but it can this trade varies depending on the severity and duration of this period business cycle is driven by various factors including shifts in consumer and investor sentiments increased technology and changes to monitoring fiscal policies however it is continuous and it always happens however one thing to note is that in this graph we see the business cycle as reaching the trough again right but one thing to notice is that the economy is constantly growing so it's on an upward Trend however these Cycles go throughout the upward track if that makes sense if you look closely here the trough in the original early cycle is a bit lower than the trough after we reach the recession this shows that the economy is growing however while it's growing it is experiencing Cycles okay so the key factors of the macro economy that we'll be touching upon GDP or gross domestic product on employment slash unemployment inflation and interest rates which we've already discussed so first what is GDP GDP or the gross domestic product of a company represents the total cost of goods being sold in that country or in that nation in a period typically one year so GDP is calculated as consumer spending which is C Investments made which is I government spending which is G and the difference between exports and imports which is represented as x minus m okay something to note between about Industries and the business Cycles certain industries and companies are divided into categories called cyclical or defensive categories cyclical Industries are Industries which face the repercussions of the business cycle during certain times they will be in an upward boom and during certain times they may not be able to operate at all examples of this include the hotel industry Resorts dining and any other excessive industries that are created by consumer wants defensive Industries on the other hand are things that aren't too heavily affected by the business cycle this is because they're necessary for human operation things like this include Health Services utilities Health technology and so on however some Industries are in between cyclical and defensive for example consumer services are somewhat cyclical and somewhat defensive for example things like accommodation are cyclical and defensive to some extent some houses in certain areas which maybe seem as seen as luxury may be cyclical when it comes to renting or on Airbnb however basic accommodation is defensive since humans need it at all times so first unemployment so unemployment is splitted to three categories cyclical structural and frictional so what is cyclical unemployment cyclical unemployment results from fluctuations in the overall economy when the economy enters a recession or a downturn demand for goods and services decreases causing businesses to scale back production as a result they lay off workers leading to cyclical unemployment consider the construction industry during an economic boom there's a high demand for new homes and infrastructural projects construction companies hire more workers to meet this growing demand however when a recession hits the demand for new projects drops causing these companies to cut back on their Workforce resulting in cyclical unemployment for construction workers similarly in the tourism sector when the economy is thriving people have more disposable income to travel and explore this leads to increased demand for flights hotels entertainment like movies and so on yet in an economic downturn people tighten their budgets leading to reduced travel and low demand for these tourism related services and as a result there are losses in jobs in this industry in both examples cyclical unemployment is closely tied to the fluctuations in the business cycle which we saw earlier as the economy contracts and expands industries that heavily rely on consumer spending and Investments can experience shifts in employment levels due to the changes in demand next we have structural unemployment structural unemployment arises from a mismatch between the skills and qualifications of job Seekers and the requirements of available jobs this mismatch is often caused by changes in the economy such as due to technology or shifts in consumer preferences making certain skills obsolete or less in demand for instance let's consider the decline of a typewriter industry with the Advent of computers skilled typists who were very proficient at using a typewriter might have found themselves structurally unemployed as the demand for their specific skill set efficient use of the typewriter dwindled due to technological advancements this is because computers were much more efficient much more accessible and people could do the same job that typewriters could do at home by themselves another example could be seen in the decline of manufacturing jobs in certain regions as manufacturing processes became more automated companies may require fewer workers on the factory floor this can lead to structural unemployment as individuals with specific skills to manual assembly or machine operations face challenges of finding relevant employment in the modern context rapid advancements in artificial intelligence and automation could potentially lead to structural employment for certain administrative roles which do work that AI can easily replace these include tasks like data entry or customer service which AI even at its current state can likely handle rendering these traditional jobs unnecessary structural unemployment underscores the importance of continuous skill development and add that patient to changing job markets individuals need to retain and acquire new skills to remain competitive in an evolving landscape and minimize the impact of structural shifts in the economy lastly we have frictional unemployment frictional unemployment is likely the type of unemployment that most people will experience it occurs when individuals are transitioning between jobs or entering the workforce for the first time it's a natural and unavoidable aspect of a dynamic job market where people are constantly seeking better higher paying jobs with better benefits while employer employers are looking for better and better candidates imagine a recent college graduate entering the job market they might experience frictional unemployment as they search for their first full-time position during this time they're looking for a job that aligns with their skills interests career goals pay and maybe it's even close to their house this process of searching and applying and interviewing and negotiating tasks takes time and can result in temporary unemployment which we refer to as frictional on a plan another example is when someone voluntarily leaves a job to pursue a new opportunity they may experience ritual unemployment during the gap between leaving one job and starting their next job this Gap is often necessary to handle the logistics of transitioning such as relocating or completing necessary paperwork frictional unemployment while inevitable can be reduced through effective job search strategies networking and the use of online job job platforms it's important to note that frictional unemployment is generally considered to be a healthy aspect of the of a dynamic job market as it reflects the individual's ability to move and their flexibility in pursuing opportunities that best fit their skill sets and aspirations so inflation when we're calculating GDP as we learned earlier the value of money changes over time money in the future is not worth the same as it is right not as a result GDP numbers without being deflated could show consistent growth whereas in reality the real GDP which is what we refer to GDP with the time value of money taken into account could be decreasing as a result to calculate the real GDP of a country we'll take the nominal GDP which is what would be reported and we take away the impact of inflation okay so who is really playing a role in the macro economy so the two main players that control it are the governments and central banks which Implement and develop policies and as a result companies and consumers are impacted by these changes and need to react so governments Implement fiscal policy whereas Banks Implement monetary policy so first what is monetary policy monetary policy involves A bank's management of a country's money supply and interest rates to influence economic activity by adjusting interest rates and employing tools like open market operations central banks can control inflation encourage borrowing and spending during slow economic periods using expansionary monetary policy or cooldown and overheating economy using a contractionary monetary policy expansionary monetary policy is when central banks reduce interest rates to make borrowing money easier for consumers this is because the interest they would have to pay on a loan reduces making taking a loan much more appealing contractionary monetary policy on the other hand is when central banks increase interest rates to make borrowing more expensive causing uh borrowers to pay more interest on their loans decreasing the appeal of these loans an interesting example of monetary policy in action is Japan's use of interest rates to stimulate the economy typically any country that is using expansionary monetary policy interest rates could be lowered from three percent to two percent for example to encourage borrowing Japan however decided to take an unconventional approach the bank of Japan set an interest rate of negative 0.1 this is extremely unique and a choice made by Japan's government to meet their specific needs this was their attempt to overcome deflation which was a big issue in Japan by making interest rates negative it makes it more economical to borrow and spend money than just holding on to it as a result people kept taking on loans because it was generating that money and as a result they started spending more which stimulated Japan's economy and it has bored fruit for the country of Japan now fiscal policy fiscal policy it involves how governments use taxes and spending to influence the country's caught by adjusting tax rates and government spending levels governments aim to stimulate the economic growth during downturns using expansionary fiscal policy or control inflation during periods of high growth using contract sharing fiscal policy so expansionary fiscal policy similar to expansionary monetary policy is when governments spend more money to increase the circulation of money within the circular flow of income which creates jobs and more contractually fiscal policy is when governments increase interest rates to decrease the disposable income of people to reduce their spendings an example of how governments can spend their money is through investment in military Investments and infrastructure or investments in social program which stimulate the economy and can be called injections the ways they can influence tax rates are through increases or decreases in corporate tax and increases or decreases in individual attacks like income rates fiscal policy as we mentioned earlier can be expansionary to promote spending or contractually to reduce spending as you can assume monetary policy which is influenced by the central bank is much more fast acting than fiscal policy controlling interest rates is much faster than starting infrastructural projects which can take years to see the effects of because interest rates can directly affect money circulation they affect much faster whereas things like infrastructural projects their benefits come from increased employment and injections into the economy in the form of available buildings where companies can relocate this often takes time for companies to find these locations to relocate and additionally employment doesn't immediately increase uh the economy in this section we'll be going over ESG or environment social and governance for short ESG has become a topic of much concern in recent years especially but has existed for hundreds of years and even beyond that ESG is the social mission of a company and integrating social aspects and objectives within the company's goals however there is an increasing demand for ESG in the investing process from investors and stakeholders alike however there is so much skepticism regarding the role of ESG and responsible investing and the idea that focusing on ESG means compromising returns however this isn't the case in this section we'll be going over what ESG is why it's so important and how investors should take into consideration ESG not only Advanced social goals but to ensure that their portfolios are profitable all right so first what is ESG ESG which stands for environmental social and governments is a comprehensive framework that evaluates a company's performance and practices in three key areas the environmental aspect focuses on how a company interacts with the planet from how it goes about carbon emissions to managing resources to addressing waste waste and pollution the social aspect revolves around relationships including how a company treats its employees Fosters diversity and inclusion and engage in and engages with local communities through initiatives and philanthropy ncsr finally the governance aspect examines the company's internal structure ethics and accountability this encompasses everything from the composition of the board of directors to ensuring transparency integrity and adherence to regulations ESG is more than just a trend it's a strategic approach that considers the broader impact of business activities on the environment society and ethical practices so the origin of ESG although ESG has become much more well known with people outside the investing landscape in recent years it's existed for so long the origins of ESG can be traced back to the mid 20th century when discussions about Corporate social responsibility started to take shape however it wasn't until the 1960s and 70s fueled by social movements advocating for civil rights that awareness of corporate impacts began to grow this era saw the emergence of ethical investing where investors excluded industries that conflicted with their own moral values Global crises including environmental disasters and financial meltdowns further highlighted the urgent need for responsible business practices in 2006 the United Nations took a significant step by launching the principles for responsible investment or PRI for short signaling a formal commitment to integrating ESG considerations into investment decisions today these historical Milestones collectively paved the way for development and widespread adoption of ESG framework that we recognize today okay so the importance of ESG the significance of ESG lies in its ability to guide businesses towards long-term sustainability and success by integrating environmental social and governance factors companies not only reduce their environmental footprint companies not only reduce their environmental footprint but also Foster Innovation and adapt to changing Landscapes ESG practices aren't just about doing good they're about managing risks effectively identifying potential environmental and social vulnerabilities can Shield a company from future disruptions moreover a robust ESG strategy enhances a company's reputation building credibility and trust with stakeholders this is especially crucial in an era where consumers and investors expect more than just Financial returns Beyond yes Beyond reputation ESG practices ensure Regulatory Compliance as standards evolve demonstrating a commitment to ethical conduct and transparency in essence ESG is more than just a buzzword it's a strategic imperative that not only ensures businesses Thrive but also contribute positively to the world around them so let's look at it in the modern investing lens ESG has transformed the investment landscape by introducing a responsible approach to decision making investors now Factor ESU considerations when crafting their portfolios and align their Investments with ethical and sustainable values it's not just about these values though it's about potential Financial benefits ESG integration offers the promise of improved risk adjusted returns as companies with strong ESU practices often demonstrate resilience when faced with uncertainty ESG aligned companies also appeal to investors with a long-term Outlook as they prioritize sustainability in both environmental and self-sustainability and are better equipped to weather Market fluctuations notability notably Research indicates that companies excelling an ESG perform a performance can even outperform their peers financially Beyond profit ESG opens doors to impact investing where investors actively contribute to positive societal and environmental changes through their investment choices the integration of ESG factors signal a fundamental shift in how investors perceive value emphasizing both Financial returns and contributions to a more sustainable world so this is especially important in a modern world with factors like social media ESG has become even more important and companies that fail to adopt ESG are placed under much more scrutiny as we'll see in future examples compared to companies who do adopt ESG so the impacts on stakeholders ESG doesn't just affect the company's internal practices it extends to his relationship with stakeholders employees for instance are more engaged and satisfied when they work for a company that prioritizes their well-being and supports a positive workplace culture through ESG practices customers too are brought are drawn to brands that align with their own values and ESG provides that connection companies with strong ESG values tend to attract and retain socially conscious customers thus strengthening brand loyalty Beyond employees and customers ESG initiatives have a positive ripple effect on their local communities contributing to societal well-being and forging deeper Community connections investors and other stakeholders also expect transparency and ethical conduct making ESG an essential aspect of building Trust ultimately effective ESG practices manage not only a company's reputation but also its relationship with the broader ecosystem that it operates Within the global impact of ESG as we said before ESG is not limited to companies and not just communities either and it has a significant effect on Global Outreach by prioritizing environmental sustainability ESG practices align with global objectives such as mitigating climate change and conserving biodiversity on the social front ESG initiatives address pressing challenges like poverty and inequality contributing to a broader Global development the collaborative nature of ESG becomes evident through Partnerships between companies governments and organizations across borders all working together to address shared challenges ESG encourages companies to innovate sustainable sustainably develop solutions that can drive positive impacts on a global scale and innovate more so as a financial investor how do you assess a business's ESG now that we've established that ESG is important how do we go about measuring it assessing accompanies ESG performance involves evaluating its practices across environmental social and governance dimensions ESG rating agencies play a pivotal role providing scores based on established criteria that measure companies alignment with ESG practices in some sectors specific ESG standards are in place setting expectations for how companies should operate sustainability sustainably as you can see on screen there's something called the msci ESG rate which is one of the ESG rating agencies additionally transparency is key as companies share their ESG data through reports disclosing their efforts and impacts a critical aspect is materiality which means focusing on the ESG factors most relevant to account being as industry this ensures that efforts are targeted where they matter most ESG assessments serve as a dynamic tool for companies not just to measure their current performance but to identify areas for growth and enhancement so how can businesses incorporate ESG incorporating ESG into business operations requires a nuanced and comprehensive approach it starts with strong leadership commitment with top management actively championing ESG principles it can't just be an afterthought it needs to be integrated into the core business strategy along with the business principles and the business plan which we discussed earlier stakeholder engagement is critical involving employees customers and partners ensures that ESG initiatives align with their needs and concerns to measure progress establish clear ESG metrics and targets or maybe consult ESG agencies this helps hold companies accountable for their efforts additionally awareness is key so employees understand the significance of ESG and their role and its implementation Innovation thrives when ESG goals are aligned so companies should encourage research and development that supports sustainability so ESG versus non-exg stocks although we've clearly established that ESG does have benefits how does it really help in reality Theory isn't always right so let's look at in reality the choice between ESG and non-esg stocks has had significant implications for investors ESG align companies tend to demonstrate better risk management and resilience against Market turbulence as we mentioned earlier Research indicates that over the long term ESG stocks could potentially outperform their non-esg counterparts driven by sustainable practices and responsible strategies moreover as the demand for ethical and sustainable Investments grow especially in the modern world ESG stocks could experience increased investor interest the ESG allian companies may also face fewer regulatory hurdles and reputational risks making them more potentially stable choices for example they may not be affected by laws governing carbon taxes and they may not have fit quotas which most companies that are not ESU focused may fail to meet Beyond just Financial gains investing in ESG stocks also aligns with broader Trends in responsible investing and sustainable consumer Behavior so let's look at a mock situation and compare two companies one which follows ESG practices and one that doesn't a company that uses renewable produces renewable energy has a stop a strong track record of reducing carbon emissions and promoting clear energy as a result they've experienced steady growth driven by an increased demand for Renewable Energy Products and renewable energy resources and favorable regulatory policies which may reduce tax or provide subsidies additionally they'll experience positive media which can also help boost the company on the other hand a company which relies on fossil fuels will experience criticism for their environmental impact and negative media due to their contributions to climate change as a result their stock is likely to be volatile due to fluctuating oil prices in a dynamic Market changing that market dynamics and growing concerns about environmental sustainability as a result in this situation it's clear that the prior case is better when they use renewable energy additionally let's look at a second example but this time focusing on the social and governance aspects any diverse workplace a company that promotes a gender and ethnic diversity and a Workforce that that represents a wide range of backgrounds is more likely to succeed than one that doesn't have these same practices this is because employees are likely to be more motivated in the workplace and media is likely to show companies that focus on diversity in a positive light whereas companies that don't Focus are likely to face criticism however this is a nuanced approach we need to look at reality and in some cases companies that don't have ESG principles in the moment may outperform those which do however in the long run it's important to note that as the world becomes increasingly focused on social objectives ESG will grow in importance and as a result non-esg companies that made beef in a better position now may not be in that same position in the future so in this section we'll just go over how to construct a portfolio and diversification and the types of management and the basics of how you construct a portfolio so first of all what is diversification diversification is essentially the process of purchasing assets from a different type of uh from different asset classes to expand the number and type of Securities in your portfolio so if we look at this diagram we can see here that on the x-axis there's a number of Securities and on the num on the y-axis there's a standard deviation of your portfolio's return the height represents the total risk and as you can see as the number of Securities in your portfolio increases the number the amount of unsystematic risk decreases where systematic risk persists and we'll get to that in a bit essentially by purchasing more Securities you're putting your your going with the concept of not putting all your eggs in one basket and since you're spreading your risk over the portfolio by choosing companies in different sectors and industries you're able to avoid your portfolio crashing if one of these things fails empirical evidence suggests that all it takes is about 30 to 40 different Securities to achieve a fully Diversified portfolio okay so what are the types of risk well they're systematic and unsystematic risk systematic risk is a market risk which is non-diversible which means you can get rid of it if you diversify and it stems from market-wide risks unsystematic risks on the other hand are company or industry specific risks that are inherent to a specific investment systematic risks are non-diversifiable which means they cannot be get that they cannot be get rid of this is a risk that remains after efforts have been taken to diversify a portfolio systematic risk incorporates things like interest rate changes inflation recessions and Wars among other major changes shifts in these things can affect the entire market and cannot be mitigated by changing positions within a portfolio of equities because it affects every single equity for example the global financial crisis is a great example of systematic risk anyone who invested in the market in 2008 saw the values of their investment changed drastically from this economic event the Great Recession affected asset classes in different ways as riskier Securities typically those that were leveraged more were sold off in large quantities whereas simpler assets like treasury bonds became more valuable unsystematic risk is a company or industry-specific risk that is inherent with each investment and other somatic risks can be reduced by diversifying as we've seen in this diagram systematic risks include things like inflation risk interest rate risk exchange rate risk and things like pandemics and War unsystematic risks are things like business risk Financial Risk default risk and liquidity risk which are specific to certain companies so how do you measure your portfolio's performance well the best way to do so is using benchmarks a benchmark is a standard tool or measure that you can use to analyze the risk of a gear and portfolio individual and funds individual funds and investment portfolios will typically have an established Benchmark that you can already use for standard analysis to check your level of risk okay time weighted versus dollar weighted returns Time Warner returns are determined without regard to any subsequent cash flows from the investor it measures the performance of the investment over a certain period of time not the returns of the investor returns quoted by mutual funds and other investment managers are time weighted because the portfolio manager doesn't have any control over future cash flows of investor dollars in contrast a dollar weighted return considers subsequent contributions to and withdrawals from an investment for example it considers timings and sales of purchases a dollar weighted approach focuses on the returns of the investor over a period of time and this will usually differ from the time weighted return so how do you measure portfolio risk well to measure risk we need to identify what risk is as we mentioned earlier risk is the chance that a stock might fail or the risk of volatility so to measure risk we would measure the chance that the performance of your portfolio as a whole would differ from the returns of the market or The Benchmark portfolio and the best way to calculate risk is using a standard deviation which gives you returns over a given period standard deviation is the measure of dispersion of a set of data from its meat it measures the absolute variability of a distribution in essence the greater the standard deviation the greater the the deviation from the mean and this is the formula to calculate standard deviation if any of you have taken statistics before you'd be able to understand it but if not it's not necessary that you understand how to calculate standard deviation to actually employ it you can use any online calculator to actually figure it out so here is a standard deviation belt curve essentially the areas within the curves are more are the higher likely opportunities so in this general area 68.27 of opportunities will boil best but as we go to the extremes more and more situations will fall under the blanket however the rate at which it does so is diminishing so active versus passive management passive investment strategies seek to replicate replicate the constituents weights and therefore the risks and returns of a specific benchmark of index Securities it's a Buy and Hold strategy that does not seek to pick winners and losers among the Securities but rather just hold them and see how things play out the benefits of passive management include low fees enhanced tax efficiency that stems from low portfolio turnover and a limited portfolio management infrastructure essentially meaning it's easier to manage yourself the most popular use vehicles for pasta investment I include indexed mutual funds and ETFs or exchange traded funds active management on the other hand is based on the belief that risk adjusted returns above the Benchmark can be achieved through security selection Market timing and sector rotations by highly skilled professional portfolio managers essentially meaning you pick and choose stocks based on how you think they're going to do actively managed portfolios generally result in significant portfolio turnover as the manager reacts to Market and temporary Trends either observed or forecasted this High turnover combined with the costs to staff our portfolio and management team requires a manager to charge significantly higher fees than they would charge for a passively managed portfolio and generally generally results in poor tax efficiency as frequent buying and selling of Securities may result in something called a capital gains tax which is which is essentially the tax you pay when you sell stocks this capital gains tax is greater when you sell a stock within a period of less than a year and it's less when you sell a stock that you've held for a greater than a year in the past the S P 500 has had significantly more success than actively traded uh portfolios this has been occurring for the past 20 years and you could replicate the index yourself for example you can buy all 500 stocks in the S P 500 in the same proportion that they are in the S P 500 index but the issue with that is that you would have to constantly monitor the Investments and buy and sell at the weights of these companies on the index some large institutional investors like Pension funds do this but it's more impractical for day-to-day investors like you and me especially when you look at just the S P 500 when you look at things like the Russell 2000 it becomes even more impractical for us there are two options index mutual funds and index ETFs which are similar to mutual funds but trade continuously over the course of a day like a stock but in reality it's not best to stick to either passive or active investment but rather to do a hybrid form of management where you incorporate both aspects some index and some active stocks let's look at Gail Yale with their fixed income had an internal team to buy Securities and bought a number of fixed assets and active assets to generate revenues if you've looked at the news recently or in the past you may have seen how active managers are outpacing things like the S P 500 for example Peter Lynch racked up a 29 return at Magnum fund from 1977 to 1990 including dividends and he outpaced the S P 500 by more than 13 a year during that time however his investing style was very lucrative during that period And although some people may have praised him we can introduce that to some extent luck was an important factor in his success although he did buy high quality companies that traded at a reasonable price he wasn't able to do this for a consistent period of time unlike what you would be able to do with investing in S P 500 for a longer period of time so although certain stock Pickers are able to beat funds like the S P 500 it's a mistake to assume that this success will persist into the future as a result it's important to diversify your portfolio by also including stocks that are passive that you don't need to manage as much and active funds as well now in this short section after we've discussed all these financial investments I want to talk to you about alternative Investments throughout this course we've talked about stocks bonds business strategy the economy financial documents and so on but there's so many different ways of investing beyond the traditional stocks and bonds that many people are already limited to think are the only viable investment opportunities as you will go about investing as a business person and as an individual you'll come by opportunities to invest in non-conventional Investments examples of these include real estate equipment leasing hedge funds and in recent years things like cryptocurrencies and nfts it's important to realize these are viable investment opportunities although they aren't as commonly used as stocks and bonds although some can argue they are they are alternative Investments that can generate yields and profits if invested in appropriately so this section is just to talk to you a little bit about what are these alternative Investments and some of the characteristics of these alternative Investments so we've had the general Investments like Equity private equity and things like Venture Capital private Equity being sure as you've bought in a company and Venture Capital being Capital raised from Venture capitalists who are people who are wealthy enough to invest in companies but alternative Investments like real estate include purchasing land or purchasing property equipment leasing can be when you a lot when you well lease equipment as a business which can help you generate Revenue when you aren't using equipment hedge funds which are a little bit more complicated but they're similar to investing in a group of stocks Commodities or precious metals yes you can invest in things like lithium or aluminum cryptocurrencies and collectibles so things like Bitcoin ethereum and so on and nfds so what are some of the characteristics of these alternative Investments well if you look at real estate for example they're not very liquid so illiquidity which does increase risk however this varies from investment to investment additionally uh they are sold by financial advisors or broker dealers mostly to accredited investors as a result they aren't as easy to come by or as easy to invest in like stocks and bonds are additionally they're to either public or private assets but they're rarely publicly traded like stocks are on the stock market um yeah something to note is that these Investments are high risk High reward so it they are likely to Skyrocket in price like we've seen with the cryptocurrency Rises but they're also likely to fall and cause you to lose a lot of money so when you're investing in alternative Investments especially those with which you're not very well versed make sure you make an informed decision and go about investing in a safe and ethical way so you don't miss out all right everyone that's a wrap on this course and just to summarize we'll go through everything that we've learned so we've learned about the time value of money how a mortgage can rack up compound interest things like how to identify if an investment's a good investment the importance of capital markets at ESG all relevant in business we've also learned things like the business cycle fiscal and monetary policy and looked at case studies like Japan to understand the basics of economics for finance we've looked at the various financial documents how to diversify your portfolio how to mitigate risk and things and the basics of Statistics throughout this course you realize that all of these three disciplines are highly interconnected and you can study one without understanding the basics of some of the others I'd like to say congratulations to all of you who have made it this far and this knowledge will serve you well as you go into the future and explore these Concepts in further depth I'd like to remind you one more time that I do have a YouTube channel called change makers media which you'll see in the comments section I post videos on teenagers who are making an impact in their local and international communities I would greatly appreciate it if you guys could go down there and subscribe to show your support for these teenagers and encourage these change makers to continue impacting the world that's it for me everybody thank you so much I'll see you in the future bye-bye