Nivine Richie, Ph.D., CFA is an Associate Professor of Finance at the University of North Carolina Wilmington. She teaches courses in corporate financial management, derivatives, fixed income, and commercial bank management. Her research interests include cost of capital, banking, and derivatives. She has published studies in the Journal of Economics and Finance, Journal of Futures Markets, Review of Futures Markets, and Journal of Trading, among others.
Finance answers the basic question, "What is something worth?" The something can be a house, an antique, a business, or a stock or bond. The infographics below describes the tools we use in finance to identify the value of an asset. If you read the details, you should see:
1. Why valuation is necessary
2. What methods are used for valuation
3. What are the pros and cons associated with the first method: the discounted cash flow method
Though Twitter hasn't received any bids yet, the potential acquisition is all the buzz online. From a recent Bloomberg article (Frier, 25 Sep 2016):
Salesforce.com Inc. and other companies eyeing Twitter Inc. may pay more than $16 billion to get their hands on the social-media company’s valuable data. But they’ll also inherit challenges, including management turmoil, lackluster growth and an unsolved identity crisis.
... Then there’s the lack of growth -- the reason the company is said to be considering a sale in the first place. Twitter’s user base has stagnated in the U.S. for six straight quarters. Advertisers aren’t spending as much as expected, mostly because they can’t justify buying more ads if the audience isn’t growing. “Twitter’s value proposition to advertisers could be waning,” RBC Capital Markets analyst Mark Mahaney wrote, after surveying advertisers recently.
The company is also in the midst of an identity makeover that would turn it into more of a media company than a technology player.
Twitter still has great potential -- elections run on streams of tweets, millions still follow stars like Kim Kardashian, and citizens still use the service to protest oppressive regimes around the world. But it hasn’t turned that into a broader audience, even as Facebook Inc., Instagram, Snapchat Inc. and others take on similar roles in society.
In your opinion, is Twitter a good investment for an acquiring firm?
What do you think are the growth prospects for Twitter.
image: Twitter .com
He promised them riches, and investors believed him. Ponzi was the ultimate sales man, and people begged him to take their money.
But here's the rest of the story...
What is a Ponzi scheme, and how does it work?
How was Ponzi discovered?
What is an annuity? How does it differ from a perpetuity? From an annuity due?
What are examples of annuities, perpetuities, and annuities due in financial markets?
What are some personal financial planning questions that you can answer if you understand the math behind annuities, perpetuities, and annuities due
This video describes what it takes to be successful as an analyst at Goldman Sachs. Technical expertise is necessary, analytical skills are required, but additionally soft skills are called for. Communicating with managers and customers and working in a team are the "other" skills that are required for success in the financial services industry.
How can a student prepare for a career in financial services?
What are some ways to develop the soft skills required for success?
It's the season for interviews, and the interview process in the investment industry is quite rigorous and competitive.
The infographic below gives you some idea of the questions you're likely to be asked and how you might consider answering them.
Source: Sample Questionnaire
The iPhone 7 launched this week, and Apple's stock price rose with the news:
Markets are anticipating the good news that comes with the launch of the next iPhone. This infographic shows the sales that have accompanied prior launches.
You will find more statistics at Statista
Based on the news you've seen, how do you expect Apple to fare financially based on the new iPhone 7?
Would you buy Apple stock now? Why or why not?
Governments have been relying on monetary policy to stimulate their economies, but now there seems to be a shift towards the use of fiscal policy. According to the Wall Street Journal (Ip, 16 Sep 2016):
For years, the world has looked to central banks to deploy whatever tools they had to prop up economic growth. Now, just as those tools reach their limits, governments are quietly stepping up. Fiscal policy across the developed world is collectively turning more stimulative for the first time since the end of the recession.
This may be the most underappreciated economic development of the year. While the scale of the stimulus is modest in dollar terms, it signals a more profound shift in the political winds.
Should you start thinking about a career your first year in finance, or can you wait until later?
This video explains what employers are expecting from younger students. Thinking about possibilities early gives you a chance to determine what you like and what choices are ahead:
How can you sample a career without a great commitment of time and effort?
When should you start networking?
What can you gain by joining different extracurricular activities at college?
We've been living with low interest rates for years now. Do interest rates matter? The video above explains very simply that rates matter to the economy in general and to people in particular.
For savers, low interest rates are hurting their retirement nest eggs. For borrowers, the low interest rates are an opportunity to use nearly free money to purchase cars and houses.
According to this article from The Motley Fool, you can profit from low rates by (1) borrowing, (2) buying bank stocks, and (3) investing in real estate.
What happens to an economy in periods of rising or high interest rates? What about in falling or low interest rate environments?
Despite the notoriously long hours and high stress, jobs in investment banking continue to be the dream for many finance graduates. But what is investment banking? The video below describes the different areas of finance that involve investment banking
What are the four areas of investment banking? Which one of those, if any, sounds most appealing to you? Why?
The financial history of the U.S. is fascinating with the bank runs followed by the installation of the Federal Reserve System.
From the website of the Federal Reserve:
The Federal Reserve System, often referred to as the Federal Reserve or simply "the Fed," is the central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve was created on December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Actin to law. Today, the Federal Reserve's responsibilities fall into four general areas.
Buying a home for the first time can be nerve-wracking. So many unknowns--from the borrowing costs, insurance costs, home maintenance costs, and so much more.
This article from Bankrate.com lists 11 Must-Dos for the First Time Homebuyer. Among them,
Find out what your total monthly housing cost would be, including taxes and homeowners insurance. In some areas, what you'll pay for your taxes and insurance escrow can almost double your mortgage payment.
To get an idea of what you'll pay in insurance, pick a property in the area where you want to live and make a call to an insurance agent for an estimate. You won't be obligated to get the insurance, but you'll have a good idea of what you'll pay if you do buy. For an idea of what you'll pay in taxes, check your property appraiser's website. Just remember that exemptions and the intricacies of local tax law can create differences between what a homeowner is currently paying and what you can expect to pay as a new homeowner.
The infographic below lists some of the common pitfalls faced by first time homebuyers.
This infographic comes from ING eZonomics via AllThingsFinance and shows the results of an ING international survey. According to the survey, financially compentent people are more likely to be a little older (over age 25) and tend to make their own financial decisions.
How financially competent do you feel you are? What can you do to improve your personal financial competence?
For a new product line, we estimate the cash inflows and determine whether they cover the cash outflows. If we are deciding whether to acquire a target company, we create pro forma financial statements and evaluate whether the new company will provide incremental cash flows that are large enough to cover the cost of investment. Basically, when choosing an investment, we weigh the benefits and costs and determine whether the net present value is positive before taking the plunge.
Education is one such investment. New graduates who are weighing whether to invest in a professional licensing exam like the CPA are effectively weighing the costs and benefits. This article in the Journal of Accountancy (Krippel, Moody, and Mitchel, 1 May 2016) investigates the NPV of the CPA exam, and the verdict is POSITIVE:
From the article:
A 22-year-old working in a small company will have earned $220,242 more than his or her non-CPA counterpart if they both worked until age 65. While these numbers are encouraging, the PV of earnings does not tell the whole story—the analysis can't stop there. It is necessary to include not only the lifetime earnings benefits of passing the CPA exam but also the associated costs of time and money required to prepare for and take the CPA exam, as well as the cost to maintain certification throughout one's career.
Therefore, although the same 22-year-old will have to spend $14,751 (column 3) to prepare for and take the CPA exam and will also incur a lifetime cost of $76,042 (column 4) to maintain certification, he or she will still have netted a premium of $129,449 (column 6). So did that initial investment of 400 hours of study and preparation pay off? As column 7 shows, each hour of study paid off to the tune of an additional $324, far more than what would be earned in many other activities that might occupy a young accountant's time.
Read the full article here
What are the benefits and limitations of each of the following decision rules?