Class 11 Takeaways

 Income statement: Shows a company’s revenue, expenses and net income (or loss) over
a specific period of time (usually a year)
 Earnings per share = Net income / Shares outstanding
o Shows amount of net income per share over a specific period in time
 Balance sheet: Shows a company’s assets, liabilities and equity at a specific moment in
time
o Assets = Liabilities + Equity
o Equity = Assets – Liabilities
 This is the “book value” of a company
 This number will often be substantially different from the market
valuation of a company
 Time value of money: The concept that money today is worth more than money in the
future
 Compound interest: Interest accrues on the principal and on prior interest
 Future value (FV): The value in the future of a sum of money today
 FV = PV * (1 + r)t
o PV = Present value
o r = Annual rate of return
o t = The number of years
 Present value (PV): The value today of a sum of money in the future
 PV = FV / (1 + r)t
o FV = Future value
o r = Annual rate of return (also referred to as the discount rate)
o t = The number of years
 Net present value (NPV): The value today of a series of cash flows in the future
 NPV = The sum of the PV of each cash flow