Michigan Tech College of Business Newsblog

Welcome to week three of the Husky Investment Tournament! The standings are looking tight with only $30,000 separating first from 10th place.

Continuing on with our analysis of the financial statements, we have moved on to the balance sheet. The balance sheet gives a snapshot in time of the company. It gives us information about what the company owns, what they owe, and what the shareholders have provided. 

The fundamental formula of accounting comes from the balance sheet:

 Assets = Liabilities + Shareholder’s Equity

An asset is something that can provide future economic value. Some typical assets you would find include cash, property, equipment, and inventory. They are all owned by the company and will provide future value. A liability, on the other hand, is something the company will eventually have to pay. Some common liabilities include accounts payable, salaries payable, bonds payable. The company may choose to wait to pay their bills, but eventually, they will have to pay. Lastly, the shareholder’s equity portion shows how much of the company has been funded by the shareholders, and the resulting claim they are entitled to.

Let’s compare two companies:

Isolating this information, what company would you invest in?

Company A would be a better choice. Of the $1,000 they have in assets, half is funded by liabilities and half by shareholders. That is a much better ratio than having 90 percent of assets funded by liabilities like Company B.

In this week’s video, Trevor Salata, current MTU business student and Applied Portfolio Management Program alumnus, explains the balance sheet and how investors can use it to gauge investment decisions.

Welcome to week two of the Husky Investment Tournament!

Accounting is the language of business; it allows companies to accurately convey important financial information to stakeholders. Accountants have many jobs, but among them is preparing the company’s financial statements, which show the financial position of a company.

There are three main financial statements: The income statement, balance sheet, and statement of cash flows. For the next three weeks, we will cover each one in greater detail, and give some investing tips regarding them.

Looking first at the income statement, it shows how much a company made during a period of time—revenues (earnings) minus their expenses. 

Some ratios used by investors focus strictly on the income statement. Many start by looking at the gross margin percentage. This percentage is calculated by taking the gross margin and dividing it into the overall revenue. This shows what percentage of every dollar goes towards their gross income. It is important to look at what the company has done historically. Have they gotten better over time? How does it compare to its competitors? Similarly, you can look at their net profit margin. This is found by taking their net income and dividing it into their revenue. It tells us how much of every dollar goes towards their bottom line.

Another important part of the income statement is the earnings per share (EPS). This dollar amount shows us the amount of net earnings that is attributed to one share of stock. 

As an example, let’s say XYZ Corporation had a net income of $150,000 and 50,000 shares of common stock outstanding. To calculate the EPS we simply take the $150,000 and divide it by the 50,000 shares. The answer in this example is $3. This company was able to generate $3 of earnings on every share of stock. So what does this do for investors? It is important to look at the historical trend of the company. If XYZ Corp. had an EPS of $0.50 last year, the increase in EPS is a good sign and should be considered when making your investments.

In this week’s video, Sheila Milligan, a senior accounting lecturer, explains what the income statement is and how investors can use it to gauge their investment decisions.

Welcome to week one of the Husky Investment Tournament! Teams from Florida, Maryland, and right here in Michigan are joining the experience. Ready to get started?

Let’s start by comparing two people and their investing habits, assuming a seven-percent annual return on the stock market:

Beth starts investing at the age of 18 and contributes $2,000 a year until she reaches age 40. Beth’s friend Jo waits to start investing until age 40 and contributes $5,000 each year until reaching age 60.

Who do you think will end up with more money at age 70?

Beth would have contributed $44,000 of her own money and by the time she reached age 70, there would be $531,950.70 sitting in her investment account. On the other hand, her friend Jo would have contributed $100,000 and there would be only $403,221.69 sitting in an investment account. 

This example illustrates the power of time and compound interest. If you were to start at age 18 to achieve millionaire status by age 60 you would need to invest $4,335.91 a year. This number equates to $361 a month or roughly $90 a week!

As Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” 

The College of Business at Michigan Technological University wants you to understand the basics of stock investing now, while you’re young. People naturally avoid things they don’t understand. We want you to understand that investing isn’t as complex as it may appear. In the Husky Investment Tournament, only one team will finish in first place, but all of you can win in the retirement tournament.

This week’s video is from Dean Johnson, dean of the MTU College of Business. He provides an introduction into stocks and investing to help get you started, as well as an explanation of rules and trading restrictions.

Good luck, and have fun!