Thank you all for a good class this week. If chalk dust were the measure of achievement in the classroom, I would say that the fury of last night's equations yielded incredible productivity. Thank you for hanging in there. (As a woman who wears a lot of black suits, you can certainly appreciate my love of Excel.)
I also enjoyed the conversation in the Business Briefing section of class. Hopefully, I was able to demystify the structure of the credit card industry and satisfactorily explain how the players interact, giving you a framework for understanding market dynamics.
That said, I get the impression that a lot of you are interested in going a little deeper. What I mean is that once we learn the structures (whether, equations or actors), we are then free to explore core principles. You already know some of these core principles intuitively. For example, the law of Supply and Demand is quite familiar to you. There are many core principles (or laws) that relate to business and economics.
However, I offer to you that there is a law that is so fundamental to business that it could be described (dare I say) as the First Principle. It is simple, and it is this: God owns it all, and we are merely His managers.
I challenge you to think about what this means. I overheard a few of you capitalists (which is a moniker that I urge you to wear with pride) say that you want to blog about God this week. So, I would like to make an introduction. I want you to meet Carlos Villalba.
Watch this short video with an open mind. The producer of the video is a nonprofit organization called Crown Financial Ministries. I would recommend you check out their website to learn more about the work that they do (http://www.crown.org).
Unlike equations, to understand this First Principle, you have to have faith. Unfortunately, this is a gift that I cannot give. If you want it, ask for it. I guarantee that it will make you a better business person.
Thoughts?
MSBA511 - Applied Financial Management, exploring our vocations in business with a vision of service to God and community.
Wednesday, February 23, 2011
Tuesday, February 15, 2011
Fundamental Things.
This week we learned that money has a time value-- which is to say that your money is worth more today than at some point in the future. This is because if you had the money now, you could invest it and earn interest (or a return) What this means is that the time value of money is the opportunity cost of foregoing consumption today. This is one of the most important concepts in finance.
We also learned that the future value is the sum to which an investment will grow after earning interest-- and we have and will continue to learn about all the ways interest works. We are also learning that the present value is the value today of a future cash flow.
We can do this analysis. However, when we use these analytical tools to make decisions, does it always guide us to the right place?
I offer that the modern-day crisis in debt has clouded our vision. The ready access to debt (personal, corporate, and governmental) has fostered an environment where the risks associated with debt have been ignored for the preference of consumption today.
To bring it to a personal level, suppose that you could borrow $1,000 on a credit card at 12% interest. You took that borrowed money and invested it in a mutual fund with a 5-year historic return of 27%. Our formulas make you look like a genius. Suppose that your parents could take out a $100,000 home equity loan on their home to pay for your sibling's undergraduate tuition. Your sibling graduates from college and lands a job with the next Google. Our formulas make you look like an uber genius.
The only problem is that LIFE happens. You can't pay the interest on the credit card while your money is tied up in the mutual fund. You can't pay the capital gains on your mutual fund investment because your cash is tied up in the fund. Your parent's house is no longer valued high enough to satisfy the bank's leverage limits, and your parents need to refinance and can't because your father was just "re-engineered" and replaced with a younger worker like yourself who can (and will) work for substantially less. Not to mention the not-so-crazy scenario that your sibling (having money for the first time in his life) is off in Las Vegas with his first paycheck or not inclined to help out because he believes your parents have an obligation to "help" their children.
I happen to like this Ramsey fellow referenced in the clip: http://www.daveramsey.com. Sadly, his radio show is full of tough life stories-- but is also full of hope. Arguably even he would say that his advice is simple and practical-- "God and grandma's advice, but only we keep our teeth in."
Imagine taking these questions to a broader context? How might this balancing act (between fundamental analysis and "life" (really "risk" analysis) play out in corporations or with governments-- rhetorical question?
I challenge you to use what you learn, and then use your mind. Let's talk about what you think.
We also learned that the future value is the sum to which an investment will grow after earning interest-- and we have and will continue to learn about all the ways interest works. We are also learning that the present value is the value today of a future cash flow.
We can do this analysis. However, when we use these analytical tools to make decisions, does it always guide us to the right place?
I offer that the modern-day crisis in debt has clouded our vision. The ready access to debt (personal, corporate, and governmental) has fostered an environment where the risks associated with debt have been ignored for the preference of consumption today.
To bring it to a personal level, suppose that you could borrow $1,000 on a credit card at 12% interest. You took that borrowed money and invested it in a mutual fund with a 5-year historic return of 27%. Our formulas make you look like a genius. Suppose that your parents could take out a $100,000 home equity loan on their home to pay for your sibling's undergraduate tuition. Your sibling graduates from college and lands a job with the next Google. Our formulas make you look like an uber genius.
The only problem is that LIFE happens. You can't pay the interest on the credit card while your money is tied up in the mutual fund. You can't pay the capital gains on your mutual fund investment because your cash is tied up in the fund. Your parent's house is no longer valued high enough to satisfy the bank's leverage limits, and your parents need to refinance and can't because your father was just "re-engineered" and replaced with a younger worker like yourself who can (and will) work for substantially less. Not to mention the not-so-crazy scenario that your sibling (having money for the first time in his life) is off in Las Vegas with his first paycheck or not inclined to help out because he believes your parents have an obligation to "help" their children.
I happen to like this Ramsey fellow referenced in the clip: http://www.daveramsey.com. Sadly, his radio show is full of tough life stories-- but is also full of hope. Arguably even he would say that his advice is simple and practical-- "God and grandma's advice, but only we keep our teeth in."
Imagine taking these questions to a broader context? How might this balancing act (between fundamental analysis and "life" (really "risk" analysis) play out in corporations or with governments-- rhetorical question?
I challenge you to use what you learn, and then use your mind. Let's talk about what you think.
Tuesday, February 8, 2011
The Prophetic Value of Rerum Novarum
As a corporate finance professor, I have a duty to prepare you for the world of finance. This preparation encompasses introducing you to core finance concepts, formulas, theories and case examples from the business world.
As a Catholic teaching here at The Catholic University of America, I also have an obligation to present to you the basic tenants of Catholic social teaching in economics/work/business. This is important because the Church has a great deal to offer to the dialog of how we run and manage our businesses and how we interact with the world of work.
If I do my job well, by the end of the semester, you will understand the context and origins of the core Catholic economic principles of (1) respect for the human person, (2) solidarity, and (3) subsidiary and understand exactly how the application of these principles can make you a more effective business person.
Congratulations to Stephanie and Amelia for being our first presenters with Rerum novarum (yes, in Latin the second word is NOT capitalized). One of the things that struck me in their presentation, however, was the need for a bigger picture view of the modern global labor market.
Rerum novarum, at its core, is a sincere defense of the inalienable dignity of workers and was addressed to all humanity-- not just the Roman Catholic community. It stresses the importance of the (1) right to property, (2) principle of cooperation among the social classes, (3) rights of the weak and the poor, (4) the obligations of workers and employers, and (5) right to form associations. (Keep in mind that the Church has had much more to say on these issues since 1891-- and we will continue our exploration throughout the semester.)
That said, I think that we had some good dialog around these concepts in class. However, I am interested in what you think about modern application of these core concepts after having slept on it a bit. A group of students from Ohio University posted the video above that may spark some thoughts. Let me know what you think.
As a Catholic teaching here at The Catholic University of America, I also have an obligation to present to you the basic tenants of Catholic social teaching in economics/work/business. This is important because the Church has a great deal to offer to the dialog of how we run and manage our businesses and how we interact with the world of work.
If I do my job well, by the end of the semester, you will understand the context and origins of the core Catholic economic principles of (1) respect for the human person, (2) solidarity, and (3) subsidiary and understand exactly how the application of these principles can make you a more effective business person.
Congratulations to Stephanie and Amelia for being our first presenters with Rerum novarum (yes, in Latin the second word is NOT capitalized). One of the things that struck me in their presentation, however, was the need for a bigger picture view of the modern global labor market.
Rerum novarum, at its core, is a sincere defense of the inalienable dignity of workers and was addressed to all humanity-- not just the Roman Catholic community. It stresses the importance of the (1) right to property, (2) principle of cooperation among the social classes, (3) rights of the weak and the poor, (4) the obligations of workers and employers, and (5) right to form associations. (Keep in mind that the Church has had much more to say on these issues since 1891-- and we will continue our exploration throughout the semester.)
That said, I think that we had some good dialog around these concepts in class. However, I am interested in what you think about modern application of these core concepts after having slept on it a bit. A group of students from Ohio University posted the video above that may spark some thoughts. Let me know what you think.
Wednesday, February 2, 2011
GAAP vs. IFRS
In our class and in last semester's Accounting class, we have discussed the importance of standardization of the reporting of financial information through GAAP. We have also discussed situations where GAAP can challenge corporate leaders, as they work to present investors with the true value and dynamics of their enterprises.
As the globalization of the economy continues, we are faced with these dynamic issues on a much broader scale. As FASB guides GAAP in the US, the IASB (International Accounting Standards Board) guides IFRS (International Financial Reporting Standards) throughout the world.
According to the AICPA, approximately 120 nations and reporting jurisdictions permit or require IFRS for domestic listed companies, and approximately 90 countries have fully conformed with IFRS as promulgated by the IASB and include a statement acknowledging such conformity in audit reports.
US Securities and Exchange Chairman Schapiro's comments set the stage for the US dialog on this issue. Consult the AICPA's guidance at http://www.ifrs.com/.
What does IFRS mean for the United States, for US companies and investors, and for GAAP-- the gold standard of financial reporting?
As the globalization of the economy continues, we are faced with these dynamic issues on a much broader scale. As FASB guides GAAP in the US, the IASB (International Accounting Standards Board) guides IFRS (International Financial Reporting Standards) throughout the world.
According to the AICPA, approximately 120 nations and reporting jurisdictions permit or require IFRS for domestic listed companies, and approximately 90 countries have fully conformed with IFRS as promulgated by the IASB and include a statement acknowledging such conformity in audit reports.
US Securities and Exchange Chairman Schapiro's comments set the stage for the US dialog on this issue. Consult the AICPA's guidance at http://www.ifrs.com/.
What does IFRS mean for the United States, for US companies and investors, and for GAAP-- the gold standard of financial reporting?
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