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Video Transcript File: What are equityinvestorsand what information do they use to makeinvestment decisions?

Slide 1 (:12s) Welcome to Introduction to Accounting Preparing for a Users Perspective. Whatare equityinvestorsand what information do they use to make investmentdecisions?

Slide 2 (:09s) his is !ill. !ill currently sits on a pile of resources"ut wants to make his pile ofresources grow.

Slide 3 (:05s) !ut how can he make it grow?

Slide (:0!s) !ill is considering "ecoming an investor.

Slide 5 (:23s) When people like !ill# investtheir resources in ideas# pro$ects# and companies#they often receive some form of o"ners#ip equity in the investment. When such investmentsare in corporations# the investorsreceive o"ners#ip s#aresto represent their ownership and

are called %equity$ investors.

Slide ! (:1s) When equity investorsinvestin a companythey increase their o"ners%equityclaimsagainst the company and t#ere&y provide equity 'inancin.

Slide (:33s) &or e'ample# during (oogles &usinesslifetime# it has o"tained a variety ofresourcessuch as cas## ve#icles# 'urnitureand &uildins. *esourcesowned and)or controlled"y an entityare called assets. *ike all &usinesses# (oogle must o"tain its assets"y 'inancinthem from the only two sources availa"le# +, o"ners# or -, creditorswhich are the focus of ourne't learning topic,.

Slide + (:25s) herefore# at all times# (oogles total assetsWI** and /U0 A*WA10 "ee'actly equal to the 'inancinit received to o"tain those assets. his logic leads to one of themost fundamental formulas in all of "usiness called the &alance s#eet equation. It is written as,ssets2 -ia&ilities3 .quity.

Slide 9 (:s) In other words# if you wanted to quickly see what assets(oogle had at the end ofthe year -4+- and how they were 'inanced# you could o"tain its"alance sheeteither directlyfrom (oogles we"site# or from the Securities ./c#ane ommission (S.) which we willlearn a"out later. 5n that &alance s#eetyou would notice that (oogle had 678 "illion in assets.1ou would also notice that (oogles o"nershad 69- "illion in equityrepresenting their claimsagainst (oogle as a result of their equity 'inancin# and (oogle had 6-- "illion in lia"ilities to

its creditorsfor their creditors claimsagainst (oogle as a result of their de&t 'inancin. Asyou can see# the "alance sheet will A*WA10 "alance.

Slides 10 (:12s) We will later learn the advantages and disadvantages that companiesface as aresult of "eing 'inancedvia de&tor equity.

http://www.sec.gov/cgi-bin/viewer?action=view&cik=1288776&accession_number=0001193125-13-028362&xbrl_type=vhttp://www.sec.gov/cgi-bin/viewer?action=view&cik=1288776&accession_number=0001193125-13-028362&xbrl_type=v

8/12/2019 Q1 1WhatAreEquityInvestors VideoTranscript DOC

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Slide 11 (:19s) alance s#eetusers can learn more a"out the company"y reviewing its sourcesof 'inancin. &or e'ample# if we knew that a companyhad 6+44 in assets# we would alsoimmediately know that the companyhad 6+44 in 'inancinthat provided those assets.

Slide 12 (:1!s) :ven "etter# if we knew that a companyhad 6+44 in assetsA;< we knew that it

had 6=4 of lia&ilities# we could solve for the unknown o"ners% equityand arrive at 694.

Slide 13 (:51s) A companysequity can also "e referred to as its net assets T#is concept o'net assets &eins "it# t#e standard &alance s#eet equation ,ssets -ia&ilities 4 .quity

Assume a company has 6-44 in assets and 6+-4 in lia"ilities. 1ou could solve for equity "ydeducting the 6+-4 of lia"ilities from "oth sides of the equation to arrive at the following netassets equation Assets > *ia"ilities 2 :quity. A companys net assets# 64 in this e'ample# arethe same thing as owners equity and represent the amount of the companys assetsthat theo"nerwould %net@ A&: the companypaid off all of its lia&ilities.

Slide 1 (:15s) A companys total de&t 'inancinas would appear within the lia&ilities

account# is also referred to as temporary 'inancin"ecause it usually must "e repaid within aspecific periodof time.

Slide 15 (:2s) .quity investors# like !ill# investin companiesto achieve 'inancial returns"#ic# #elp t#em ro" t#eir pile o' resources. !ills equity investmentscan provide him'inancial returnsin two different waysB+, Ce can receive dividend incomewhen the companieshe invests in pay out their pro'its int#e 'orm o' stoc6 cas# or ot#er asset dividends.

Slide 1! (:3s) Ce can also achieve ains on t#e saleof his o"ners#ip s#areswhen he sellsthem to other investorsat higher prices.

a. &or e'ample# if !ill took one s#areof (oogle stocthat he purchased originally for 6+44 andthen sold it to a new investorfor 644# his 644 sales price could "e "roken out into two pieces+, a 6+44 return 7F #is investmentand-, a 6944 return 78 #is investment called a ain on sale.

Slide 1 (:20s) ". Watch out though# if !ill sold his 6+44 share for only 694# he would onlyreceive a 694 return 7F #is investment and would incur a 6=4 -oss 7F #is investment.

Slide 1+ (:15s) .quity 'inancinis also known as permanent 'inancin"ecause there isusually no specific time frame when the companiesare leallyo&liatedto pay "ack theo"ners oriinal investments.

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Slide 19 (:59s) nvestorslike !ill want to make good investment decisions# "ut making goodinvestment decisionsis not always easy.o assist them in making the "est investmentchoices possi"le# investorswill strive to o"tainand properly analyDe a variety of different in'ormation.

0ome in'ormationused "y investorsis disorganiDed and comes from a variety of randomsources at random points in time# such asB news reports# social media# and personal e'periences.5ther information is quite wellEorganiDed and is often produced "y overnmentalor nonpro'itaencies# such as housing#unemploymentand productiondata. &or profit companies alsoprovide wellEorganiDed investor information such as !loom"erg# /oodys and 0tandard FPoors.

0till other information comes in preEspecified formats# such as the eneral purpose 'inancialstatements

Slide 20 (:1s) T#e eneral purpose 'inancial statements are produced directly "y the

companiesthemselves.When properly analy;ed# eneral purpose 'inancial statementscan "e e'tremely helpful toinvestorsand creditorswhen making investment and lendin decisions.

Slides 21 to 2! (:2+s) A companys eneral purpose 'inancial statementsconsist of its incomestatement# statement o' equity# &alance s#eet# statement o' cas# 'lo"s# and related 'ootnotedisclosures.

We will spend the rest of this course studying the eneral purpose 'inancial statements withthe hope that you will learn how to prepare# read and use them when making investinandlendindecisions.