Women in Finance: Intro to the Markets!An evening dedicated to women curious about the finance industry

February 27, 2018

What is Finance?

The management, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems

2Source: Investopedia.com

“”

What is Capital?

Financial assets as well as tangible assets used to generate wealth through investment

Examples include:• Cash• Property• Plants• Equipment

3Source: Investopedia.com

“ ”

What are Markets?

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A market is a medium that allows buyers and sellers of a specific good or service to interact in order to facilitate an exchange

• May be physical or virtual in nature

Source: Investopedia.com

“”

What are Capital Markets?

5Source: Randall Morck FIN 434 Lecture Material

Capital markets facilitate the efficient allocation of capital to productive ideas

Entrepreneurs Capitalists

Have money and no ideas

Have ideasand no money TRUST

Who are the Users of Capital Markets?Those who need access to capital• Entrepreneurs• Corporations• Governments

Those with excess capital• Individual investors• Pension funds• Corporations

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Sources of Funding for Companies

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• Contractual obligation to repay in the future with interest• Claims to set cash flows at

specified times in the future

Ex. Mortgage

• Shares sold to raise capital• Represents ownership in the

company• Grant claims to residual cash

flows

Ex. Shares of Apple Inc.

Debt Equity

Public vs. Private Companies

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• Shares traded in an active market on an exchange

• Broad ownership• Regulated public disclosure

(ex. audited financial statements)

Ex. Apple Inc. (NASDAQ: AAPL)

• Shares may be bought and sold directly

• Narrowly held• Limited regulatory oversight

Ex. Deloitte Ltd.

Public Private

Public Exchanges Across the Globe• Canada – TSX, TSX Venture, Montreal Exchange

• US – NYSE, NASDAQ, AMEX, NYMEX, CME, CBOE

• Europe – LSE, LME, Frankfurt Stock Exchange

• Asia – Shanghai Stock Exchange, HKEx, Tokyo Stock Exchange

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Market CapitalizationTotal shares outstanding multiplied by price per share

• Ex. Apple Inc. (NASDAQ: AAPL)• 1 share is worth $180 today• 5.07 billion shares outstanding• $912.6 billion market cap

Market Cap = Total Market Value of Equity of a Company• This is different from the book value of equity which is used in the A=L+E

equation from Accounting 311 (Assets = Liabilities + Equity)

10Source: Yahoo! Finance

$180/share $912.6 billion market cap

5.07 billion shares

Stock Analysis

How can we tell what the true price of AAPL should be?11

$80

$100

$120

$140

$160

$180

$200

Feb2016 Aug2016 Feb2017 Aug2017 Feb2018

SharePrice($/sh)

AAPLSharePrice

Source: Bloomberg

Stock ValuationThe current price reflects market expectations of future earnings potential for that company

The job of an investor is to find stocks that they perceive to have a different value than the market value• Successful investors profit from this discrepancy

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Hold

$180/sh0% return

Buy

$200/sh+11% return

Sell

$160/sh-11% return

If we think the true price of AAPL is...

Market Efficiency

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Trust accelerates the activity in a market, enabling markets to more efficiently reflect the perceived value of firms

Entrepreneurs Capitalists

Expect a certain return, based on the risk of their

investment

Promise return to investors TRUST

Source: Randall Morck FIN 434 Lecture Material

Valuation Methodologies• Discounted Cash Flow (DCF)• Uses future free cash flow projections and discounts them to arrive

at a present value (comparable to Net Present Value), used indirectly to calculate an implied share price

• Comparable Analysis• Based on the belief that an equity’s value should bear some

resemblance to other equities in a similar class or those rivals that operate similar businesses, and therefore, a similar value

• Precedent Transactions• Based on the belief that the price paid for similar companies in the

past is considered an indicator of a company’s value14Source: Investopedia.com

Risk and RewardRational investors require a higher expected return to invest in investments with greater risk• Ex. Mortgage interest rate vs. government bonds

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Risk: Variance (%)

Rew

ard:

Ret

urn

(%)

Cost of Capital

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Reflects the return necessary to compensate investors for the risk they are taking• Ex. Mortgage interest rate vs. government bonds

The “Opportunity Cost” of Capital

Risk: Variance (%)

Rew

ard:

Ret

urn

(%)

Investment Strategies• Value Investing• Growth Investing• Income Investing• Small Cap Investing• Socially Responsible Investing• Many more…

17Source: Investopedia.com

Careers in Finance• Portfolio Management• Investment Banking• Corporate Banking• Hedge Funds• Private Equity and Venture Capital• Equity Research• Consulting• Wealth Management• Financial Planning• Insurance• Many more…

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Program for Research and Investment Management Excellence (PRIME)

• Student-run investment management program investing in Canadian equity markets

• Manage a portion of the U of A Endowment Fund, valued over C$2,100,000

• Growth At A Reasonable Price (GARP) mandate (investment strategy)

• PRIME has beat the returns of the S&P/TSX for 10/17 years since inception of the fund

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42%

18%

-10%

8% 13% 10%

-4%

18%

7%

35%

18%

-9%

7% 13% 11%

-8%

21%

9%

-20%

-10%

0%

10%

20%

30%

40%

50%

2009 2010 2011 2012 2013 2014 2015 2016 2017

PRIMEAnnualReturn S&P/TSXAnnualReturn

PRIME Student ResponsibilitiesTwo year program:

1)First year as Analyst• Monitor companies, weekly news reporting, learn…

2)Second year as Manager• Manage stocks in sector portfolio, PRIME annual/quarterly reporting …

The Program Director, Keith Walton, has extensive experience in the investment industry, and facilitates the program each year

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Benefits of PRIME• Receive credit for FIN 436• Gain real-world investing experience in an institutional setting• Access to industry mentors and extensive alumni network• Meet with top investment banks, private equity firms, trading

floors, consulting firms, investment managers and corporate development teams

• Any questions about the process can be directed to prime@ualberta.ca

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• Applications due March 2nd at 3:30pm• Must have completed or currently be taking FIN 301• Application form download and instructions:

www.ualberta.ca/business/student-organizations/prime/recruiting

• Admission to the program is based on a four stage recruiting process: • two-part application form• interview conducted by the PRIME student managers• multiple choice test• company analysis on a company chosen by the Program Director

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PRIME 2018/19 Recruiting

Additional Resources• Investopedia

• Founded by C. Wagner & C. Janssen in 1999, U of A Business Alumni

• Vault Guide to Finance Interviews• Accessible through UAlberta library: Vault Career Insider database• Search the Vault website for "Vault Guide to Finance Interviews, 9th Edition" to

access it online or download the e-book

• Recommended Books:• The Intelligent Investor, by Benjamin Graham• A Random Walk Down Wall Street, by Burton Malkiel• Fooling Some of the People All of the Time, by David Einhorn• Manias, Panics, and Crashes: A History of Financial Crises, by Charles Kindleberger• Extraordinary Popular Delusions and the Madness of Crowds, by Charles Mackay

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Women in Finance Speaker Panel

Yulia IlinaFixed Income AnalystAlberta Teachers' Retirement Fund (ATRF)

Saima AsifSenior Manager, Collateral ManagementAlberta Investment Management Corporation (AIMCo)

Jane AlmSenior Investment AdvisorAngus Watt Advisory Group | National Bank Financial Wealth Management

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Women in Finance: Intro to the Markets!An evening dedicated to women curious about the finance industry

Thank you for joining us!