Category Archives:Education

What a simple long-term solvency ratio says about Caterpillar

Financial ratios can be very helpful in measuring the performance and health of a corporation. Each year in the investing class we take a look at Times Interest Earned. As the name implies, it reveals how many times over a corporation is able to pay the interest on its long term debt. The point is that when a corporation’s profits are no longer sufficient to pay the interest, there’s likely trouble ahead, including the possibility of bankruptcy.  We usually look at and discuss the ratios for at five corporations.

Should you trust the CDC? An analogy may help you decide.

The documentary Trace Amounts explains that in 1999 the CDC conducted a study (often referred to as the Verstraeten study) regarding mercury and major neurological diseases, including autism. The study showed a shocking 7.6 reading for association with autism. This number represents relative risk. It means that a child receiving a vaccine containing Mercury would be 7.6 times more likely to develop autism than a child not receiving the vaccine.

How a money manager realized High Frequency Traders were ripping him off

The book Flash Boys by Michael Lewis tells the story of how a mild-manner stock trader named Brad Katsuyama, while working at the milder-mannered Royal Bank of Canada (RBC), identified how High Frequency Trading (HFT) firms were stepping between buyers and sellers to make an unfair profit for themselves. How do they do this? The short and no-longer-a-secret answer is that they pay the stock exchanges enormous sums to give them information about what’s happening in the market before it is seen by ordinary investors.

Slipping one past mutual fund investors

In 2013, PBS Frontline released the documentary titled The Retirement Gamble. While the name is off target — it’s really about how Fund industry fees hamper nest egg growth —  the video takes key retirement issues head on.

In one scene, economist Robert Hiltonsmith is sitting at a computer scanning an on-line fund report as he explains the myriad fees levied by the industry. He points out the column heading shown in the screen shot below.

Students reflect on Inside Job – The 1% vs. the 99%

As discussed in What I learned watching Inside Job 25 times, I show this movie at the end of my introductory investing course. I then ask students to reflect on it. One of the questions they’re asked:

“The movie talked about how income disparity is growing between the top 1% of income earners and the other 99%. The 1%ers continue to separate themselves from other 99%. An example: a Manhattan apartment can now sell for over $100 million. But, over half of Americans have no wealth and are having trouble affording the house or apartment they live in! How do you view this? Is it a concern to you or something that’s not important, and why? Make sure to address how this could play out in the medium and long-term future, as in:  Where will this lead?”

Sophomore M.K.  I believe that compensation should be about value added towards the company, so in the case of the disparity between a CEO and a minimum wage worker, the CEO is potentially making million dollar deals, while a wage worker is doing a non-specialized task. The debate over income disparity that is occurring should not be focused on executive pay; rather, raising minimum wage to allow hourly workers to make a real living instead of living paycheck to paycheck. If something like this is not done, there will be real societal issues to follow, with hourly workers possibly going on strike or worse, leaving the economy in the lurch. This is a major issue that can and should be solved by the government, requiring companies to pay their hourly workers fair pay and benefits. After watching the documentary on Walmart earlier in the year in class, that documentary made the point that the bottom line of the company would not be reduced by such as margin where they couldn’t make money. Rather, the movie showed that with higher pay came worker satisfaction which in turn led to more efficient working. This would led to large companies making even more money, with their workforce even more efficient.