MBA Masterclass Read and Analyze Financial Statements

Kara: All right, there we go. Hey, everybody! As you're joining us, feel free to let us know where you're coming from in the chat, that would be great. We'll give it just a couple minutes for everybody to join. We have a large registration to run... Oh, there we go.

Kathleen: Hello, everybody.

Kara: A lot of Midwest, that's great. We always have some from Columbia, that's always nice. I was just down there a few months ago.

Kathleen: Oh, there was a guy from Columbia on "Love Island."

Kara: I think so, yeah, that was before I had gone.

Kathleen: That was Will. He didn't win.

Kara: Indianapolis, I was just down there a couple weeks ago.

Kathleen: All right.

Kara: London, Crown Point. I'm near you on Crown Point, I'm in La Porte, Indiana, so relatively close. Kathleen, are you in Chicago?

Kathleen: Can't you see I'm right here in Hyde Park.

Kara: You're in the penthouse, the penthouse, the Harper penthouse.

Kathleen: Yeah, it's more like I'm on like a telephone pole.

Kara: Yeah, bird's eye view.

Kathleen: Yes, I'm definitely in Hyde Park, welcome everybody.

Kara: OK. Perfect, Arkansas, great. Yeah, we'll give another couple minutes.

Kathleen: So are a lot of you already in the MBA program or are you just thinking about it?

Kara: Yeah, good for us to know if you're applying or admitted.

Kathleen: Any MBAs?

Kara: Yeah; I don't know; considering; thinking; round one. Oh, great. That's great, yeah. So round one and the next evening weekend deadline are both in late September, so those are coming up soon.

Kathleen: Hey, Alexandra.

Kara: After today, all this thinking of applying will be changed to absolutely applying.

Kathleen: Yeah, don't think: Just do. What's to think about? Put some options on the table, yeah.

Kara: Exactly. Round two, great.

Kathleen: I don't think I have enough cream in my coffee. I'll be right back.

Kara: Oh, you're good, take your time. Oh good, we have some incoming XPs, that's great. XP is our executive MBA program. We use too many acronyms sometimes; I gotta be better about that... Yeah, round one, round two, is a tough choice sometimes, but honestly neither is more or less competitive. So whenever you feel your applications at its best, they're pretty similar, so yeah, feel free. For today we won't use the hand raise, we're gonna use the chat primarily. So if you, you can always chat a panelist privately if you need something specific but throughout, and I'll repeat this as well as everyone gets in, you can submit questions in the Q&A for later. But for the most part, Kathleen will use the chat and some polling as well. So again, I'll repeat that, but...

Kathleen: I'm glad to see some XP 92s here.

Kara: Yeah, that's great.

Kathleen: How are you doing in your pre-MBA preparation? We have class starting this week.

Kara: Oh, that's right, I keep forgetting. Well, we're halfway through August at this point.

Kathleen: Yeah, yeah.

Kara: Great, well ... actually, people are still flooding in. I'll give it another 30 seconds to be mindful.

Kathleen: 92 is the EMBA program, XT stands for executive program.

Kara: I just said the same thing I said yeah, we use too many acronyms sometimes; so everyone knows R1 is round one, round two.

Kathleen: I'm excited, too.

Kara: All right. Well, it looks like we're stabilizing in a little bit, I'm sure more will continue to join. I'm gonna go ahead and get started. So welcome everybody, we're thrilled to have you join us today. My name is Kara Northcutt, I'm a Senior Director of Employer Engagement and Admissions at Chicago Booth. On behalf of all of the admissions teams -- evening, weekend, executive and full-time -- we're thrilled to welcome you to today's masterclass with our Professor Kathleen Fitzgerald, who'll be discussing how to read and analyze financial statements. As I mentioned a little bit ago, this will be pretty interactive, so keep an eye on the polling, Kathleen will put some links in the chat. So primarily focus on the chat throughout, but feel free if there's any questions you'd like us to discuss at the very end, if we have time, feel free to throw those into Q&A, but we'll be monitoring both. But again, primarily focus on the chat during the session. Kathleen is an Adjunct Associate Professor of Strategic Management and Senior Director of Academic Support so you're in very good hands for this session. She earned her MBA from Booth in 2003, was an accountant in a prior life; teaches across all of the MBA programs in areas of finance, accounting and strategy; has professional career experience at Ernst & Young, and audit and tax, Chicago Partners; and forensic accounting, and litigation support. We're very lucky that Kathleen came around to the school in 1996 and has never left us, so we're thrilled about that. And without further ado, please join me in welcoming Kathleen. And she's gonna go ahead and share a screen and enjoy the class. Thank you, Kathleen.

Kathleen: Thank you, Kara and Kim and Mel and Ray, these are all of our people online. Let me share my screen. Are you guys excited? Think about doing MBA program?

Kara: Looks like it. All right, Kate your screen looks good.

Kathleen: All right, cool. I am just gonna find my chat 'cause it went away. Hold on a sec... And I like to see it. All right, cool. Let's go. Do we have any accountants in the room? Can you say yes if you're an accountant? There we go: with authority. All right, cool. So this will be pretty straightforward for you but I think it's still kind of interesting to see how all of the different pieces are put together. So the purpose of these master classes is to, you know, have you get a feel -- I think Kara will correct me if I'm wrong -- on how we think about things at Booth and just give you a sample of a lecture and ... that's what we're gonna do. So I'm gonna ask you questions along the way, which we've been doing so far and you can just write things in the chat and I will promise to pay attention to what you're doing. So when we think about the firm, what do we think about the firm? We say the goal of the firm: What does it mean to maximize current shareholder value? What is shareholder value and who are shareholders? So let's do one question at a time. What is shareholder value? I mean, what we might think of it is, as market cap. So market capitalization. So there are different frameworks, it's just a framework that we're going with today, right? So we're gonna think about your role, a firm's role, as an employee of the firm who has been hired by the board of directors; who work for the owners of the firm; which are the shareholders, right? The goal of management and the company is to maximize shareholder value, right? And by shareholder value, we don't necessarily mean today's stock price, right, because what we mean is intrinsic value: what the company is really worth. So when we think of market cap, how does one measure market cap? You can put it in the chat and I'll write it the same time. So we think of it as the price per share times the number of shares. That's right ... that's right. And when we think about the number of shares, this is a bit arbitrary, right? Because if you think about a pizza, a pizza's diameter is the same, whether we put as, you know, two, four, six, eight, it doesn't matter the number of shares, right? So if you think of the pizza there as being the value of the firm, in general -- or if we wanna think of the value of the equity specifically -- just think about it: It doesn't really matter how we split that up. So where's the action coming from? The action is coming from price and where does price come from? Anyone know? In a way, but how would you ... like, if I told you I asked you, "What's the value of Starbucks?" what would you say? I would do what Will says, I would do a discounted cash flow, right? And this here, we're talking about the value of the equity for example. So I would say price is the present value of expected future cash flows. That's how we decide what the price of something would be. Like: What price would you pay for a, you know, a building that you wanna rent out? It should be the present value of the cash flows that you expect to get from the building, right, minus any costs also in present value. So when we think about that, if we were to write it in terms that you will see at Booth, it will be the sum of expected future cash flows brought back in time. And so for you to be able to do this you're gonna have to understand, number one, where those free cash flows come from. And number two, where does the cost of capital or the discount rate come from? I think you already know how to do addition but you will have to understand time value of money. So we're not obviously gonna cover all of those things today but just in general, I wanna point out some of the different things that you'll be thinking about when you're in an MBA program, wherever you end up, although I hope you end up here. So the current shareholders are the current owners and how do we measure it? We would measure it in market cap. There's lots of different ways we could value the equity directly. We could value the firm, subtract the value of the debt and get the value of the equity that way. Frank, if you have a question, can you please put it in the chat? Yeah, net asset value might wanna think about, yeah. So do we have a goal of the firm? What's the goal of the firm? Just remind me? Maximize current shareholder value. What is shareholder value? Market cap. Number of shares? Somewhat arbitrary. Price per share? That's where the action is. We need to know how to do time value of money; we need to understand what those cash flows are; and we need a discount rate or an opportunity cost of capital. And for that, we need finance and we need accounting; and we need operations and we need strategy. We need a lot of different things to be able to come up with these items. And that's what you would learn in a program like this. So let's think about what are the tools that we have and what are the main activities of the firm. So companies do strategy, they do investing activities, they do financing activities and they do operating activities. Yes, it will. So when we think about strategy, right, you would take classes like competitive strategy or corporate strategy, which is... the big, big, big picture. And competitive strategy is at the business unit level. You would also have marketing strategy and marketing is really another function as well -- but it doesn't fit into my framework so I'm gonna include marketing strategy in strategy. You will take investing in classes and investing in finance. So you might think about "corp fin," you might think about an investments class. And then of course we've got the operating function, which is just so many things -- marketing, HR, managerial accounting, ops itself, right? Like there's so many classes and so many electives here. Yeah, that's part of operations, Sasheen. So strategy: What business are we in? What industry are we in? What problem are we solving? How's it being solved other people? Why is our boy better? What's our long-run competitive advantage? What's our short-run competitive advantage? How do we get our goods to market? All of these types of things. Investing: What investments do we need to make to put our strategy into place? Financing: How do we finance the operations and the investments of the company? Operations: How do we run the business? So like what Sasheen said, right? How do we produce goods and services? Are we a manufacturer? Are we buying from other people and reselling? Are we just a middleman like Amazon? So what are these main things? Some of you right now may be doing one or more of these in your roles. But someone leaving an MBA program should have a solid understanding of all of these. To get you there, of course you'll need some foundations. So we have foundations: accounting, stats, micro. These would be more of our foundations that are gonna help you understand how these things happen. And then of course, it's not enough to know about strategy, investing, financing, and ops; and have a solid understanding of accounting, stats and micro. On top of that, you need to know how to make it happen. So you'll need to understand leadership, management, decision making, negotiations, right? Other things. Other classes that you will take at will once you satisfy your requirements. And of course, you also need to be able to understand how to do these things in different business environments. So you might think about macroeconomics, for example, or I would say... let's just think about macroeconomics for now. So what's happening in the business cycle? Well, this could be any type of company. I mean, what we're gonna do is we'll teach you the tools and then you can apply them to companies, Alexandra, as needed. So we've got this goal to maximize shareholder value. We have these things that companies do, which of course any MBA program's courses are going to mirror what they do since it's a master in administrating a business. We can think about -- and we'll give you these slides, don't worry -- the types of questions that we would be asking under strategy, investing ... I'm not gonna read all these to you ... financing, in operations. But what I wanna know is where do we see the results of these activities? How do you know on the outside what's going on on the inside? Yeah, so financial statements, where else? There's lots of different places, right? Yep. Yeah, you guys are really good. Robinhood, yep. Financial reporting, definitely. That's the number one thing you all said and that's true. And because it's highlighted what that means is that's what we're focusing on today. But yeah, you might see a letter from the CEO; you might see a press release; you might do earnings calls; you might look at analyst reports; articles in the popular press: Wall Street Journal, Financial Times, Economist. All of these things are helping us figure out what's going on in the company. If you're not-for-profit, like the university, you might look at a Form 990. Whistle blowers, yeah, now don't forget our whistle blowers. Almost couldn't sell. If they're not yet public, I mean, you'll have to do a little bit more work. You might look at ... They still are gonna tell you about their business. So there are ways. You can read articles, you can attend any conferences, these types of things. But it's definitely not as easy. So there's lots of ways to figure out the results of these activities. What activities, again? Strategy, investing, financing and ops, I'm gonna focus on those today. So within financial reporting, what types of things are in financial reporting? What reports do we do? So we've got the annual report, which someone talked about; we've got quarterly reports; current reports, that's our 8K that someone said. What's the annual report? 10K, 10Q... proxy statements. Proxy statements are where we learn about things that we have to vote on, or what are our ... is that 14A? What our managers get paid, right? So there's lots of different financial reports, who requires these reports? SEC, right? What's the SEC trying to do? What's their goal? They wanna regulate, protect: We protect our investors, right? That's right. So the SEC is requiring these things, we're gonna focus on the annual report. What's in the annual report? Oh, nice, everything. Financial statements, audit letter ... A couple of people are writing MD&A: management, discussion and analysis is what that stands for. Management letter, like a CEO statement, could be there. Advertising, sometimes they have like a little advertising in there. Lots of different things. Yeah, those are financial statements I'll say, and the footnotes. Someone asked if this is what we do for Zoom classes, like for when we were online? Basically, yeah, we use Zoom, but it would be different in the sense that it's not set up as a webinar, so you have more interaction. So this is what's in the annual report, yeah, and you guys nailed that as well. So description of the business, different risk factors -- I don't know if anyone wrote that -- how the stock has been doing, some selected financial data. What Ola just said, Ola Lade, are you from Lagos? Are you the one that said you're from Lagos? MDNA, yeah, that's one. Oh, Joseph is definitely from Lagos. MDNA -- I've been to Lagos, loved it. Financial statements, we're gonna focus on those. And of course, notes to the financial statements, OK? So we've got this company; the shareholders own it; they hire the board of directors; board of directors hires management; management's goal is to maximize shareholder value. How are managers gonna get their teams to do this? Well, there's lots of activities in a company: strategy, they can make good strategic decisions, investing, financing, and operating decisions. They need skills to do this so they need to understand leadership management, just as making negotiations. Where do we see the results of the activities? Lots of different places, but tonight's goal is to think about what's going on the financial statements. Yes, we could see EBITDA or EBIT in the selected financial data. But it is not part of the financial statement per se. OK. So what are the main financial statements? There are five, what are they? Finally you guys can say. Balance sheet, income statement, statement of cashflow, statement of shareholder's equity, and statement of other comprehensive income or comprehensive income, yeah, that's right. Five main; we're gonna talk about two. We're gonna talk about the balance sheet tonight and the income statement 'cause we have to make some choices. The income statement is the P&L, profit and loss and these notes to the financial statements are very important. So when you come to Booth, if you haven't had accounting before, you will take a class 30,000 in the full-time, evening, weekend in the EMBA program, it's very close. I think it's like 30,080 or something; the numbers are just a little bit different. If you have already had accounting, you are a CPA, like some of you here, you'll take more advanced accounting classes. You'll have to take one accounting class -- you'll decide which one -- but for the novices, we definitely wanna take 30,000. So you'll learn about these statements. The balance sheet, what does the balance sheet tell us? It tells us that investing equals financing. The statement of operations tells us about operating activities. So remember we said these main activities: strategy, investing, financing and operations? Well, these are where we see the results, right? So investing equals financing, and the statement of operations tells us about operating activities. Statement of cash flows is going to tell us sources and uses of cash from investing, financing, and operating activities, that's right. Statement of shareholders' equity is going to reconcile one of the types of financing accounts: shareholders' equity. Investing equals financing, I mean, this is what we've invested in and this is how we've paid for it, Michael. Investing equals financing. How can we finance? Let's talk about the balance sheet. So, well actually let's wait for a minute, 'cause I wanna talk about that in a sec. We can finance it with debt or with equity. Yeah. ... that's right. And what do we call our investments in accounting? KT wrote it. Assets, yeah. So that's what I mean by investing equals financing. OK. So we know where we're gonna see the results, we're definitely gonna talk about the financial statements, but I kinda wanna know who's looking at these? You told me where they can find the information but who cares? Definitely, "stakeholders" is a nice term. It captures everything, but let's break that down. Yep: Regulators, management, auditors, competitors, employees, regular employees; who represents employees often? Unions; governments care ... investors, current and potential. Yep, taxing authorities: Seems like everyone, right? Rating agencies, you know, debt holders, lenders. Well, who are the credit rating agencies? Yeah, all of these different types of companies, that's right. So it is true, we've got lots of people looking at these financial statements. So exactly what you said, current and potential investors, creditors, suppliers, management, et cetera. Why should I invest? Should I lend them money? Are they paying their taxes? Can I negotiate a better deal for my union members? In terms of not-for-profit, you might look at things like, should I donate to them? How's their endowment doing? Are they staying in line with their mission? Not every company is for profit, and here at Booth, of course, we are gonna cover all different types of companies and a lot of these tools, they apply to both. There's some little things that are different. Not-for-profits have different financial statements and they're often worried about making too much revenue, whereas we probably don't care that much about making too much money in our for-profit company. But there's lots of different reasons. Now, when we think about this and when you are looking at people's financial statements, it's very important to be kind of a savvy user of financial statements. And a savvy user of financial statements not only knows what they mean but what's going on behind the scenes. So for example, if you know a company is doing an IPO, do you think they're gonna wanna make their financial statements look good or bad? Definitely good, right? So you know because management has a lot of leeway in how they present some of their financial results -- just because of differences and flexibility in accounting rules -- so they're gonna really be looking to make them look better. What about if you're gonna do what's called a management buyout? So the manager -- say you're the managers of the company and you decide you wanna buy the company and the owners say, "OK, you can buy it." Do you want those financial statements to look great or not so great? Yeah, you kind of wanna get a good deal. If you're worried about taxes: Taxes, we don't want to report a lot of income. Now in the U.S. we have different statements for taxes. Right? We file tax returns. But you still don't want your financial statements to be wildly different. Yes, we will share all the slides, yeah. We definitely want to make them reliable, which makes -- let's get to that. Why do we rely on these financial statements? Why is it that all of these users are using financial statements to answer very important questions? So why do we rely on them? There has to be something about financial statements that makes them reliable. What are those? They're audited, they're consistent. I want you CPAs out there answering 'cause you know, when you took the exam. Yeah, I mean they follow rules. They're understandable. They are relevant, they are reliable, although there's a bit of a trade-off here. I mean, it would be quite relevant if the financial statements told us what the value of the firm was, but they don't because that number needs to be reliable at the same time. They're comparable from company to company and from year to year, that's right. They're consistently approached, they're material in the sense that they include information that would be material or make an impact in your decision making. And they're conservative, meaning they should report, for example, they should report fairly. But they should also -- as soon as they know that something is happening in a bad sense they can anticipate it, they incorporate that in their financial statements. Yeah, that's right. Well, because some things that would be particularly relevant ... Well let's say that I would like to see to , at the bottom of the financial statements, this company is worth $100 billion. Well, how reliable is that number? I don't know. So a lot of times we have things that are reliable, that they occurred, but we don't have a lot of things about the future 'cause the future, we don't know. We might wanna know what the value of the brand is. Under U.S. GAAP, we would not be allowed to put that on our balance sheet. Those types of things; even though it would be relevant, we would care, it's not reliable. OK? So we know our goals; we know our activities; we know we see where the results are; we know who cares about those results; what questions they're asking; and we know why financial statements are useful. So let's dig down into two financial statements, IFRS may allow that, Joseph, that's true. So we have IFRS, we have the U.S. GAAP, we have other GAAP for other countries, although many, many much of the world is switching towards IFRS, yeah. UK GAAP -- UK GAAP might be defunct at this point; I think they might be using IFRS. So let's focus on two financial statements, let's look at the balance sheet. GAAP is generally accepted accounting principles. So the balance sheet, we said, investing equals financing. Someone said it's a snapshot: That's true because the balance sheet is telling us, well, I can use mine as a ... it's telling us as of a certain point in time. So for example, as of December 31st, 2020, these were the investments that we've made and how we've paid for them. So it's at a point in time, as of that day. In accounting language we call investments assets, and financing are our liabilities, and our shareholders' equity. Liabilities, these are our creditors; shareholders' equity, yes it is, are the owners. Yes, Michael. How do owners -- let's answer Michael's question -- how do owners finance the investments or the assets of the company? What are their two main things? How do owners finance investments? Don't say debt because that's creditors. Contributing capital, those shares are only when we do an IPO -- if they're buying shares on the secondary market, it doesn't count -- and retained earnings. Retained earnings are just the earnings of the company that you see on the income statement, less any dividends that they paid out, essentially. That's like, enough for you to know right now. So they either finance by contributing capital or by retaining the earnings of the company and using those for reinvestment. So if you thought about what type of companies retain a lot of earnings and don't pay out dividends? Growth companies, startup companies, yeah. Because they use those to finance the investments and keep going. What type of companies pay out dividends? So a lot of their earnings are being paid out as dividends? Mature companies -- Apple's a good example -- cash rich companies, yep, that's right. Perfect, very good. So let's look at a quick example: Let's look at Starbucks. When we think about assets, the main things that we are gonna learn about is you wanna learn about classification; you'll learn about recognition; and you will learn about measurement. So when do we have an asset? Where do we put it on the balance sheet? And at what amount on the day we recognize it? So as far as classification goes, we've got current assets, those whose benefit we expect to receive within a year or their operating cycle -- we're gonna say a year -- and we've got our noncurrent assets and our intangible assets that we expect to get benefit from for a period more than one year. So for example, at Starbucks, examples of assets: You would expect cash, they're gonna have some cash, they're gonna have short-term investments, that's a short-term use of excess cash. So instead of putting that money in the coffee jar, so to speak, right, in the kitchen, we will buy some government securities or something like that. At least try to earn the inflation rate on it. Accounts receivable, what are accounts receivable? Yeah, sales pending payment, that's right. And when we say net, we're gonna learn ... Well, we have to put the net of the ones that we don't think we're going to get paid. Inventories. Of course, Starbucks sells stuff, coffee, coffee cups, et cetera. What are prepaid expenses? What would Starbucks prepay for it? Rent, insurance, that's right. They do have a lot of inventory, that's $1.5 billion in inventory. It's to be expected, though. I mean, they make a lot of sales and they have a lot of stores, so they'll have to think about, how do we finance that inventory? So these things here are called working capital. No Kathleen because they, those ... What are their gift cards, everyone? When you go buy a gift card, what is it? It's a liability, not an asset because they've actually prepaid us, Kathleen. I just like saying your name, it's a good one. Yeah, they still have to provide the good or the service. So that's a liability also called deferred revenue, also called advances from customers. So on the long-term side and their intangible assets, as you would expect, they've got a lot of property plant equipment. They have this thing of leases, $8 billion in leases. I'm gonna explain it in a sec, Fredusa. What are these leases? They didn't have them there this year. How is it that they got $8 billion of leases in one year? What must have happened? There was a change in the rules, yeah. There's a new standard on leases so from now on, you have to treat leases as capital leases: so basically, as if you own that property. And you will learn about this in accounting but for right now, this is the present value of their obligations in a sense. And well, it is on the day they do it; right now it's just like the unamortized portion of it. You will learn more about this later. So they have lots of long-term assets, current assets to the tune of about $7.9 billion. Almost $30 billion in assets, is that a pretty big company? What's the shareholder value at Starbucks, does anyone know? The shareholder value the last I looked was like $130 billion. So that's the book value, Joseph, but the market value, yeah, is much higher. So right now the market value of equity at Starbucks is $137 billion, about. So what does that mean? It means that these assets are expected to generate free cash flows, where the present value those cash flows to the equity holders, not even just the firm, is $137 billion. So that's what I mean: relevance, reliability. We don't actually know the market value of their assets, we know the book value. Let's see how they're paying for those things. So their total current liabilities is about the same, $7.3 billion. The liabilities: accounts payable, that's for their suppliers; accrued liabilities -- things like rent, for example, things they incurred, not yet paid; accrued payroll with the other employees; income taxes payable to the government; the current portion of their operating lease liability. And here's the one we were talking about: stored value card liability and current portion of deferred revenue. Yes, we call that a market-to-book ratio, $1.45 billion. Do you think that's a lot? I think it's a huge amount. Most of that is gift cards. What does that mean? It means that we have prepaid coffee in the amount of about $1.35 billion, I think is about what goes to the stored card liability. So what are we financing for Starbucks? We're financing their inventory; we're financing their working capital, that's right. So when someone said, oh, they've got a lot of inventory, well, not only do they have a lot of inventory, they've got a pretty good way to pay for it: Ask us to do it. Yeah, that's right, working capital. OK, so we have to move a little faster, I think. So we've got our total current liabilities; we've got total liabilities, including long-term debt. Uh oh: $37 billion. I think we're in trouble because we said assets equals liabilities plus shareholders' equity. Our assets were worth approximately $30 billion, our liabilities are worth approximately $37 billion. Now what? Shareholders' equity is negative. I'm gonna make this 29, so that... Minus $8 billion in shareholders' equity; but what's our shareholders' equity worth? $137 billion, so how can it be worth minus eight? Well, this is accounting, right? They're not insolvent. Starbucks isn't even close to insolvent. What they do is they buy back a lot of shares and retire them and they take the difference between what they issued them for many, many years ago and what they had to buy them back for, and that is reducing what would be retained earnings but is now a retained deficit, OK? And so that's what's going on here. Yeah, it's very interesting and you'll learn all about it. So where do we see the results? We said lots of places -- now we've got these financial statements. What does the income statement tell us? The income statement is for a period. So for example, during 2021, they'll have a share repurchase plan anew and they will buy them back from current owners. So we'll have the income statement; the income statement in general says revenues -- this is big picture -- minus expenses gives us our operating income. Plus gains minus losses gives us our net income. So ... well, expenses can be a lot of things; what type of expenses do companies have? Cost of goods sold; research and development; selling and general administrative expenses; any type of OPEX; depreciation; marketing; utilities -- some of these are repeating -- advertising. All these types of expenses. Revenues, they can have more in one line of business, they could have one line of business. Some of the companies in our detective analysis have more than one line of business. Down here, these are gains and losses. These are from things like sell warehouse, retire debt early things that are peripheral to the business, right? Not actually part of our operations but do give us gains and losses and so are accounted for in net income, non-recurring. They often have to do with investing or disinvesting and financing activities. Dividend income, yeah; that might be in revenues, it depends. Unredeemed gift card balances go. I almost think it's now, Renap, Renap is that right? It might depend on the state, yeah. I know that some governments have gone after those things for example, just ... but there are ways to do it. But just like we would estimate how many people aren't going to pay us, we could also estimate how many of those gift cards got thrown away with the wrapping paper. Yeah, taxes are an expense, taxes yeah. Those would be these expenses. Gains and losses are reported net of tax. Yep, interest expense. So these are all the different things that we incur, all these different expenses that we need to incur, to generate the revenues of the company. We can talk about gift cards at the end. So what does Starbucks look like? Yep, impairment charges; those would go down below, Michael ... usually ... depends. A lot of this is more chapters 8 through 9, 8 through 16 of accounting. So a lot of this we're just gonna put off until you get here. So what do we got going at Starbucks? I'm just saying in general, so that's my meaning, advanced. So if we look at Starbucks, how much were their revenues in 2020? $23 billion. Revenues in 2019? $26 billion. What's the difference? What happened? COVID. Yeah, COVID happened. What happened to their expenses? Not much, right? So what happened to their bottom line? Down. In fact, I think their share price dropped to like $65 a share last March or something. And then it really popped back up to what it is now. So their earnings went down a lot; the revenue went down and then their earnings went down. Yeah, lots of fixed costs. In fact, what do we call fixed costs over total costs? What's that called? Operating leverage, yeah, operating leverage. Companies with more operating leverage, are they riskier or less risky? They're riskier. So in corporate finance you'll learn that they have a higher asset beta. So we'll learn about how these things are all connected. All right, so we have these financial statements; income statement, remember, is telling us about operations. Most of us know what a P&L looks like, so you'll get a general idea. What you'll learn in school is how to connect all these things. But it's not enough. I mean, I can tell a little bit of a story by looking at the balance sheet and the income statement but there's gotta be a way to tell a more complete story -- and so that is financial statement analysis. So our next step in the process would be to think about financial statement analysis. In fact, if we were to think about the whole thing, think I'm missing a slide, let me just check ... Yeah, let's think about the whole big picture. So the whole big picture looks like this: We have strategy, we have investing, we have financing and we have operating. And then we wanna see, where do we see the results in the financial statements? The balance sheet, the income statement, the statement of cash flows. The next step after seeing where they are, is doing something called financial statement analysis. And under financial statement analysis, what we're trying to think about is profitability; we're thinking about risk; and we're thinking about growth. And in accounting, we might be thinking about liquidity: Can we pay our bills? Or our solvency: Can we not go bankrupt? Once you do financial statement analysis, then you would forecast financial statements for the future. Then you would forecast cash flows. You would estimate a cost of capital or discount rate -- you'll learn that in finance -- you would value the firm by taking the present value. You could subtract the value of the debt; you would get the value of the equity. You would divide by the number of shares and you would get an estimate of the price per share. That's kind of the whole process So when we think about an MBA program, kinda think about where we fit in. So we talked about, like, there's you; like, oh, I work in the investment section or I work in operations, right? And you can kinda see the whole story, yeah. So we talked about the activities, we talked about the financial statements, now let's talk a little bit about financial statement analysis. Like: How do we put the whole picture together? So why would we do it? There's lots of reasons why we do it. You've already talked about them before, I just put them here for you. What type of questions are we asking? Like: Are things that are going on, are they changing our profitability, causing our profitability to change, our risk to change? Why are our results the same or different over time, or from our competitors? What are our growth opportunities? Are we financially stable? Are we doing OK in operations? You can look at the separate financial statements but it's a lot easier if you think about looking at more than that. What are our tools? Well, yes, we can have management tell us. We can at least have the auditors tell us that our results, we can rely on them. We can look at the financial statements and see what's in them and what the trends are. But really what we're gonna talk about tonight is ratio analysis. And so we can do that, someone talked about DuPont analysis, we can do a DuPont, we will. We can look at common sized financial statements, and these are kind of the things that we'll be looking at -- and then of course you can look elsewhere. So let's think about ratio analysis. So one thing to think about with ratio analysis is you've got to look at the whole picture. You can't just look at individual ratios. You need a benchmark; knowing that something is X percent doesn't help me unless I can see relative to others. Industries, it's very industry specific how these things change -- and use some common sense. This is an art and not only science. I don't wanna say it's not any science but some art, not only science. You have to be able to have a feel for the number; you have to understand, for example, what does Starbucks do -- right? -- and know not to rely on just one single thing. So don't be too concerned with how precise things are. We're not always trying to max or minimize something: We have trade-offs. Like: I could have, I could get my inventory holding period down to zero days but what's the trade-off there? What happens when you don't hold enough inventory? You run out of stock, you have missed sales. So when you take your operations class, you'll be thinking about, well, how much should I be ordering? What's my economic order quantity? How much safety stock do I need? These types of questions. So you know, different users may draw different conclusions. The whole point of this story is you gotta think about the big picture, OK? Think about the big picture. The things we normally care about are what I said: profitability, risk and growth -- those three things. One easy way to do it, first step is to look at common sized financial statements. And in your detective analysis -- Did you all get the detective analysis, did you download it? I know they sent it to you, so I feel like I'm in a wind tunnel. I have my fan on, let me fix that ... there we go. OK cool, I'm glad you did it. So in the detective analysis we also have common sized financial statements. So this is a way for us to look at financial statements and see, for example, how much cash as a percentage of total assets? What are my liabilities as a percentage of total assets? So we have a benchmark and we want to see what things are. And the income statement, we want to know what are things as a percentage of revenue. So for every dollar of revenue, how much went to cost of goods sold? How much went to my employees? How much went to taxes? How much went to interest, right? So this is a very good way to get a broad-picture idea what's going on in a company. I think you might have to pull that from your confirmation. I don't have the link, yeah. Benchmarks, ratios and gross are very important. Oh, there you go, there you go, thank you. All right, so let's look at Starbucks. So for example, this is one of the companies in there. What we have on the left-hand side are their dollar amounts and on the right-hand side are their percentages. So you can see big changes over the year; why are there such big changes in Starbucks? Well first of all, we have COVID and second of all, we've got the new lease liability. So this is what I mean: If you were just sitting there as some young analyst -- not with an MBA and not being able to have broader perspective -- you might draw the wrong conclusions from what happened at Starbucks' balance sheet over the year. So you have to know more than just how to calculate a set of numbers. And you would probably make some adjustments. I'm sure there's some analysts on the call that have gone out there and can do those things. No but it will, Alexandra, on the income statement make a pretty big impact. Yeah. So will stock repurchases, these types of things. It won't make it as much of a difference, Sid, on the balance sheet. Although $3 billion in retained earnings that they would've had that they don't have for a company that has very low retained earnings is going to make a difference. The point is to understand how to read these things. And what I'm saying is common sized financial statements are a very good way to get a broad picture and to identify, oooh, why did this go down? Why is cash changing so much? What happened in 2018? And then you go and you say, "Oh yeah, they had this deal with Nestle." Nestle prepaid them $7 billion, right? You could look at their income statement. OK, Ignacio. So we've got our financial statements, these are really expense ratios. We don't know, we have to ask questions. Financial statement analysis allows us to ask questions, helps us think about the types of questions. Cash was up -- up hugely in 2019. Yeah, it dropped here for a reason because we had an extra $7 billion here, I can tell you, from a deal. Yep, read the notes. So this is the tool, that's the point. And when we're trying to figure out in the detective analysis, which company is which, this is a good way, right? Yeah, all right. So we've got common sized financial statements. The other thing that we can do ... yeah, it's hard to read. You can read the other one that's not on the phone. One thing that we do is look at return on assets. So this is a very structured ratio analysis. So what we do is we say, what's our operating income? And sometimes after tax; if you do it before tax or after tax, depends on your question and over average assets. So that's saying for every dollar of assets employed, how many dollars of operating income do we generate? And this will be a ratio. Let's just say, for example, it's 10 percent. So that says for every dollar of assets employed, I earn 10 cents in income. OK, well let's break it down further. Let's see how much our profit margin is, so let's think more about the income statement. And so that says for every dollar of sales, how many dollars do we keep? And then from the expense ratios, from the profit margin, we could break it down to say, oh, for every dollar of sales how much goes to cost of good sold? How much goes to selling in general administrative? How much goes to advertising, salaries, rent, utilities, this type of thing? Then we might say, well, how well do we use our assets? And you can tell that this times this, equals what? Operating income over average assets; all we did was break it down. Someone talked about DuPont as an example of how they do their analysis. So we would say for every dollar of assets, we make this money sales. For every dollar of sales, we keep this much, that's right. So we would break our profit margin down into our expense ratios; we would break our asset turnover down to different turnover ratios. Like: How many times do we turn accounts receivable? How many days does it take people to pay us? How many times do we turn our inventory? How many days do we hold our inventory? How many dollars of sales for every dollar of property, plant and equipment? Yep, day sales outstanding. Days inventory held. Think about your cash conversion. So what this represents is opportunities: opportunities for growth, opportunities for cost savings. All different types of opportunities. And in the big picture, the idea is if I'm earning 10 percent off my assets and it costs me let's say 7 percent cost of capital, then I'm creating value for my company. If it costs me 7 percent to gain 10, that's pretty good. So you will wanna think about all of these types of things, you'll learn a ton about it in the program from all different directions: from ops to accounting, to marketing, to corporate finance, right? You're gonna learn all different ways to do these things. Of course, these don't include any risk 'cause this is return on assets, so you'll also want to think about liquidity ratios -- I have to speed up with it. Liquidity ratios, can we pay our bills? Solvency ratios, what's our long-term solvency? What's our debt-to-assets? How many times can we pay our interest out of earnings? How many times can we pay interest and principal out of earnings? How many times can we pay interest and principle out of cash flows? So how's this company doing in terms of long-run solvency? We could expand our trade, we could make it return on equity. So instead of return on assets it's return on equity. It looks very familiar, right? It's the same idea but we add something else. Now we're adding equity in the denominator. So we're gonna look at profit margin times asset turnover, times leverage. Because now the idea is, oh, let's borrow at five and earn at eight. And we just find a way to break all these things down; you could easily do this in Excel very quickly and compare. What do we compare to? Yep, you could break it down so much further. And people use this as a value-based management tool. So what they're trying to do is say OK, let me calculate these things, let me see what my competitors are doing, let's see what we've done over time, and let's find opportunities. Or let's ask questions about what's going right and what's going wrong. It's not gonna tell you the value of the company but it's certainly a way to think about the company in a big-picture way. Make sense? OK? So when we were thinking about what was going on, we were ... finding my little slide ... We talked about the activities of the firm. We looked at a set of financial statements for Starbucks. We thought about how we might analyze those financial statements and then of course, we're gonna have to stop here because that's another class. Even so, even with this, all we did was kind of highlights. But one exercise that we asked you to do was this detective analysis. And in the detective analysis, we asked you to look at a bunch of financial numbers and try to figure out which of seven companies those numbers represented. Don't write the answer in the solution. With the idea that financial statements should be reflecting the business model of the company. No, there's a MBA class. Just come here, Will. We'll give it to you. All right, there we go. So financial statements will reflect business models and in your strategy classes, you'll think about business models and pricing strategies, these things are very much connected. And you might, if you're taking new venture challenge or something like that, think about starting up your own business and categorizing your business and things like, who are our partners? This is the business model canvas. What's our value prop? Who are our customers, right? What are their resources? How do we get things to customers? How do we make our revenues -- we care about this -- and what does it cost us to make them? OK? So you would do this if you took new venture challenge or a social venture challenge. Gonna help you think about these types of things. What's your business model? What will your financial statements look like? So the instructions were to match these companies. Now, I'm putting in the chat a form and I'm gonna give you a couple minutes to fill in that form. So some of you were able to do it, let's see what you put for companies. Just take a minute and put your solutions in there and hit submit. 'Cause I have one that has solutions, yeah. I mean that has results. If you didn't get to do it, don't worry, you can do it on your own later; this was just for fun. And I'm seeing that people are doing a pretty good job. What do you mean, Jose? All right, I got lots of results in here. Yeah, you shouldn't have to. It's really interesting. It looks like, though, some were like not as obvious. Yeah. All right, let me share my screen. Hold on one sec. Actually, I'll give you one more minute. Kara and Kim probably are like, "You're going over, lady." I know.

Kara: No problem at all, you can keep going. The Q&A's been quiet so everyone's posting in the chat, so it's ...

Kathleen: Yeah, the Q&A is the quiz, but we'll stick around and answer questions anyway, if we need to, right?

Kara: I will, absolutely.

Kathleen: Cool, cool, cool. All right. there's Liv, just came on the line, Liv created this for us. I am looking now one thing, hold on one sec, please. OK, let me share my screen. Yep. All right, these were your results. Let me make this bigger somehow. I'm like, can you read it actually? All right, so these are what people said. Most people said Amazon. I mean wow, company one, company one was... That's what I'm trying to do except for ... Oh, I know, right there. How's that?

Woman: On your individual screen editor view options at the top, you can also adjust the ratio for any participants. So adjust the zoom ratio if you need to. That looks good, Kathleen, that looks great.

Kathleen: Thank you. So most of you put company one for Facebook. For those of you that put company one for Facebook, what were some of the triggers? Zero inventory is a huge one, right? I mean, service companies are not gonna have inventory. They're also gonna have a lower cost of good, no dividends -- growth -- very little long-term debt. For companies that have a lot of R&D there's something called the debt hold-up program. So you'll learn about that in corporate finance. So they're more likely to have equity investments. They have a lot of goodwill, where's their big goodwill coming from? What was some of their ... Instagram, WhatsApp? So goodwill comes from purchasing other companies. So very good, yep. You are correct, Facebook is number one. Yes, Liv? Company two, most of you put Southwest Airlines. Why'd you pick Southwest Airlines? Lots of long-term debt now because they have lots of assets. So it's easier to borrow money when you have a lot of assets. They also don't do a lot of R&D so again, it's easier to borrow money. Lots of planes, big PP&E. Terrible 2020; that's right, Zoey. Deferred revenues -- why do planes have deferred revenues, airlines? We buy our tickets in advance, that's right. Really good. Number three was definitely Amazon. Why was number three Amazon? Fulfillment, for sure, two large equal revenue streams. What is Amazon's business? Yeah, make money all the time and it's a huge company. Yep, ecommerce. What's AWS for people that don't know that? Their web services, that's right, all their servers. Number three was Amazon. Number four is definitely Microsoft, why Microsoft? Lots of goodwill, lots of cash, lots of intangibles, do they pay dividends? Lots of dividends. Two lines of business: What are their lines of business? They're a mature company. Lots of R&D still. Short-term use of excess cash, yep: software, hardware. How about unearned revenue? Did they have unearned revenue? Collection period? Yep, that was good, Joseph. We did put some financial statement ratios in there as well, um hmm. And then why was company five Bank of America? Deposits, dead giveaway! Huge company, right? Loans and loans, that was like the easiest one on Earth. Yeah. Most of you got that yeah. That's where I always start, I always look for the bank just because they're gonna have a lot of financial assets and liabilities, that's right. Next one, again, you are correct. Campbell's Soup is company six, why was that? It's a small company, right? For those of you that aren't in the U.S. you might not know about it, but it's a small company. It's a traditional consumer products, right? They have inventory, they have accounts receivable, accounts payable, they have intangibles because they buy smaller brands, so they'll have lots of goodwill. Yep, that's right. They do pay dividends. It's a good little company. Goodwill is the difference between what you pay to acquire a company and what the market value of their separately identifiable assets is. Yep. And then finally Starbucks. The 137, just do a Google search: "market cap, Starbucks." The last one was Starbucks: Starbucks, yeah: leases, inventories, no R&D, healthy operating margins, high dividend payout ratio, very good. All right, so I'm gonna stop talking about this. I will, in case you're interested, here are ... here's the table if you wanna look at it, create one of your own. Let me go back, 'cause I have to wrap up. I'm gonna go back to my iPad. It's the premium between what you pay for, you should be paying, John, what it's worth. So those two things you put are the same. It's the difference between what you pay for something and the market value of their assets that you buy. So let's say I buy a small newspaper and I add up all their assets -- printing press, delivery vans, all of those -- and I come up with a value of $500 million, all right? And I pay a billion for it -- no, that's a bad example. Let's say the value of all those things are $70 million, I pay $100 million. Why did I pay more, 30 more million? Because I'm paying for the present value of future cash flows. Yeah. Because it represents -- goodwill is something we're using to generate cash flows; customer lists, subscriber lists, good employees, nice brand, those types of things. All right, so let me just quickly go through this. So you did them, you have your own solutions, and then I put in here, so you will get this from Kim and Kara, some items of note, OK, that might help you think about those. And then some bigger ideas, and then here, our solutions. So here we are at the end, why did we have this? The idea of this masterclass was just to give you a little bit of idea how to read and to analyze financial statements and then do an exercise where you get to apply some of these things and see how it is actually very interesting. It's fun, right? It is fun and the beauty of it is, is in your program, you really will be thinking about how all of this comes together. And how then does it all come together for us to see kinda how the sausages are made, right, isn't that what they say? Like, how do we get from here, what we're doing on a daily basis, to here -- and how can the decisions that we make about these activities affect what the value of the firm is. And then what I put it in the appendix for those that care is a statement of cash flows for Starbucks and then a Starbucks financial analysis where we have actually the results. OK? So that's it, I'm saying, thank you, and now we will answer any questions you have but can you please put your questions in the chat? If they're admissions questions then Kara and Kim will answer, and if they're content questions, I will answer. And obviously we will send you all the slides so you don't have to worry about that.

Kara: There was just one in the chat, I can use, we'll go into there right now. This is a recent one: Why was "other operating expenses" for Starbucks so high? Changes in the lease reporting, perhaps?

Kathleen: Let me on the income statement.

Kara: I'm not sure that's all it says, you can go into the Q&A.

Kathleen: Must be.

Kara: There's one from very early on in the presentation as well before, I missed it.

Kathleen: I don't think they're that high, they're $430 million. But what they do is you have to decide, there's only so much room on an income statement. So you have to decide what are the important drivers of the results of your business, and then they kind of throw a bunch of other things altogether that are smaller. And so that's why. So it's the leftovers expenses.

Kara: Yeah if it's easier, you can just glance at the Q&A Kathleen, it looks like people are putting their questions in there now.

Kathleen: Oh, I see what you say, Barack: in the actual detective analysis. I'll take a look at it, yep. In this case, I would say Carlos, it would be good to try to do it without looking at other sources but in real life, of course, you would look at other sources. But you probably wouldn't, working backwards. Yeah. I really thank you all for coming, I hope you had fun; sounds like some of you did.

Kara: A quick questionnaire about strategy classes. I will just put this into a link and see, I link to all the past master classes that we've hosted and there are links to the, excuse me, recordings. And we have more coming up in the fall as well, we will continue -- even when we're able to have in-person visitors again, hopefully soon. We will continue the masterclass series, absolutely, it's so much more accessible for everyone.

Kathleen: And Robert, yes, not much has changed except for the types of companies and the new business models, yeah. And by the way, for those of you that are starting -- some of you said you're starting -- my favorite thing is the lake, Alexandra, I like the lake. Yeah. I like the city, it's very beautiful, I'm from Boston actually. Anyway, if you are doing the MBA this year, don't forget to do your pre-MBA accounting class. I'm always plugging that. I'll be your teacher, I am your teacher in that class. Samantha went backwards, yeah.

Kara: There's a question about online MBA, we don't; we are in-person and we are returning to in-person. So EMBA has been the executive MBA program -- primarily for a while in some courses -- in evening, weekend and full-time. But the plan for the autumn quarter is for full resumption in-person with the exception of a handful of evening and weekend MBA classes that will still offer some virtual options, longterm TBD. You know, I don't really have a great answer for that now, of course, looking at viability of virtual options. But generally speaking, it's good to assume you'll be back in-person for your MBA at Booth.

Kathleen: Sid, you'll be able to do the pre-MBA as soon as you get accepted and you claim a CNetID.

Kara: Exactly, so once you've been admitted and accept the offer of admission, you get access to a ton of other resources that are behind our, or our not, paywall but, you know, our password wall.

Kathleen: Rebecca, their expenses didn't change much 'cause most of those are fixed. They must have kept their employees on, right? And they still had their rent and they still had a lot of other things, yeah. The accounting classes, some of the advanced ones are case-based, the fundamentals are not. They might have a few short cases. You can share the PowerPoint with anyone you want, we will share it with you.

Kara: Yeah, we'll email that out and the recording will also be posted on the website; it takes a couple days to get that up. But yes, we'll follow up with all the documents and I will put my email on both the chat and Q&As. So I know we're running a little overtime, but happy to stay on, but just so you have it for future reference as well. You can reach out to me about any of the programs, I can always answer them and/or point you in the right direction if it's about a different program that I don't technically oversee.

Kathleen: Alexandra, if you took that core program, you should be OK but you could just go in and do the quizzes. And I know that stats has a site up now to help you distinguish between whether you should take a basic stats or the regressions class.

Kara: OK, I just put my email on the chat as well, so you guys can save that and reach out anytime.

Kathleen: I'll give you a test.

Kara: Kathleen is cool, she's the coolest. Thank you. There's a question for you about when you start doing interviews, Kara.

Kara: Oh sure, so it depends on which program you're applying to. So for evening, weekend and executive, it's an invite interview, you find out a week or two basically after you submit your application. And then for the full-time program, it's a different structure but after round one, there's a few weeks of initial review, then you find out. I'll pull those dates for full-time and I'll put those in the chat, give me just a second here. I apologize, I don't have those memorized yet.

Kathleen: I'm looking at Starbucks, I wanna see what there other operating expenses are in. I think what we did with the other operating expenses, we must have just lumped a few things together 'cause we could only pick a few. But if you look actually at their income statement, it's 400 and something, yeah. Her email address, if you scroll up, where did you put that Kara?

Kara: Yeah, it keeps getting away I'll put it in again. It's also just our first-dot-last at Chicago Booth -- pretty normal convention -- and I just put in the chat the full-time admissions page link with the deadlines.

Kathleen: I think they're EMBA, we start class on Friday, They're probably closed, but you know what?

Kara: Yeah we are done for 2021 but you can apply, we have applications open for all the programs at this point, the executive MBA program. Kathleen, we're moving to an autumn start across the board, correct? 'Cause it used to be summer?

Kathleen: Yeah, it used to be summer and now we're starting in the autumn and that's interesting. That's why this week we're starting with something called analytical methods, which is all the math that they need for the MBA program. Kind of a unique-to-EMBA. There's lots of courses on finance, there's actually a targeted one for finance, for startups. So I think you can look online and see what type of classes we have, is that true, Kara?

Kara: Yeah, you can see that the course tool is publicly available, most of it. So again, if you can't, it's a little embedded so I'll post my email again just so it's handy. You can always email me if you can't find it but yeah, we have a version of the course guide that is available to everybody publicly.

Kathleen: So Matthew, I mean, the EMBA program is really different in the sense that it's cohorted. So you follow a set bunch of classes and then you can take electives and everyone's allowed three free classes after graduation. I would say at least 10 years of experience or more and you'll learn a lot in evening, weekend and the MBA, I think a lot from your peers. I don't know what the age range is but I can tell you that the EMBA program, that the average age is a little higher; it's probably around 35.

Kara: Yeah, it's a wide range and evening, weekend tend to be, you know, seven, eight years of experience on average but it ranges from one year up to 20 years: basically a really wide range. It's just about the format to Kathleen's point is what differs, so evening/weekend is the same curriculum as a full-time program. You'll probably see more career changers, definitely in full-time a little more career changers, maybe more advancers in the executive program. But that's changing over time as well -- but I'm always happy to set up a call with you to talk through what program will be the right fit. So just shoot me an email, we can set that up. And I think someone asked, yeah, we've gone over time a little bit, but we're happy to answer questions, and again, this will be sent out if you have to, had to leave.

Kathleen: The biggest difference between Southwest and Starbucks. The easiest differentiator for me would be that Southwest doesn't have inventory 'cause they're a service company. Kara's email is kara.northcutt.

Kara: Put it in there again, I just posted it again, and there is no like minimums. We're really about, like, work experience or age, that sort of thing. So again, yeah, you can reach out and I can talk you through what might be the most but I would think it more in terms of your career goals and other personal and professional. Sometimes going part-time is just a much better option if you have family and are at a certain point in your career, you don't wanna step away for two years for full-time. So again, happy to set up those phone calls or email exchanges with you.

Kathleen: I think people in their late 30s could apply to the EMBA, I don't think there's an age limit and the evening/weekend, full-time either, we're inclusive. So Booth, we have a lot of missions. We are a non-for-profit so we have a lot of stakeholders. So instead of maximizing shareholder value as a university, we might maximize stakeholder value. And our stakeholders, our students, faculty, staff, community, patients at the hospital, clients of our students: I mean, it's just broad. And so unlike a public company where they have this board of directors, we also have a board of directors and a board of trustees, that makes these decisions and these trade-offs. Does that answer Darren? Non-for-profits are a little different, right, yep. And you will do non-for-profits and for-profits. People can specialize, we have hundreds, right Kara? Hundreds of electives, I would imagine.

Kara: Oh yeah, we have over 130 classes right now. And I saw some about, I don't know if we have any specifically on crypto. I seen a lot of student group events around that topic but not any courses specifically. But maybe some cases are being brought in, I can't speak to that specifically.

Kathleen: We have some AI classes and we have like Luigi Zingales does a class that's on these new technologies that includes crypto. I know we have an elective in the EMBA program.

Kara: OK, yes, so those are becoming more available too.

Kathleen: We tend not to have classes focused on one thing like crypto, yeah.

Kara: We can apply the concepts, too, exactly. But you'll be brought in, cases in ...

Kathleen: My skill recommendations are basic math, Kevin. Just get your math in order -- and yes, Joseph.

Kara: Yep. And when you get the slides, Kathleen's email's in the slides, too; that will be emailed to you.

Kathleen: Great, yeah, Alexandra let's talk, send me a note. We have an M&A elective in the EMBA program, yes.

Kara: It's available in all the programs.

Kathleen: No, you should just do as much as you can. Analytical methods is over three weeks, so we have plenty of time.

Kara: There's a quick admissions question I'll answer about recommendations. So yes, your application does have to be complete in order to be reviewed for the invite to interviews. That includes the two letters of recommendation, but you can have those submitted early. As soon as you start the application, you can put in their information; they'll be shot a link with instructions. So start that process early, so you don't have to be waiting around for those. But yes, your application has to be complete in order to be invited to interview. All right, I'm sure there's some we missed in there but again, reach out, we're readily available, especially on the admission side with many people you can connect with. But you can always start with me, I can point you in the right direction, if it's like some specific Hong Kong or London questions, I will connect you to my counterparts on those teams.

Kathleen: All right, thank you.

Kara: Thank you so much. Yes, thank you all for joining and staying on an extra 15, Kathleen, we can't thank you enough, you are a phenomenon.

Kathleen: Thank you, it was really fun. I really hope you guys consider Booth. I wouldn't stay here since 1996 if I didn't love it.

Kara: Yeah, I wouldn't be over 13 years if I, exactly, if I didn't love it either. And obviously I'm on the administrative side, but many same reasons probably keep us both here, so ... Well thank you, everybody.

Kathleen: Thanks Kara.

Kara: Go ahead and close out and again these will be sent to everybody afterwards via email. All right, good night, everybody, thank you.

Kathleen: Bye.

Kara: And then Kathleen, you can just end it. Oh, Hey Liv, I didn't even see you ...

Kathleen: Oh, Liv was just here for a minute just to make sure things work, yeah. Thanks everyone.