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Principles of Finance Videos 166 videos

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Principles of Finance: Unit 9, The Elusive Nature and Notion of Profits 4 Views


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Description:

The elusive nature and notion of profits.

Language:
English Language

Transcript

00:00

principles of Finance a la shmoop the elusive nature and notion of profits

00:08

successes Google Amazon Facebook Netflix Tesla Coke Starbucks Disney cheers Envy [multiple brand shooting onto screen]

00:15

mumblings about why they were successful in your little coffee bar wasn't yeah [unhappy coffee barista]

00:21

America got to its lofty perch by celebrating winners commercial success [hand places trophy on shelf]

00:26

and you know being a weapon supplier to Europe during its conflicts and taking [world map showing exchange of weapons for money]

00:30

advantage of market swings as they came and went under the tent pole of a very

00:34

fair and trusted investment and capital market system oh and we stole a ton of [teepees on fire]

00:39

land from the Indians and pretty much killed nearly all of them too anyway by [men waking through forest with rifles]

00:43

hook and by crook we got here we're wealthy successful envied by most [woman holding money in font of the Statue of Liberty]

00:47

of the rest of the world that's why they want to bomb us all the time but ok not [rocket flying through air]

00:52

envied by you New Zealand and nobody wants to bomb you guys but ok everyone [beautiful New Zealand landscape]

00:56

else pretty much but there's a pattern that comes to the successful usually in

01:01

the form of a very I'm Randian set of mumblings by the less successful who you

01:06

know envy and we want to tear down the successful sometimes for good reason [hand pushes trophy off shelf]

01:10

sometimes for bad so when a given business begins to be enormous ly

01:14

profitable it comes under the white-hot spotlight of scorn derision envy and

01:19

rancor from wealth everyone who didn't think of the idea themselves the quote [Google logo put under a desk lamp]

01:23

Little People unquote the governed alright well you know what we're talking

01:27

about the people who simply would never take the risk of starting and running a

01:31

business where failure was indeed an option a very very bad one and usually a

01:36

very likely one or anyone who makes a relatively small fixed salary you know

01:41

working for the government for those outside of the bubble of business well [hand holds magnifying glass up to cash check]

01:44

the whole notion of profit can be seen as something evil as if profits are bad [thief steals profit from infant's hands]

01:50

and somehow taking away candy from babies well by now you've watched our

01:54

video hopefully on the Communist Manifesto [Shmoop website]

01:57

not everyone who scoffs at profits is a strict communist per se that text had

02:02

the same attitude ie the profits really are the creation of the evil doing

02:06

thieves and profits should be held intentionally at zero meaning that there

02:10

should be no profits why well profits belong

02:13

to the people or something like that instead of selling that toothbrush for [thief launches profits into crowd]

02:17

four bucks you ought to sell it for two twelve and just break even so as we [tooth brushes stocked on store shelf]

02:21

begin to digest what profits really are and the structural and ethical drivers [man eating candy]

02:25

behind them if you feel nauseous well maybe check

02:28

out scenic Cuba for a moment it's the only true communist country left on [wasteland pictures of Cuba]

02:33

earth check out their lovely beaches the great well fed population the buildings

02:38

there and the cars yeah well okay at least they have their cigars all right

02:41

now let's paint a picture of Mali's green nice and clean washing machine [woman near white laundry]

02:46

company Molly created a beautiful way to clean clothes using solar power

02:50

limestone and almost no soap the machines have been selling for 1,500

02:55

bucks at retail for a while now years they cost her 850 all in and she makes [writing on white board]

02:59

six hundred and fifty dollars a machine but every now and then someone realizes

03:03

that they live in a cloudy area or really wanted to do their wash at night

03:08

so a few washing machines get sent back and there's a restocking fee or a cost [man rolls washing machine back]

03:13

actually she didn't collect the fee there's other delivery charges against

03:17

her money-back guarantee that she eats so the real cost of her in practice it's

03:22

more like 900 bucks and he really makes 600 bucks a machine I didn't think about [writing on white board]

03:27

that well but all good so far she has 500 employees and runs the company in a

03:31

rural area of the country she can pay her employees a decent wage but nothing [hand places large stack of cash on table]

03:35

city like in this rural area you know they lead a nice life things are cheap [pictures of countryside with cows]

03:39

in the country sells the fresh air one year she sells 10,000 machines at 600

03:44

and profit each and make six million dollars one of the employees blabs about

03:47

this number to the local paper and she's both vilified and honored as the paper [newspaper article]

03:52

notes that her highest paid employee makes a hundred thousand dollars a year

03:55

while she has raked in six million dollars this year but the country's mood

04:00

changes one day people have given up on climate change and the next year she

04:04

only sells 5,000 machines at the next year 3,000 machines and then things

04:08

stabilized at 2,000 machines well at these lower rates she's actually losing

04:13

money because she has a high fixed cost to operate that is she still has to [money on fire]

04:17

employ the 500 people online there pay the rent of the building and buy the [workers in factory]

04:21

steel and the solar panels and the infrastructure to keep everything in

04:24

place so it's three years later and she's losing him

04:26

million dollars a year hoping that the tide turns shows until he's tied in her

04:30

washing machines and people care about green washing machines again

04:34

well she's desperately trying to not have to fire some of the 500 employees

04:38

she has dutifully been paying what happened to the snarky newspaper

04:41

articles griping about her greedy and userís profits of a few years ago well [newspaper article]

04:47

guess what much of that 600 million bucks that she'd stored away is used up

04:51

now it's gone so what should she do continue losing money operating the

04:56

company hmm well the business ethics here are complex and they revolve in

05:00

large part around the definition and the notion of profits and what they really

05:04

reflect that is business doesn't exist like the Olympics there isn't one day in

05:08

Tokyo when everyone lines up and determines who's the best in the world [competing companies swim in a race]

05:12

in the 400 medley relay and well that's it businesses are long-term greedy yet

05:18

they get evaluated generally quarterly or at least annually so think about poor

05:23

Molly desperately trying to hang on while thinking broadly that a climate [woman swimming laps]

05:27

change is still happening be people who have bought her product love it and see

05:32

people will always get dirty and need to do the wash well logically her product

05:37

works it has a voice and a place in the market and there will be a demand for it

05:41

so it's not like she believes the man will never come back it will she just

05:45

has to hang on long enough for it to do so well should the world have maybe

05:49

thought about her 6 million dollar profit windfall differently had she been [hand swipes newspaper]

05:53

successful for a long time and had stockpiled say 40 million dollars in the

05:58

bank well then she could have easily weathered a bad decade and then

06:01

dominated the green washing machine industry after that right her cash stash

06:06

would have been depleted down to say only 20 million dollars or maybe less

06:09

but she'd still have a business those 500 people would go on gainfully

06:13

employed but she didn't she listened to the naysayers read the local newspaper

06:18

didn't fight back when local townspeople levied taxes on her and charged filing

06:23

fees for this and for that and cut into her profits and balance sheet [saw cutting money pile in half]

06:27

relentlessly and Molly never had the gumption to just

06:30

move production to another city or China or Mexico or Africa where she could have [world map]

06:36

saved a fortune and would have been loved by everyone there so here's

06:39

Molly's corporate Diggs now yeah it looks a little bit

06:42

like Cuba any major industries you can think of that have had to weather a

06:46

similar storm yep Texas tea back in 2005 oil was trading at a hundred bucks a [oil rig]

06:51

barrel it subsequently dropped to under $40 a barrel and stayed there a very

06:55

long time the once vaunted wealthy oil companies lost all the profits they'd

07:00

saved and then some essentially had to borrow money just to pay their stock

07:04

dividends and remember that for a long time dividends were what old people

07:07

retired on so they counted on that dividend to be there well then that old

07:11

station wagon was gonna need a portable sink and you know a nicer mattress for [old man sitting outside car]

07:15

Grandma to sleep in with oil having plunged in price there was also no

07:19

appetite for exploratory drilling for new oil nor was there much pressure to [drill going into ocean bed]

07:24

look for alternative fuel sources wind power solar all that bottom line the key

07:28

mission of a business is to continue running as a business like it's to live

07:33

and rainy days come all the time and profits are you know kind of water and

07:37

food and shelter and that whole story dance there yeah so the next time

07:41

someone mumbles some complain about someone getting too rich or making too

07:46

much dough or having excess profits ask them to define excess and then please

07:51

send us at some of the answer we'd love to know

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