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Born: Newton, Massachusetts, in 1944.
Affiliations:y Fidelity Investments, Inc.y Fidelity Management & Research Company
Most Famous For: Peter Lynch managed the Fidelity Magellan Fund from 1977 to 1990,
during which time the fund's assets grew from $20 million to $14
billion. More importantly, Lynch reportedly beat the S&P 500 Index
benchmark in 11 of those 13 years, achieving an annual averagereturn of 29%.
He is also famous for several books including, "One Up On Wall
Street" (1989) and "Beating The Street" (1993), which are widely
considered to be mandatory reading for any investor.
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Investment Decisions are made by:
1.) Corporate managers
2.) Institutional & Individual investors
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Common Things & Similarities of
Corporatemanagers & investors:
1.) They both need to know just what assetstheir companies own & why they own them.
2.) They both need to know what they paidfor those assets & return they produce.
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Managers
²know the great deal about their
organization·s investment in Physical &Financial assets.
²they lack in information & insight
about the other sources of value.
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Physical Assets also known as atangible asset, which are either valuablein them, or which produce value for theowner.
Financial Assets are those assets thatcan be converted to cash in a reasonablyshort period of time - one year at most,but less time in many cases.
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To illustrate the other sources of value, we shouldconsider questions about other assets of the
company rely on to create value. The other assetsthat must be considered are:
1.) Customers
2.) Employees
3.) Suppliers
4.) Investors
5.) Organizations systems & processes
6.) Organizations Leadership team
7.) Organizations corporate culture
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Double entry System of Accounting
- first documented by Franciscanfriar and mathematician more than 500 years ago.
- invented to give absentee ownersan accounting of money they provided toa venture or company.
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-one of the most beautiful discoveries
of the human spirit
- to record a profit of particularamount, an organization must be able to
point to either a new asset of equivalentsize or to liability that has disappeared.
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- when investors/owners buy & sell
stocks in a company, these transactionscreate a problem.
- when transactions provided evidence
that the equity of business was worth morethan the books showed, people inferred thatnew asset had come to light. They called itGOODWILL.
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Two things have changed in the NewEconomy:
1.) The 500 year old Accounting System
- reflect the value created ordestroyed by transactions but;
New Economy
- value can be created or destroyedw/o any transactions with third parties.
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2.) The equity of most significant businessesis now traded continuously on major stockexchanges. Companies rely less on debtfinancing & equity held by long-term family
members or local stockholders.
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Companys value determined
daily as millions of
shareholders buy & sell itsstock.
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What makes up todays measurement
system:
1.) Balance sheet
2.) Income statement3.) Cash Flow statement
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ASSET REVENUES
LIABILITIES EXPENSES
Receipts
CASH
FLOWdisbursement
Traditional Financial Reporting
Balance sheet Income statement
net equity/net assets net profit
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Traditional Financial Reporting Framework
- the balance sheet & income
statement unwittingly pit human values
against economic value.