[HW 2.5a] Ackman on Lemonade

 

Bill Ackman recorded this talk called, “Everything You Need to Know About Finance and Investing in Under an Hour”.  Ackman runs Pershing Square Capital Management, which is a hedge fund that he started in 2003.  Ackman is an activist investor, which means he takes large positions in publicly-traded companies and then tries to influence management in a way that benefits his partners’ interests.

He recorded this video for The Floating University, which is:

“a joint venture between The Jack Parker Corporation and Big Think, a knowledge forum that engages with top experts and the public about the critical issues of our time.”

You may want to check out some of their other lectures.  I thought they seemed very interesting.

For the purposes of this assignment, you only have to watch the first ten minutes of the video.  After that, the subject turns away from lemonade, though he remains interesting, engaging, and persuasive.

Your assignment is to build a financial model of his lemonade stand.  Structure the model into three sections (Assumptions, Calculations, and Results). In the Assumptions section, show all the key assumptions that he is making.  The Income Statement, Balance Sheet, and Cash Flow Statements belong in the Results section.

Identify any mistakes that might have been made in the first ten minutes.

 

https://www.youtube.com/watch?v=WEDIj9JBTC8

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9 comments

  1. for the 250 dollar loan, i see that we are paying 10 percent interest(25 dollars) per year, but how long will it take to repay the entire loan?

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  2. What assumption does he make? Interest only?

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  3. In his income statement, he only shows that he’s repaying interest on the loan, but not the principal. In our model, how are able then to account for the repaying of the original 250 dollars? Are we to assume that it is similar to a bond in which the 25 dollars would be a coupon and that the original 250 would be paid back in say 5 years (arbitrarily determined by me)?

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    1. Also, would you show principal repayment on an income statement?

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  4. The assignment is definitely to identify any mistakes he made.

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  5. 1. The Shareholder’s Liabilities increase every year, however the total amount of shares outstanding is the same. How do we project the increase in Shareholder’s equity on the CF statement? Is it just substring the “Shareholder’s liabilities” number at the end of the period from the beginning of the period?

    2. Isn’t there a mistake in IS when Mr. Akman tries to calculate EBI and actually adds taxes for the Y1?

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  6. barroyo2015 · · Reply

    What is the difference between our calculations and our results section? Previously, we always included a cash flow in our calculations statement, but now that’s what you want in the results section so I’m confused what’s left for us to ‘calculate’ in our calculations section

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  7. Good question. All of the supporting calculations for each line item on each financial statement are done in the calculation section. In the results section, you should not be doing any significant calculations. All prices and quantities, for example, would go in the calculation section. In the calculation section you will multiply price and quantity to compute revenue. Then, on the income statement, you will pick up that revenue number, with a simple reference like, for example, =k47.

    As a reference, look at the wind power model or the Japanese real estate model.

    Also, the model should be laid out with time on the horizontal axis.

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  8. In his cash flow statement he shows the beginning cash and the change in cash for each year so he can have the ending cash for each year. Where are these change in cash numbers coming from?

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