How Much Math Is In Undergrad Finance?

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What is up guys welcome back to another video my name is nash and one of the most asked questions is how much math is in finance or i’m not good at math am i going to be able to make it in finance or anything related to math and finance and i’m just going to tell you you don’t need to be a math genius to make it in finance but you do need to understand um how

It works if you want to compare accounting and finance accounting deals with the past but you’re going into previous records now if you compare that to finance finance is pretty much looking into the future right and uh nothing in the future is ever guaranteed so there is no there’s no exact formula that’s gonna tell you that um the stock is gonna go up by 20

Tomorrow or uh your company is going to be worth uh 2 billion by 5 years from now so finance is mostly guesstimating so there isn’t really a formula that’s going to work you know specifically that’s going to be 100 accurate so that’s why i say you need to understand how the math works you don’t really need to be a math genius all right so in this video i’m

Going to go over some of the math that you can find in finance it’s not going to be everything i went ahead and categorized this math into three different um categories and um i have a formula sheet that i have on my computer here so i’m going to be referencing that when i mention some formulas and i’m gonna i’m also gonna leave a link in the description below

To this pdf so that if you guys wanna check this out um you can you know take a look and maybe save it if you’re gonna you know major in finance if you’re taking finance classes so the first category is going to be the basic category so this is pretty much you know the basic formulas and that these can actually be done on a financial calculator so it’s actually

Programmed for you to i just put in the numbers and you click now let’s say you’re looking for the future value or the present value so you can literally put in the numbers and click a present value and it’ll give you the present value so some of the math or formulas that are in the basic category include things like that the present value the future value these

Are all part of a time value of money so those are going to be the types of formulas you’re going to find in the basic uh map and there are different variations of these formulas so you see um you know the future value formula might be flipped around or you know you have to find uh this a variable instead of finding the actual future value maybe you’re given the

Future value or you’re working with the present value and those are super easy so you don’t need to worry about those because you can literally plug them into a financial calculator and it does it for you alright so the second category is going to be related to stocks and this is usually when you start taking a little more advanced uh finance classes where you

Start learning about maybe it’s introduction to investing or portfolio management anything related to stocks um this is where you’re gonna find uh the math to be a little more difficult so you’re gonna be working with formulas like the expected that return of your portfolio so this is where the formula started to be a little more complicated and you know now

You don’t have a calculator that does it for you one of the cool things in finance is we’re able to use microsoft excel to do these formulas so you can literally calculate these in microsoft excel we can you know put in the variable and actually do uh some formulas that are gonna you know give you the answer you can create your own calculator in microsoft excel

That’s gonna help you with that so some of the formulas in this stage are gonna be you know all of them are going to be related to stocks and investments and you know portfolios and some of the formulas related to this category are going to be like i say that the expected return of your portfolio and you can even narrow that into maybe a two asset portfolio or

Three asset portfolio and you’re calculating the expected return you also have formulas like calculating the beta of a stock or you know a security and i also have an expected return on on stocks you could do like an expected return of the entire portfolio and you can narrow it down to looking at the expected return of an individual stock all right so that’s

Pretty much the gist of you know the formulas that are related to stocks like i said before these are things you can actually program into microsoft excel i can promise you that if you’re going to be working with portfolios stocks anything stock related in the financial industry you’re not going to be calculating these by hand you need some kind of a model to do

It for you maybe you might use a microsoft excel which is kind of like the manual way of doing it because there are programs that can do it for you and that’s going to be specific with the company all right so the last category is going to be related to a specific company so that’s going to be when you evaluate a company right so think about looking at a company

And um you’re trying to evaluate the company right so you’re going to be looking into formulas like uh the return on assets what assets does the company have and what is the return on those assets you know and you also have return on equity we also have things related to uh the money that the company is making so you have formulas like the gross margin you also

Have the operating margin you have the net profit margin and so those are all margin formulas and you can also calculate the total value of the firm so those are some of the formulas that are related to evaluating a company so that’s the math you’re going to be doing when it comes to that and since accounting and finance are related you’re going to find some

Formulas that you actually use in in in accounting and you’re using them in finance and these are gonna be uh you know if you’re looking at the free cash flow statement right if you’re trying to calculate the free cash flow of a company and you also have the market value you have the economic value so things like that are gonna be formulas that are gonna be used

In accounting so if you learn those formulas in accounting that should be pretty easy with all these formulas you can create your own little models that mirror these formulas in microsoft excel alright so those are the three categories when it comes to math and finance and if you’re gonna be using microsoft excel to create a model that mirrors the formula you

Have to understand how the formula works before you create the model because if you don’t understand how the formula works your model is most likely not gonna work and you’re not gonna be able to figure out why it’s not working so if you’re trying to calculate the net profit margin uh you know that you have to divide net income by sales right so if you know the

Sales numbers and the net income you can put those in excel and create a model that just divides those two numbers and that comes from understanding how the formula works so that is pretty much it for this video let me know if you guys have any questions if you want me to go over specific formulas we can cover this in future videos but that is pretty much for

This video thank you so much for watching i’ll see you on the next one peace

Transcribed from video
How Much Math Is In Undergrad Finance? By Nash Theo