Thromboemboli and thromboembolisms

WEBVTT
Kind: captions
Language: en

00:00:00.590 --> 00:00:03.030
I want to clarify some
of the terminology I used

00:00:03.030 --> 00:00:03.880
in the last video.

00:00:03.880 --> 00:00:07.030
But before I do that, let's just
make sure that we understand

00:00:07.030 --> 00:00:10.990
the mechanism of how
arteries can get blocked.

00:00:10.990 --> 00:00:13.520
So in the last video, we talked
about these plaques forming.

00:00:13.520 --> 00:00:18.140
And if this plaque is unstable,
at some point it could rupture.

00:00:18.140 --> 00:00:20.410
And when it ruptures,
this material

00:00:20.410 --> 00:00:22.890
can start to flow out
into the bloodstream.

00:00:25.780 --> 00:00:27.024
And two things will happen.

00:00:27.024 --> 00:00:28.940
I just want to make it
a little bit more clear

00:00:28.940 --> 00:00:30.690
relative to the last
video, especially now

00:00:30.690 --> 00:00:33.360
that I can zoom in
on these arteries.

00:00:33.360 --> 00:00:34.360
Two things could happen.

00:00:34.360 --> 00:00:38.620
Plaques-- or I should say
clotting, not plaques.

00:00:38.620 --> 00:00:40.630
These are the plaques
that have been released.

00:00:40.630 --> 00:00:47.380
The clotting factors can kind
of clot these released pieces

00:00:47.380 --> 00:00:48.400
from the plaque.

00:00:48.400 --> 00:00:50.634
And the other thing
that can and often will

00:00:50.634 --> 00:00:52.550
happen-- and I didn't
talk about this in depth

00:00:52.550 --> 00:00:54.610
in the last video--
is that you an also

00:00:54.610 --> 00:00:56.380
have-- when this
thing ruptures, you

00:00:56.380 --> 00:00:59.800
can also blood clots form here.

00:00:59.800 --> 00:01:01.530
Let me do this in a
more reddish color.

00:01:01.530 --> 00:01:05.940
So you can also have blood clots
form on the ruptured plaque.

00:01:05.940 --> 00:01:08.550
So everything, even
the plaque, the part

00:01:08.550 --> 00:01:11.150
of the plaque that
has not begun to move,

00:01:11.150 --> 00:01:12.390
can experience clotting.

00:01:12.390 --> 00:01:14.290
And also the part
of the plaque that's

00:01:14.290 --> 00:01:18.570
kind of been dumped into the
bloodstream can also clot.

00:01:18.570 --> 00:01:20.780
In the last video, we saw
that one of these clots

00:01:20.780 --> 00:01:25.590
can go downstream to some point
where the arteries get narrow

00:01:25.590 --> 00:01:31.580
enough so that they
actually block the artery

00:01:31.580 --> 00:01:34.370
right over here, and that
just restricts the blood flow.

00:01:34.370 --> 00:01:35.880
So now all of a
sudden, you don't

00:01:35.880 --> 00:01:38.870
have any blood flow
going downstream.

00:01:38.870 --> 00:01:41.830
And all of this muscle
tissue that needs the blood

00:01:41.830 --> 00:01:44.740
flow from this point, that
needs to get oxygen from that,

00:01:44.740 --> 00:01:45.550
it might die.

00:01:45.550 --> 00:01:49.470
And you might have a myocardial
infarction or a heart attack.

00:01:49.470 --> 00:01:53.010
Now, what I want to clarify
is the actual terminology.

00:01:56.820 --> 00:01:59.550
I guess, I was a little bit
hand-wavy with the terminology.

00:01:59.550 --> 00:02:01.340
I want to get a little
bit deeper here.

00:02:01.340 --> 00:02:05.670
This actual clot that forms that
can restrict the blood vessel,

00:02:05.670 --> 00:02:09.067
this right here is a thrombus.

00:02:12.420 --> 00:02:16.492
Thrombosis is the process
of a thrombus forming,

00:02:16.492 --> 00:02:17.950
so thrombosis are
these blood clots

00:02:17.950 --> 00:02:20.030
that form that can
actually help to kind

00:02:20.030 --> 00:02:22.680
of obstruct a blood vessel.

00:02:22.680 --> 00:02:24.830
So this thrombus
right here is actually

00:02:24.830 --> 00:02:26.660
going to make it
harder for the blood

00:02:26.660 --> 00:02:32.410
to flow through this vessel.

00:02:32.410 --> 00:02:35.440
Now, any of these
released pieces or chunks

00:02:35.440 --> 00:02:36.970
in any of these
blood vessels that

00:02:36.970 --> 00:02:39.120
can float around and
eventually lodge themselves

00:02:39.120 --> 00:02:42.490
in and eventually
block the blood flow,

00:02:42.490 --> 00:02:44.230
these are called emboli.

00:02:44.230 --> 00:02:47.620
Or if I just use them in
the singular, one of these

00:02:47.620 --> 00:02:50.640
is an embolus.

00:02:50.640 --> 00:02:52.010
And I want to be clear.

00:02:52.010 --> 00:02:55.020
An embolus is the
general term for anything

00:02:55.020 --> 00:02:56.880
that can float
around in your blood

00:02:56.880 --> 00:02:59.750
and eventually lodge
itself, at some point,

00:02:59.750 --> 00:03:04.260
in your circulatory system
and restrict the blood flow.

00:03:04.260 --> 00:03:06.590
What we drew in the last
video-- and in particular,

00:03:06.590 --> 00:03:10.340
this one as well-- is that
these emboli that are also

00:03:10.340 --> 00:03:13.470
clotted-- so they're also
kind of thrombus-- they're are

00:03:13.470 --> 00:03:17.219
thrombi and emboli
at the same time.

00:03:17.219 --> 00:03:19.260
This right here would be
called a thromboembolus.

00:03:29.350 --> 00:03:31.970
These words are strange
to say sometimes.

00:03:31.970 --> 00:03:34.140
So it wouldn't be wrong
to call it an embolus.

00:03:34.140 --> 00:03:36.348
But in particular, when we
say it's a thromboembolus,

00:03:36.348 --> 00:03:38.380
you know that it's kind
of this clotted material

00:03:38.380 --> 00:03:41.360
around this release plaque
that can go lodge itself.

00:03:41.360 --> 00:03:43.760
And in the last video, I
called this a thrombosis.

00:03:43.760 --> 00:03:45.600
But that was really
not quite right.

00:03:45.600 --> 00:03:47.870
The thrombosis is
really the formation

00:03:47.870 --> 00:03:50.420
of the clot that can
restrict the blood flow.

00:03:50.420 --> 00:03:52.641
When it actually
lodges itself further,

00:03:52.641 --> 00:03:54.640
when it actually breaks
off, becomes an embolus,

00:03:54.640 --> 00:03:58.395
and lodges itself further
often restricts blood flow,

00:03:58.395 --> 00:03:59.770
this is called a
thromboembolism.

00:04:03.000 --> 00:04:03.820
Let me write this.

00:04:09.050 --> 00:04:10.920
So hopefully I'm not
confusing you too much.

00:04:10.920 --> 00:04:12.830
These medical terms
confuse me a lot,

00:04:12.830 --> 00:04:14.205
but I want to make
it very clear.

00:04:14.205 --> 00:04:16.260
Thrombosis is just
the general formation

00:04:16.260 --> 00:04:18.800
of a blood clot inside
of a blood vessel

00:04:18.800 --> 00:04:20.529
that can restrict
the flow of blood.

00:04:20.529 --> 00:04:24.240
So this right here, this
is thrombosis occurring.

00:04:24.240 --> 00:04:27.050
That is thrombosis.

00:04:27.050 --> 00:04:30.750
Once things break off and
they start floating around,

00:04:30.750 --> 00:04:32.000
they're an embolus.

00:04:32.000 --> 00:04:33.510
That's the general term for it.

00:04:33.510 --> 00:04:35.660
And in particular,
if it's broken off

00:04:35.660 --> 00:04:39.300
material that is due to a
clot, it's a thromboembolus.

00:04:39.300 --> 00:04:41.900
So thromboemboluses
are a more specific way

00:04:41.900 --> 00:04:43.790
of calling it an embolus.

00:04:43.790 --> 00:04:47.600
And once one of these things
lodge themselves and block

00:04:47.600 --> 00:04:51.622
the blood flow, that's
a thromboembolism.

00:04:51.622 --> 00:04:53.080
You can also call
that an embolism.

00:04:53.080 --> 00:04:55.060
Just when you say it's
a thromboembolism,

00:04:55.060 --> 00:04:56.643
it makes it a little
bit more specific

00:04:56.643 --> 00:04:58.900
to know that it's kind
of clotted material.

00:04:58.900 --> 00:05:01.160
So hopefully that
clarifies things

00:05:01.160 --> 00:05:03.920
and doesn't confuse
you too much.


A1C Levels

WEBVTT
Kind: captions
Language: en

00:00:00.790 --> 00:00:04.390
If a doctor is concerned that
a patient either has diabetes

00:00:04.390 --> 00:00:06.430
or is at risk from
diabetes, they

00:00:06.430 --> 00:00:09.785
might suggest an A1C
test to be performed.

00:00:09.785 --> 00:00:11.410
And what I want to
do in this video is,

00:00:11.410 --> 00:00:14.550
one, just explore
what A1C even means,

00:00:14.550 --> 00:00:16.770
and also how that
actually relates

00:00:16.770 --> 00:00:21.170
to diabetes, or the main side
effect of diabetes, which

00:00:21.170 --> 00:00:25.260
is having high blood
sugar or hyperglycemia.

00:00:25.260 --> 00:00:28.869
So to do that, let's think
about red blood cells,

00:00:28.869 --> 00:00:30.410
and I know what
you're thinking, what

00:00:30.410 --> 00:00:31.868
does this have to
do with diabetes?

00:00:31.868 --> 00:00:33.430
And we'll get there
in a little bit.

00:00:33.430 --> 00:00:36.980
So red blood cells are the main
oxygen carriers in our blood,

00:00:36.980 --> 00:00:40.660
they kind of look
like these lozenges,

00:00:40.660 --> 00:00:42.700
and inside of red
blood cells you

00:00:42.700 --> 00:00:45.450
have hundreds of
millions of hemoglobin

00:00:45.450 --> 00:00:47.695
molecules, hemoglobin proteins.

00:00:47.695 --> 00:00:49.810
So let me draw some
hemoglobin proteins.

00:00:49.810 --> 00:00:54.470
You actually have, the number
I found is 200 to 300 million

00:00:54.470 --> 00:00:56.870
per red blood cell,
and then we have

00:00:56.870 --> 00:00:58.730
tens of trillions
of red blood cells.

00:00:58.730 --> 00:01:00.460
So we have a lot of
hemoglobin in us,

00:01:00.460 --> 00:01:03.590
and hemoglobin is what
makes red blood cells red.

00:01:03.590 --> 00:01:06.710
When hemoglobin is bound to
oxygen it has a red color.

00:01:06.710 --> 00:01:12.600
So this right here, each of
those are a hemoglobin protein.

00:01:12.600 --> 00:01:15.250
Now, it turns out
that hemoglobin--

00:01:15.250 --> 00:01:18.610
let me draw a bigger
version of it--

00:01:18.610 --> 00:01:21.080
if it has some glucose
around-- so let

00:01:21.080 --> 00:01:25.280
me draw some glucose floating
around near the hemoglobin--

00:01:25.280 --> 00:01:28.134
if it has some glucose
around, there is some chance,

00:01:28.134 --> 00:01:29.800
it's not a high
probability, but there's

00:01:29.800 --> 00:01:32.470
some chance if the
hemoglobin and the glucose

00:01:32.470 --> 00:01:35.340
bump into each other
in just the right way,

00:01:35.340 --> 00:01:39.580
that they'll bind to each other.

00:01:39.580 --> 00:01:41.330
And so you'll have
this situation

00:01:41.330 --> 00:01:45.900
where you have glucose
bound to the hemoglobin.

00:01:45.900 --> 00:01:50.140
Now, this hemoglobin with
a glucose bound to it

00:01:50.140 --> 00:01:52.095
is called glycated hemoglobin.

00:01:57.640 --> 00:01:59.730
I wrote "glycated"
in green because I'm

00:01:59.730 --> 00:02:01.520
using green for the glucose.

00:02:05.830 --> 00:02:08.500
And another name for
glycated hemoglobin,

00:02:08.500 --> 00:02:11.960
or hemoglobin that has
some glucose bound to it,

00:02:11.960 --> 00:02:13.586
is hemoglobin A1C.

00:02:20.040 --> 00:02:21.990
And now I can imagine
things are starting

00:02:21.990 --> 00:02:23.210
to click in your brain.

00:02:23.210 --> 00:02:26.180
When you are measuring
your A1C levels,

00:02:26.180 --> 00:02:29.650
that's a test of the percentage
of your hemoglobin, that

00:02:29.650 --> 00:02:31.400
is hemoglobin A1C.

00:02:31.400 --> 00:02:32.870
So you take a
blood test, they're

00:02:32.870 --> 00:02:36.690
measuring relative to the total
amount of hemoglobin there,

00:02:36.690 --> 00:02:43.950
what percentage of
that is hemoglobin A1C?

00:02:43.950 --> 00:02:46.050
And a normal range of
that, so if you just

00:02:46.050 --> 00:02:49.080
have normal blood sugar over
a reasonable amount of time,

00:02:49.080 --> 00:02:51.450
you are going to
have a hemoglobin A1C

00:02:51.450 --> 00:02:56.100
level in kind of
the 4 to 6% range.

00:02:56.100 --> 00:02:58.940
And people are still kind
of trying to tighten up

00:02:58.940 --> 00:03:01.240
these ranges, and it
doesn't completely

00:03:01.240 --> 00:03:04.900
correlate tightly with the
blood sugar, it does correlate,

00:03:04.900 --> 00:03:06.850
but people with the
same blood sugar

00:03:06.850 --> 00:03:11.110
can still have fairly different
A1C levels, but 4 to 6%

00:03:11.110 --> 00:03:12.085
is considered normal.

00:03:15.130 --> 00:03:20.060
And if you have higher than 7
or 8%, so greater than 7 to 8%,

00:03:20.060 --> 00:03:25.220
so if you had like an A1C
level of 9 or 10%, that's high.

00:03:25.220 --> 00:03:26.850
And so you can
imagine, this is kind

00:03:26.850 --> 00:03:30.500
of a proxy for how much glucose
you have in your bloodstream.

00:03:30.500 --> 00:03:33.510
Because the more glucose you
have in your bloodstream,

00:03:33.510 --> 00:03:35.820
the higher the probability
that that glucose

00:03:35.820 --> 00:03:39.600
is going to react with
the actual hemoglobin.

00:03:39.600 --> 00:03:44.424
So you're going to have a higher
percentage of hemoglobin A1C.

00:03:44.424 --> 00:03:46.090
And the other reason
why this is useful,

00:03:46.090 --> 00:03:49.270
and it's kind of, I guess you
can see on the first pass, it's

00:03:49.270 --> 00:03:51.770
useful because it's not one
of these snapshot tests.

00:03:51.770 --> 00:03:54.940
Everything we've talked about
so far with respect to diabetes

00:03:54.940 --> 00:03:57.960
is taking your blood sugar
at any one point in time,

00:03:57.960 --> 00:04:00.194
and we know that your
blood sugar changes

00:04:00.194 --> 00:04:01.860
throughout the day,
it changes depending

00:04:01.860 --> 00:04:03.750
on how active you are,
it changes depending

00:04:03.750 --> 00:04:05.806
on what you might
have just eaten.

00:04:05.806 --> 00:04:08.180
So when you do blood sugar,
you're just getting a sample,

00:04:08.180 --> 00:04:10.596
you don't know what the blood
sugar is throughout the day,

00:04:10.596 --> 00:04:13.550
unless you just kept sampling
it, which could get pretty

00:04:13.550 --> 00:04:16.180
annoying, keep
pricking your needle.

00:04:16.180 --> 00:04:21.269
With A1C, this starts to become
a measure of how much glucose

00:04:21.269 --> 00:04:24.464
you have in your blood over
a longer period of time.

00:04:24.464 --> 00:04:25.880
And, in general,
it's kind of used

00:04:25.880 --> 00:04:28.990
as a measure for the last few
months, because the red blood

00:04:28.990 --> 00:04:31.730
cells and the
hemoglobin in them,

00:04:31.730 --> 00:04:34.090
they have a lifespan
of about 120 days.

00:04:37.551 --> 00:04:40.050
Now, that obviously doesn't
mean that all of your hemoglobin

00:04:40.050 --> 00:04:43.950
gets produced on one day and
then all dies 120 days later.

00:04:43.950 --> 00:04:46.206
You have some red blood
cells and hemoglobin

00:04:46.206 --> 00:04:48.080
that might be a few
seconds old, and then you

00:04:48.080 --> 00:04:50.630
have some that might be
approaching 120 days old.

00:04:50.630 --> 00:04:52.945
So on average they're going
to be about 60 days old

00:04:52.945 --> 00:04:54.632
or about 2 months old.

00:04:54.632 --> 00:04:56.340
So when you're measuring
this percentage,

00:04:56.340 --> 00:04:59.290
you're definitely not getting
the percentage of anything

00:04:59.290 --> 00:05:01.690
older than 120 days,
and on average you

00:05:01.690 --> 00:05:04.580
are seeing things that are
from about two months old.

00:05:04.580 --> 00:05:07.470
So the higher this percentage,
this is saying, wow,

00:05:07.470 --> 00:05:11.420
my average hemoglobin
molecule in my body

00:05:11.420 --> 00:05:15.630
is only maybe 60 days old at
this point, and already 7 to 8%

00:05:15.630 --> 00:05:19.600
of them have already
been glycated,

00:05:19.600 --> 00:05:22.540
which is an indicator that
I probably have more blood

00:05:22.540 --> 00:05:23.720
sugar than a normal person.

00:05:23.720 --> 00:05:29.670
In a normal situation, only
4 to 6% of my hemoglobin

00:05:29.670 --> 00:05:31.390
would get glycated.

00:05:31.390 --> 00:05:34.940
So hopefully that
explains what A1C is.

00:05:34.940 --> 00:05:37.560
But I do want to say, I said
at the beginning of the video,

00:05:37.560 --> 00:05:42.050
I'm not a doctor, and even
amongst doctors, the A1C test

00:05:42.050 --> 00:05:45.700
or the A1C measurement,
it's a little bit,

00:05:45.700 --> 00:05:49.040
there's some debate
about how useful it is,

00:05:49.040 --> 00:05:53.460
what it's measuring, or kind
of how far back it actually

00:05:53.460 --> 00:05:56.990
is a good view at kind
of your glucose levels.

00:05:56.990 --> 00:05:58.890
And also, as I
mentioned, two people

00:05:58.890 --> 00:06:02.220
with the exact same blood sugars
could have different A1C levels

00:06:02.220 --> 00:06:04.046
depending on other things.

00:06:04.046 --> 00:06:05.420
How old they are,
or whether they

00:06:05.420 --> 00:06:08.740
have some other type
of medical condition.


Glucose Concentration Conversion

WEBVTT
Kind: captions
Language: en

00:00:00.700 --> 00:00:06.150
In the last video, we saw
how blood sugar concentration

00:00:06.150 --> 00:00:11.270
or glucose concentration in
your blood of 80 milligrams

00:00:11.270 --> 00:00:17.190
per deciliter was kind of a
normal fasting blood glucose

00:00:17.190 --> 00:00:20.320
if you hadn't eaten for
eight hours or before a meal.

00:00:20.320 --> 00:00:23.910
And the fancy word we learned in
the last video was preprandial.

00:00:23.910 --> 00:00:26.860
What I want to do in this
video, because 80 milligrams

00:00:26.860 --> 00:00:30.250
per deciliter really doesn't
make a lot of tangible sense

00:00:30.250 --> 00:00:31.960
to me, I don't know
exactly how much

00:00:31.960 --> 00:00:33.437
sugar that is, what
I want to do is

00:00:33.437 --> 00:00:35.020
try to put this in
the different units

00:00:35.020 --> 00:00:36.550
so that we can
better conceptualize

00:00:36.550 --> 00:00:39.970
how much sugar that
might be in our body.

00:00:39.970 --> 00:00:43.280
So let's just do a little bit
of unit analysis over here.

00:00:43.280 --> 00:00:48.957
So if we have 80
milligrams per deciliter,

00:00:48.957 --> 00:00:50.290
that's what we're talking about.

00:00:50.290 --> 00:00:53.340
That's a normal fasting
blood glucose level.

00:00:53.340 --> 00:00:55.490
Now let's think about how
much that is per liter.

00:00:55.490 --> 00:00:58.080
A deciliter is 1/10
of a liter, so if we

00:00:58.080 --> 00:01:00.719
want to cancel out the
units, we want deciliters,

00:01:00.719 --> 00:01:02.260
we have deciliters
in the denominator

00:01:02.260 --> 00:01:04.830
here, so we want another
deciliter in the numerator.

00:01:04.830 --> 00:01:07.490
So we want to know
deciliters per liter,

00:01:07.490 --> 00:01:10.030
because then that and
that will cancel out.

00:01:10.030 --> 00:01:12.000
And there are 10
deciliters per liter.

00:01:14.700 --> 00:01:21.480
And so that gives us 80
times 10 is 800 milligrams

00:01:21.480 --> 00:01:26.410
per deciliters cancel
out, milligrams per liter.

00:01:26.410 --> 00:01:31.399
Now, if we want that in terms
of grams, we can just multiply,

00:01:31.399 --> 00:01:32.940
we want to get rid
of this milligram,

00:01:32.940 --> 00:01:34.760
so we want that in
the denominator.

00:01:34.760 --> 00:01:37.510
Milligrams, we want
grams per milligram.

00:01:37.510 --> 00:01:41.140
1 gram is 1,000 milligrams.

00:01:41.140 --> 00:01:43.720
So once again,
milligrams cancel out,

00:01:43.720 --> 00:01:46.466
and then you have
800 divided by 1,000.

00:01:46.466 --> 00:01:51.460
So 800/1,000 is 0.8
grams per liter.

00:01:54.000 --> 00:01:54.980
Let me start over here.

00:01:54.980 --> 00:02:01.260
So we have 0.8 grams per liter,
and then to make sense relative

00:02:01.260 --> 00:02:04.310
to a normal human body, I
looked this up on the internet,

00:02:04.310 --> 00:02:07.510
the average human body,
and so I'm assuming,

00:02:07.510 --> 00:02:09.560
I'm like 5'9", 150 pounds.

00:02:09.560 --> 00:02:11.410
I think I'm pretty
close to average.

00:02:11.410 --> 00:02:14.440
But they say the average human
body has about five liters

00:02:14.440 --> 00:02:15.640
of blood.

00:02:15.640 --> 00:02:22.320
So let's multiply this times 5
liters per human, per average

00:02:22.320 --> 00:02:24.650
human, obviously, a small
human will have less,

00:02:24.650 --> 00:02:26.100
and a very large
person will have

00:02:26.100 --> 00:02:28.000
more blood flowing through them.

00:02:28.000 --> 00:02:30.070
But this is an average
person right over here.

00:02:30.070 --> 00:02:36.760
So then we get the liters cancel
out, and so we get 0.8 times 5.

00:02:36.760 --> 00:02:39.646
8 times 5 is 40,
0.8 times 5, going

00:02:39.646 --> 00:02:42.630
to have one decimal
place, it's to be 4.

00:02:42.630 --> 00:02:46.390
0.8 times 5 is 4, and then
we have grams per human.

00:02:46.390 --> 00:02:49.320
4 grams per human.

00:02:49.320 --> 00:02:53.165
And just to get an idea
of what four grams are,

00:02:53.165 --> 00:03:01.300
1 teaspoon is
equal to 4.2 grams.

00:03:01.300 --> 00:03:04.090
So 4 grams is almost
a teaspoon, so it's

00:03:04.090 --> 00:03:12.714
approximately 1 teaspoon
of glucose per human being.

00:03:12.714 --> 00:03:14.130
So in your entire
bloodstream, you

00:03:14.130 --> 00:03:17.320
have about a teaspoon
of sugar that your cells

00:03:17.320 --> 00:03:21.720
can use to do whatever
cells need to do.


Blood Sugar Levels

WEBVTT
Kind: captions
Language: en

00:00:00.444 --> 00:00:01.860
Let's think a
little bit about how

00:00:01.860 --> 00:00:06.730
we can tell whether our body
is processing glucose properly,

00:00:06.730 --> 00:00:09.797
and whether maybe
we have diabetes.

00:00:09.797 --> 00:00:11.380
And I want you all
to take all of this

00:00:11.380 --> 00:00:14.420
with a huge grain of salt,
because I am not a doctor.

00:00:14.420 --> 00:00:16.110
This is not medical advice.

00:00:16.110 --> 00:00:18.840
My goal here is to kind of just
explore the subject with you,

00:00:18.840 --> 00:00:21.160
and to try for all
of us to get a better

00:00:21.160 --> 00:00:22.450
understanding of things.

00:00:22.450 --> 00:00:25.820
So let's think about what might
happen after we have a meal.

00:00:25.820 --> 00:00:28.130
So let me draw a
little chart over here.

00:00:28.130 --> 00:00:33.170
So let's call this hours.

00:00:33.170 --> 00:00:34.960
And then on the
vertical axis, I'm

00:00:34.960 --> 00:00:38.260
going to talk about our
concentration of sugar

00:00:38.260 --> 00:00:40.110
in the blood.

00:00:40.110 --> 00:00:41.710
So blood sugar concentration.

00:00:45.840 --> 00:00:47.680
You could call it
glucose concentration.

00:00:47.680 --> 00:00:50.090
Blood sugar concentration.

00:00:50.090 --> 00:00:52.090
When we're talking
about blood sugar,

00:00:52.090 --> 00:00:55.271
we're talking about glucose.

00:00:55.271 --> 00:00:58.220
And let me draw a couple
of points on this chart.

00:00:58.220 --> 00:01:00.680
So maybe this is 50.

00:01:00.680 --> 00:01:06.220
And our units are going to
be milligrams per deciliter.

00:01:06.220 --> 00:01:08.100
Actually, let me
just do it this way.

00:01:08.100 --> 00:01:13.560
Let me just say that everything
is in milligrams per deciliter.

00:01:13.560 --> 00:01:17.140
And we'll talk in
future videos about how

00:01:17.140 --> 00:01:20.040
we can relate these
units to everyday terms.

00:01:20.040 --> 00:01:22.900
But let's say that
this right here is 50.

00:01:22.900 --> 00:01:26.020
This right here is 100.

00:01:26.020 --> 00:01:29.070
This right here is 150.

00:01:29.070 --> 00:01:32.382
And let's mark it
right here at 200.

00:01:32.382 --> 00:01:34.840
So let's think about what would
happen for a normal person.

00:01:34.840 --> 00:01:36.500
Let me mark some
hours over here.

00:01:36.500 --> 00:01:46.640
So hour 1, 2, 3, 4, 5, 6, 7, 8.

00:01:46.640 --> 00:01:48.320
That's probably good enough.

00:01:48.320 --> 00:01:50.860
So in a normal person, when
they haven't eaten anything

00:01:50.860 --> 00:01:53.810
for a long time, let's
say greater than 8 hours--

00:01:53.810 --> 00:01:56.310
so their fasting
blood sugar will

00:01:56.310 --> 00:01:59.520
be right around 80
milligrams per deciliter,

00:01:59.520 --> 00:02:01.216
give or take a little bit.

00:02:01.216 --> 00:02:02.840
There's a range around
that, but I just

00:02:02.840 --> 00:02:05.090
want to show you what would
happen to a normal person.

00:02:05.090 --> 00:02:07.690
So at 80 milligrams
per deciliter,

00:02:07.690 --> 00:02:09.789
their blood sugar
will kind of be--

00:02:09.789 --> 00:02:12.240
should, hopefully, be
right around there.

00:02:12.240 --> 00:02:14.262
And sometimes this
fasting blood sugar--

00:02:14.262 --> 00:02:16.470
and maybe we're assuming
that this is in the morning.

00:02:16.470 --> 00:02:18.540
So maybe this hour one
is 7:00 in the morning.

00:02:18.540 --> 00:02:19.956
So they haven't
eaten for a while,

00:02:19.956 --> 00:02:21.890
and that's why it's
fasting blood sugar.

00:02:21.890 --> 00:02:25.531
This is also-- you'll
sometimes hear doctors,

00:02:25.531 --> 00:02:27.530
I've heard my wife say
this word without knowing

00:02:27.530 --> 00:02:33.280
what it meant-- they'll
sometimes say preprandial,

00:02:33.280 --> 00:02:37.140
which is a very fancy word
which just means before a meal,

00:02:37.140 --> 00:02:39.840
prandial is literally
before eating.

00:02:39.840 --> 00:02:42.240
After the meal, you're
talking postprandial.

00:02:42.240 --> 00:02:46.750
So it's a very fancy word for
a very simple idea, eating.

00:02:46.750 --> 00:02:51.420
So let's say at hour two, this
individual eats breakfast.

00:02:51.420 --> 00:02:57.070
So this is where the individual
is going to eat breakfast.

00:02:57.070 --> 00:02:59.430
Now in a normal person, when
that person eats breakfast,

00:02:59.430 --> 00:03:03.530
there'll be some carbohydrates
in that breakfast,

00:03:03.530 --> 00:03:06.750
and it will be broken
down into glucose,

00:03:06.750 --> 00:03:09.170
and that glucose will
enter the bloodstream.

00:03:09.170 --> 00:03:11.580
And so their blood
glucose will go up.

00:03:14.630 --> 00:03:15.489
It'll slowly go up.

00:03:15.489 --> 00:03:16.780
And I was reading some studies.

00:03:16.780 --> 00:03:20.919
They say it kind of spikes at
about 45 minutes into a meal.

00:03:20.919 --> 00:03:21.460
So let's see.

00:03:21.460 --> 00:03:23.340
45 minutes is over there.

00:03:23.340 --> 00:03:25.650
So maybe it'll go
up to about there.

00:03:25.650 --> 00:03:28.600
And in a normal individual,
the blood glucose really

00:03:28.600 --> 00:03:32.206
shouldn't go up above 120
milligrams per deciliter.

00:03:32.206 --> 00:03:34.590
And there's obviously
exceptions to all of these.

00:03:34.590 --> 00:03:36.600
We're just kind of saying,
a normal breakfast,

00:03:36.600 --> 00:03:38.310
a normal person.

00:03:38.310 --> 00:03:39.860
They're not eating
a pint of honey.

00:03:39.860 --> 00:03:42.000
They're not doing
something crazy.

00:03:42.000 --> 00:03:46.100
So let's say 120 would
be right around there.

00:03:46.100 --> 00:03:50.060
A normal person, someone
who does not have diabetes,

00:03:50.060 --> 00:03:52.510
it would be unlikely that
it would go above that.

00:03:52.510 --> 00:03:54.800
And then actually,
after about two hours,

00:03:54.800 --> 00:03:56.760
they're getting pretty
close to normal.

00:03:56.760 --> 00:04:00.340
They get back under 100
milligrams per deciliter.

00:04:00.340 --> 00:04:02.230
And then you go
beyond two hours,

00:04:02.230 --> 00:04:05.560
they just kind of get close,
back to their baseline,

00:04:05.560 --> 00:04:08.170
to that 80 milligrams
per deciliter.

00:04:08.170 --> 00:04:11.820
So once again, this is normal.

00:04:11.820 --> 00:04:14.200
And of course, don't
freak out if you

00:04:14.200 --> 00:04:16.260
were to take a blood
test one morning,

00:04:16.260 --> 00:04:19.089
and you were at like 85
milligrams per deciliter.

00:04:19.089 --> 00:04:21.281
You're still not
far off from normal.

00:04:21.281 --> 00:04:22.780
So obviously, there's
some variation

00:04:22.780 --> 00:04:25.410
from person to person.

00:04:25.410 --> 00:04:30.810
Now, if someone has diabetes,
if either they have type 1,

00:04:30.810 --> 00:04:33.480
they don't have enough
insulin to actually process

00:04:33.480 --> 00:04:37.060
the glucose, or if they
have enough insulin,

00:04:37.060 --> 00:04:39.380
but their body is
desensitized to it.

00:04:39.380 --> 00:04:41.480
The insulin isn't being
processed properly

00:04:41.480 --> 00:04:44.250
so they can't
process the glucose,

00:04:44.250 --> 00:04:47.860
we've seen that the glucose
concentrations will go up.

00:04:47.860 --> 00:04:51.030
And so, in general, if you
were to wake up one morning

00:04:51.030 --> 00:04:54.100
after not having eaten
for more than eight hours,

00:04:54.100 --> 00:04:55.950
and you were to prick
your finger with one

00:04:55.950 --> 00:04:58.980
of those little glucose monitors
you can get at the drug store,

00:04:58.980 --> 00:05:02.710
and in your finger,
the blood sugar levels,

00:05:02.710 --> 00:05:04.860
if you were to find
them to be-- Let's say

00:05:04.860 --> 00:05:14.720
you were to find them to be
at 140, that's 140 milligrams

00:05:14.720 --> 00:05:15.812
per deciliter.

00:05:15.812 --> 00:05:16.770
It's a good indication.

00:05:16.770 --> 00:05:18.010
I mean, you shouldn't freak out.

00:05:18.010 --> 00:05:19.759
You should do multiple
tests and make sure

00:05:19.759 --> 00:05:22.116
that it wasn't a false
reading or any of that.

00:05:22.116 --> 00:05:23.740
And you should
definitely see a doctor.

00:05:23.740 --> 00:05:26.777
Once again, don't view this
as any type of medical advice.

00:05:26.777 --> 00:05:28.110
That is not the purpose of this.

00:05:28.110 --> 00:05:30.350
The purpose of this
is just to understand

00:05:30.350 --> 00:05:33.820
a little bit of what's going on.

00:05:33.820 --> 00:05:36.510
Don't change your lifestyle
based on anything I tell you.

00:05:36.510 --> 00:05:38.260
All right.

00:05:38.260 --> 00:05:40.610
But if you do experience
that, it looks

00:05:40.610 --> 00:05:42.580
like, at least just from
that one data point,

00:05:42.580 --> 00:05:44.810
that your body isn't
processing sugar properly.

00:05:44.810 --> 00:05:47.580
Because you've had over eight
hours to process the sugar,

00:05:47.580 --> 00:05:50.160
for insulin to go into
your bloodstream and allow

00:05:50.160 --> 00:05:52.740
glucose to be taken up and get
back down to a normal level.

00:05:52.740 --> 00:05:54.840
But it still hasn't gone there.

00:05:54.840 --> 00:05:58.811
So if you were to test
a value like that,

00:05:58.811 --> 00:05:59.810
you should be concerned.

00:05:59.810 --> 00:06:02.760
In general, the threshold, and
I've seen multiple thresholds

00:06:02.760 --> 00:06:06.340
here, are between 100
and-- I've seen high,

00:06:06.340 --> 00:06:09.630
kind of mid-120s to 130
milligrams per deciliter.

00:06:09.630 --> 00:06:13.740
So that's kind of-- let
me do it in this range.

00:06:13.740 --> 00:06:16.052
If your fasting blood
sugar is above this line

00:06:16.052 --> 00:06:18.010
right here-- remember,
the fasting blood sugar.

00:06:18.010 --> 00:06:19.260
Not after you've eaten a meal.

00:06:19.260 --> 00:06:22.070
Your preprandial,
before a meal--

00:06:22.070 --> 00:06:25.390
if it is above that
threshold right over there,

00:06:25.390 --> 00:06:28.100
then you should at least-- you
should definitely see a doctor

00:06:28.100 --> 00:06:32.050
and make sure that they can
see if you have diabetes.

00:06:32.050 --> 00:06:34.640
But this would be
cause for concern.

00:06:34.640 --> 00:06:36.200
Another thing is
if after a meal,

00:06:36.200 --> 00:06:38.060
it spikes well
beyond that, we're

00:06:38.060 --> 00:06:40.545
talking if it gets beyond 180.

00:06:40.545 --> 00:06:42.420
And once again, these
are all just thresholds

00:06:42.420 --> 00:06:45.035
that doctors have come up with
and researchers have come up

00:06:45.035 --> 00:06:46.910
with that say, hey, this
is a good indication

00:06:46.910 --> 00:06:50.170
that somehow you are not
processing glucose properly.

00:06:50.170 --> 00:06:53.669
So 180 is up here.

00:06:53.669 --> 00:06:55.210
And I'm drawing it
as a squiggly line

00:06:55.210 --> 00:06:56.418
because it's kind of a range.

00:06:56.418 --> 00:07:01.360
It's not like if your blood
glucose is 124, you're safe.

00:07:01.360 --> 00:07:03.490
And all of a sudden at
125, you have diabetes.

00:07:03.490 --> 00:07:03.990
No.

00:07:03.990 --> 00:07:05.781
They're not that
different than each other.

00:07:05.781 --> 00:07:09.770
But they have to set
up some threshold just

00:07:09.770 --> 00:07:11.950
to kind of have a
threshold, I guess.

00:07:11.950 --> 00:07:14.850
So if your blood sugar,
after eating a meal,

00:07:14.850 --> 00:07:17.320
were to spike up
to, let's say 200,

00:07:17.320 --> 00:07:19.770
once again, that would
be cause for concern.

00:07:19.770 --> 00:07:22.330
So in general, if
someone has diabetes,

00:07:22.330 --> 00:07:25.770
because they're not processing
the glucose properly,

00:07:25.770 --> 00:07:29.470
their blood glucose might
look something like this.

00:07:29.470 --> 00:07:31.780
So maybe their
fasting blood glucose

00:07:31.780 --> 00:07:34.145
is right around 125, 130.

00:07:34.145 --> 00:07:35.930
It can move around.

00:07:35.930 --> 00:07:37.510
Then they have a meal.

00:07:37.510 --> 00:07:40.500
Then it might spike up.

00:07:40.500 --> 00:07:42.500
Obviously, they can process
some of the glucose.

00:07:42.500 --> 00:07:45.050
Otherwise, they would die.

00:07:45.050 --> 00:07:47.120
But it's not being
processed properly.

00:07:47.120 --> 00:07:50.000
So the glucose levels don't
go down to where they should.

00:07:50.000 --> 00:07:55.134
And maybe some glucose gets
taken up from the blood.

00:07:55.134 --> 00:07:56.800
Obviously they're
living, so their cells

00:07:56.800 --> 00:07:58.510
are metabolizing something.

00:07:58.510 --> 00:08:01.860
But it never gets down to
the normal 80 milligrams

00:08:01.860 --> 00:08:03.170
per deciliter.

00:08:03.170 --> 00:08:07.410
It might settle down, back
to something in the 120 range

00:08:07.410 --> 00:08:10.570
or something like that, which
would be cause for concern.

00:08:10.570 --> 00:08:12.940
And in general, if
you're someplace--

00:08:12.940 --> 00:08:17.530
I've seen the threshold if
you're above 100 on a fasting

00:08:17.530 --> 00:08:19.160
basis, that's cause for concern.

00:08:19.160 --> 00:08:21.940
You should maybe
adjust your lifestyle.

00:08:21.940 --> 00:08:27.880
And if you're above 120,
130 after meal, once again,

00:08:27.880 --> 00:08:29.550
you should also be
slightly worried

00:08:29.550 --> 00:08:31.330
that you might maybe
are prediabetic

00:08:31.330 --> 00:08:34.440
or you have some risk
of developing diabetes.

00:08:34.440 --> 00:08:40.360
So if someone has
blood sugar like this,

00:08:40.360 --> 00:08:41.850
they're probably diabetic.

00:08:41.850 --> 00:08:43.970
And if someone has
blood sugar like this,

00:08:43.970 --> 00:08:46.240
they should be worried.

00:08:46.240 --> 00:08:48.400
But once again, I
am not a doctor.

00:08:48.400 --> 00:08:50.070
Don't take any of
this as advice.

00:08:50.070 --> 00:08:52.530
This is really just our
attempt to understand

00:08:52.530 --> 00:08:54.800
things a little bit better.


Glucose Insulin and Diabetes

WEBVTT
Kind: captions
Language: en

00:00:00.570 --> 00:00:02.850
Every cell in the
human body needs energy

00:00:02.850 --> 00:00:05.120
to survive and do its
different functions.

00:00:05.120 --> 00:00:07.030
If we're talking
about a brain cell,

00:00:07.030 --> 00:00:10.880
it needs energy to keep
stimulating other brain cells

00:00:10.880 --> 00:00:13.130
and sending on
signals and messages.

00:00:13.130 --> 00:00:15.520
If it's a muscle cell, it
needs energy to contract.

00:00:15.520 --> 00:00:18.790
They need energy just to do
the basic functions of a cell.

00:00:18.790 --> 00:00:21.120
And the place that they
get that energy from,

00:00:21.120 --> 00:00:26.470
or the primary source of
that energy, is from glucose.

00:00:26.470 --> 00:00:28.410
Glucose is a simple sugar.

00:00:28.410 --> 00:00:32.500
If you were to actually taste
glucose, it would taste sweet.

00:00:32.500 --> 00:00:36.460
And glucose gets delivered to
cells through the bloodstream.

00:00:36.460 --> 00:00:39.290
So this right here,
I'm drawing some blood

00:00:39.290 --> 00:00:40.630
that's passing by a cell.

00:00:40.630 --> 00:00:43.550
Maybe the blood is going in
that direction over there.

00:00:43.550 --> 00:00:48.440
And inside the blood, let
me draw some small glucose

00:00:48.440 --> 00:00:51.530
molecules passing by.

00:00:51.530 --> 00:00:54.990
And so in an ideal situation,
when a cell needs energy,

00:00:54.990 --> 00:00:56.670
glucose will enter the cell.

00:00:59.580 --> 00:01:04.230
Unfortunately, it's not that
simple for the great majority

00:01:04.230 --> 00:01:05.590
of cells in the human body.

00:01:05.590 --> 00:01:08.920
The glucose won't
enter by itself.

00:01:08.920 --> 00:01:11.860
It needs the assistance
of a hormone or a molecule

00:01:11.860 --> 00:01:12.912
called insulin.

00:01:12.912 --> 00:01:14.120
So let me label all of these.

00:01:14.120 --> 00:01:19.800
This right here is the
glucose, and it needs insulin.

00:01:19.800 --> 00:01:22.920
So let me draw insulin as
these magenta molecules

00:01:22.920 --> 00:01:24.450
right over here.

00:01:24.450 --> 00:01:27.250
That over there,
that is insulin.

00:01:31.030 --> 00:01:32.830
And the surface
of the cells, they

00:01:32.830 --> 00:01:34.810
have insulin receptors on them.

00:01:34.810 --> 00:01:38.050
And I'm just drawing very
simplified versions of them,

00:01:38.050 --> 00:01:42.250
kind of a place where these
magenta circles can attach,

00:01:42.250 --> 00:01:43.400
can bind.

00:01:43.400 --> 00:01:46.300
And what happens is, in
order for the glucose

00:01:46.300 --> 00:01:49.200
to be taken up by
the cell, insulin

00:01:49.200 --> 00:01:52.960
has to attach to
these receptors, which

00:01:52.960 --> 00:01:54.980
unlocks the channels
for glucose.

00:01:54.980 --> 00:01:57.000
In order for the
glucose to go in,

00:01:57.000 --> 00:02:00.830
insulin has to bind to
the insulin receptors.

00:02:00.830 --> 00:02:02.870
And then, once
that happens, then

00:02:02.870 --> 00:02:09.080
the glucose can be
taken up by the cell.

00:02:09.080 --> 00:02:11.950
Now, unfortunately, things
don't always work as planned.

00:02:11.950 --> 00:02:14.180
So let me draw a couple
of scenarios here.

00:02:14.180 --> 00:02:18.700
So, once again, let me draw my
very simple version of a cell

00:02:18.700 --> 00:02:25.520
and let me draw the bloodstream
going by right over here.

00:02:25.520 --> 00:02:29.200
And then let me draw the
glucose in the bloodstream.

00:02:29.200 --> 00:02:32.260
So I have my
glucose floating by,

00:02:32.260 --> 00:02:37.390
and then I have my
insulin receptors

00:02:37.390 --> 00:02:39.730
on the surface of a cell.

00:02:39.730 --> 00:02:41.630
Now, the first thing
that could go wrong

00:02:41.630 --> 00:02:45.120
here is what if the body
does not produce insulin?

00:02:45.120 --> 00:02:47.860
Insulin is produced
in the pancreas.

00:02:47.860 --> 00:02:51.620
What happens if the pancreas is
not producing insulin properly?

00:02:51.620 --> 00:02:55.480
So no insulin.

00:02:55.480 --> 00:02:57.800
Well, in this situation,
since there's nothing to bind

00:02:57.800 --> 00:03:01.080
to these receptors, the glucose
channels won't be opened up,

00:03:01.080 --> 00:03:05.360
and the glucose will not be
able to enter into the cell.

00:03:05.360 --> 00:03:14.550
And this situation
is type 1 diabetes,

00:03:14.550 --> 00:03:16.520
where you've got glucose.

00:03:16.520 --> 00:03:18.480
So in theory, you
have energy and you

00:03:18.480 --> 00:03:21.400
have properly-functioning
insulin receptors,

00:03:21.400 --> 00:03:24.970
but you just don't have
insulin to unlock the gates

00:03:24.970 --> 00:03:26.370
for the glucose--
for the glucose

00:03:26.370 --> 00:03:29.200
to actually go into the cell.

00:03:29.200 --> 00:03:31.680
The other scenario you
could imagine happening--

00:03:31.680 --> 00:03:33.660
let me draw the cell again.

00:03:33.660 --> 00:03:36.890
So there is my cell
and let me draw

00:03:36.890 --> 00:03:40.180
the blood flowing past the cell.

00:03:40.180 --> 00:03:42.430
And once again, obviously,
this is just one

00:03:42.430 --> 00:03:44.620
of trillions of cells
in the human body.

00:03:44.620 --> 00:03:48.150
We have an estimated 10
to 100 trillion cells.

00:03:48.150 --> 00:03:49.740
So this is a very
simple diagram,

00:03:49.740 --> 00:03:52.280
but, hopefully, it
gets the point across.

00:03:52.280 --> 00:03:58.050
So once again, let me draw
some glucose floating by.

00:03:58.050 --> 00:04:02.340
Let me draw some insulin
receptors on the cell.

00:04:02.340 --> 00:04:04.990
Insulin receptor there, maybe
an insulin receptor right

00:04:04.990 --> 00:04:05.910
over there.

00:04:05.910 --> 00:04:09.170
And let's say we even
have some insulin.

00:04:09.170 --> 00:04:13.270
Our pancreas is producing
insulin and putting it

00:04:13.270 --> 00:04:14.940
into our bloodstream.

00:04:14.940 --> 00:04:16.670
So it's there to be used.

00:04:16.670 --> 00:04:20.730
But a situation can arise
where the receptors are not

00:04:20.730 --> 00:04:25.195
working properly or we become
insensitive or desensitized

00:04:25.195 --> 00:04:25.695
to insulin.

00:04:35.110 --> 00:04:39.130
So in this situation--
sometimes maybe it

00:04:39.130 --> 00:04:41.810
might be the insulin is hard to
bind or, even if it does bind,

00:04:41.810 --> 00:04:44.300
it's not working properly.

00:04:44.300 --> 00:04:49.180
So the glucose will
not enter the cell.

00:04:49.180 --> 00:04:50.630
I already wrote desensitized.

00:04:50.630 --> 00:04:52.171
So in either one of
these scenarios--

00:04:52.171 --> 00:04:54.254
let's just think in
a very broad level.

00:04:54.254 --> 00:04:56.670
I'm not going to go into the
details of the actual therapy

00:04:56.670 --> 00:04:59.630
for these diseases of
how it can be cured.

00:04:59.630 --> 00:05:01.874
Oh, and I didn't even
name the second one.

00:05:01.874 --> 00:05:03.790
The second one right
here, as you can imagine,

00:05:03.790 --> 00:05:06.570
if this up here is
type 1 diabetes,

00:05:06.570 --> 00:05:08.625
this down here is
type 2 diabetes.

00:05:17.270 --> 00:05:19.690
The simple way
that-- I don't want

00:05:19.690 --> 00:05:21.190
to say that it's
necessarily simple,

00:05:21.190 --> 00:05:24.500
but the way that you could
manage type 1 diabetes

00:05:24.500 --> 00:05:25.780
is you can inject insulin.

00:05:25.780 --> 00:05:27.406
The only problem
here-- it's a big one,

00:05:27.406 --> 00:05:29.655
though, is that there's no
insulin in the bloodstream.

00:05:29.655 --> 00:05:31.210
Everything else is
working properly.

00:05:31.210 --> 00:05:33.620
So over here, we
can inject insulin.

00:05:36.910 --> 00:05:39.800
And then you'll have insulin
to attach to the receptors,

00:05:39.800 --> 00:05:43.340
and then the glucose can
be processed properly.

00:05:43.340 --> 00:05:46.710
Type 2 diabetes-- there's
multiple lines of attack.

00:05:46.710 --> 00:05:48.405
One thing that
you can do-- there

00:05:48.405 --> 00:05:54.140
are actually drugs that attempt
to re-sensitize your insulin

00:05:54.140 --> 00:05:54.990
receptors.

00:05:54.990 --> 00:05:58.320
You can also do that with
a combination of lifestyle

00:05:58.320 --> 00:06:01.710
changes that makes
your body, I guess,

00:06:01.710 --> 00:06:05.240
more sensitized to sugar.

00:06:05.240 --> 00:06:09.020
Or you can even-- if
things get severe enough,

00:06:09.020 --> 00:06:11.020
you can add insulin,
just like you

00:06:11.020 --> 00:06:12.187
would do in type 1 diabetes.

00:06:12.187 --> 00:06:14.311
And you can say, wait, I
already have insulin here.

00:06:14.311 --> 00:06:15.630
Why would I add more insulin?

00:06:15.630 --> 00:06:19.790
Well, remember, the cells
can process insulin,

00:06:19.790 --> 00:06:21.190
but they're desensitized.

00:06:21.190 --> 00:06:22.800
They would need more
insulin in order

00:06:22.800 --> 00:06:25.090
to uptake the same
amount of glucose.

00:06:25.090 --> 00:06:27.440
So if you add insulin,
you could possibly

00:06:27.440 --> 00:06:30.790
have enough of a trigger
that the glucose can actually

00:06:30.790 --> 00:06:31.476
be taken up.

00:06:31.476 --> 00:06:33.225
But there's multiple
lines of attack here,

00:06:33.225 --> 00:06:35.110
and usually the
first one are giving

00:06:35.110 --> 00:06:39.240
drugs that help, hopefully,
re-sensitize or make

00:06:39.240 --> 00:06:43.465
you less desensitized
to the actual insulin.

00:06:43.465 --> 00:06:45.840
So the last thing I just want
to think about a little bit

00:06:45.840 --> 00:06:47.756
is-- well, what happens
if you didn't do this.

00:06:47.756 --> 00:06:49.370
Well, there's two
major problems here.

00:06:49.370 --> 00:06:51.170
Obviously, your
cells can't function

00:06:51.170 --> 00:06:53.070
if it's not taking up glucose.

00:06:53.070 --> 00:06:55.920
So your cells will
have no energy.

00:06:55.920 --> 00:06:58.000
And another problem--
if you weren't

00:06:58.000 --> 00:06:59.850
to manage either
one of these types

00:06:59.850 --> 00:07:02.770
of diabetes, is
that sugar, if it

00:07:02.770 --> 00:07:05.820
gets to high enough
concentrations in the blood,

00:07:05.820 --> 00:07:08.070
it can actually cause
a lot of damage.

00:07:08.070 --> 00:07:12.985
Sugar can cause
damage to the body.

00:07:12.985 --> 00:07:15.110
So you don't want either
of these things happening.

00:07:15.110 --> 00:07:16.568
You want your cells
to have energy,

00:07:16.568 --> 00:07:18.890
and you don't want to
have too much sugar

00:07:18.890 --> 00:07:23.370
flowing in your blood and
causing damage to your body.


Market value of assets

WEBVTT
Kind: captions
Language: en

00:00:00.540 --> 00:00:04.250
In the last video, we saw that
if Ben's Shoe Company's stock

00:00:04.250 --> 00:00:08.440
prices are trading
at $21.50 per share,

00:00:08.440 --> 00:00:11.620
and if Ben's Shoe Company
has 10,000 shares--

00:00:11.620 --> 00:00:16.550
and we saw that over here on the
left, if it had 10,000 shares.

00:00:16.550 --> 00:00:19.160
Actually both of the shoe
companies have 10,000 shares.

00:00:19.160 --> 00:00:22.360
Then the market is
essentially valuing the equity

00:00:22.360 --> 00:00:26.310
of Ben's Shoe
Company at $215,000,

00:00:26.310 --> 00:00:30.280
even though the book value
of the equity was $135,000.

00:00:30.280 --> 00:00:32.240
What I want to do
in this video is

00:00:32.240 --> 00:00:34.520
think about what does
that mean, or how

00:00:34.520 --> 00:00:36.350
should we perceive
the market's value

00:00:36.350 --> 00:00:39.070
of the assets of
Ben's Shoe Company.

00:00:39.070 --> 00:00:42.060
Then we can also think
about Jason's Shoe Company.

00:00:42.060 --> 00:00:47.700
So remember, assets are
equal to liabilities

00:00:47.700 --> 00:00:50.390
plus the shareholders' equity.

00:00:50.390 --> 00:00:53.490
So if all of a sudden the market
value of the equity, the market

00:00:53.490 --> 00:00:55.570
capitalization for
Ben's Shoe Company

00:00:55.570 --> 00:01:00.220
is $215,000, that's the
equity part right over here,

00:01:00.220 --> 00:01:02.150
this is the equity.

00:01:02.150 --> 00:01:04.910
And the only liability
that Ben's Shoe Company had

00:01:04.910 --> 00:01:08.220
was this $5,000 in
accounts payable.

00:01:08.220 --> 00:01:10.900
So let me show you
that right over here,

00:01:10.900 --> 00:01:13.640
he had this $5,000
in accounts payable,

00:01:13.640 --> 00:01:15.570
also depicted over there.

00:01:15.570 --> 00:01:18.410
So the only liability
is this $5,000.

00:01:18.410 --> 00:01:20.370
So the liabilities
plus the equity,

00:01:20.370 --> 00:01:25.430
in the case of Ben's company,
is $215,000 plus $5,000.

00:01:25.430 --> 00:01:30.710
So this piece right
over here is $220,000.

00:01:30.710 --> 00:01:32.780
Now, you might remember
from previous videos

00:01:32.780 --> 00:01:36.020
that the book value of the
assets in Ben's company

00:01:36.020 --> 00:01:37.915
are only $140,000.

00:01:37.915 --> 00:01:42.710
$20,000 of cash, $100,000
of inventory, $20,000-- this

00:01:42.710 --> 00:01:44.580
isn't equity, this
is equipment, I

00:01:44.580 --> 00:01:49.670
should call it--
$20,000 of equipment.

00:01:49.670 --> 00:01:50.170
So

00:01:50.170 --> 00:01:52.640
The question is,
what makes up the gap

00:01:52.640 --> 00:01:55.250
here, when we think about the
market value of the equity?

00:01:55.250 --> 00:01:58.480
Because remember, this piece
right here only adds up

00:01:58.480 --> 00:02:01.350
to $140,000.

00:02:01.350 --> 00:02:03.890
But our total assets-- or
the market's perception

00:02:03.890 --> 00:02:05.940
of the total assets
of the company--

00:02:05.940 --> 00:02:07.690
are essentially what
it's willing to pay

00:02:07.690 --> 00:02:09.889
for the equity
plus the liability.

00:02:09.889 --> 00:02:14.160
So the market is saying that
Ben's assets, the assets

00:02:14.160 --> 00:02:18.090
in that company,
are worth $220,000.

00:02:18.090 --> 00:02:20.090
So what makes the difference?

00:02:20.090 --> 00:02:22.380
And even better, let's
assume that Ben has actually

00:02:22.380 --> 00:02:23.990
done a good job of
saying the market

00:02:23.990 --> 00:02:26.487
value of his inventory, the
market value of his equipment.

00:02:26.487 --> 00:02:28.570
Well, what the market's
saying in this situation--

00:02:28.570 --> 00:02:33.770
and this is actually what
tends to happen in general,

00:02:33.770 --> 00:02:35.640
the market value of
a company's equity

00:02:35.640 --> 00:02:38.050
tends to be higher than
the book value-- is

00:02:38.050 --> 00:02:41.290
that this company has
some type of intangibles.

00:02:41.290 --> 00:02:44.570
Things that you really can't put
a finger on, or touch, or feel,

00:02:44.570 --> 00:02:46.680
or hold.

00:02:46.680 --> 00:02:50.430
But it makes this company's
assets-- or this company

00:02:50.430 --> 00:02:52.620
has more than just
the sum of its parts.

00:02:52.620 --> 00:02:54.950
There's more to this company
than just the equipment,

00:02:54.950 --> 00:02:56.350
the inventory, and the cash.

00:02:56.350 --> 00:02:58.950
It might be Ben's
management expertise.

00:02:58.950 --> 00:03:01.932
It might be a certain way
they have of doing business.

00:03:01.932 --> 00:03:03.640
It might be a certain
location they have.

00:03:03.640 --> 00:03:05.052
It might be their assortment.

00:03:05.052 --> 00:03:07.010
Who knows what it has,
but the market is saying

00:03:07.010 --> 00:03:10.180
that the combination of this
plus all of the expertise

00:03:10.180 --> 00:03:12.190
and how the business
is organized

00:03:12.190 --> 00:03:15.970
means that it actually has more
assets than are on the books.

00:03:15.970 --> 00:03:18.650
And the same thing is true
of Jason's company, when

00:03:18.650 --> 00:03:21.680
they assign a $120,000
market cap there.

00:03:21.680 --> 00:03:25.300
This is the $120,000 in
equity-- market value of equity.

00:03:25.300 --> 00:03:29.530
He has another $105,000
in liabilities.

00:03:29.530 --> 00:03:32.440
So the market's valuing
their equity plus liabilities

00:03:32.440 --> 00:03:37.247
at $225,000.

00:03:37.247 --> 00:03:37.830
Is that right?

00:03:37.830 --> 00:03:40.240
120 plus 100 plus 5.

00:03:40.240 --> 00:03:42.030
So 225,000.

00:03:42.030 --> 00:03:46.700
So once again, they're valuing
all of the assets at $225,000,

00:03:46.700 --> 00:03:49.520
because assets are
equal to liabilities--

00:03:49.520 --> 00:03:52.291
these are the liabilities
right here-- plus equity.

00:03:52.291 --> 00:03:53.790
So once again,
you're saying there's

00:03:53.790 --> 00:03:57.640
something above and
beyond the $140,000 that

00:03:57.640 --> 00:03:59.312
makes this company special.

00:03:59.312 --> 00:04:01.020
And an interesting
thing to think about--

00:04:01.020 --> 00:04:02.686
and we'll address it
in the next video--

00:04:02.686 --> 00:04:05.970
is which one is a
better deal, considering

00:04:05.970 --> 00:04:09.250
that these companies
are pretty similar?


Market capitalization

WEBVTT
Kind: captions
Language: en

00:00:00.560 --> 00:00:03.470
Let's say that both Ben's
Shoes and Jason's Shoes

00:00:03.470 --> 00:00:05.400
are publicly traded companies.

00:00:05.400 --> 00:00:08.530
And all that means is
that both of their shares

00:00:08.530 --> 00:00:10.250
are traded on exchanges.

00:00:10.250 --> 00:00:12.950
Maybe it's the NASDAQ, or
the New York Stock Exchange,

00:00:12.950 --> 00:00:14.410
or some other exchange.

00:00:14.410 --> 00:00:17.580
And the going price
on those exchanges--

00:00:17.580 --> 00:00:22.820
the last closing price for Ben's
stock was $21.50 per share,

00:00:22.820 --> 00:00:27.170
and the last closing price for
Jason's stock is $12.00 per

00:00:27.170 --> 00:00:27.670
share.

00:00:27.670 --> 00:00:28.900
What I want to
explore in this video,

00:00:28.900 --> 00:00:30.410
and probably the
next few is, what

00:00:30.410 --> 00:00:32.890
is that saying for
what the market thinks

00:00:32.890 --> 00:00:35.090
these businesses are worth?

00:00:35.090 --> 00:00:38.760
So in both of these situations,
they have 10,000 shares.

00:00:38.760 --> 00:00:42.220
And remember, the shares are
a split of the owner's equity.

00:00:42.220 --> 00:00:43.780
It's not a split of the assets.

00:00:43.780 --> 00:00:47.480
It's a split of just the
equity part, right over here.

00:00:47.480 --> 00:00:50.980
So if shareholders are
willing to pay 21.50 per share

00:00:50.980 --> 00:00:55.670
for Ben's stock, and there are
10,000 shares in Ben's company.

00:00:55.670 --> 00:01:00.640
So you take 21.50 times--
I'll do it this way--

00:01:00.640 --> 00:01:07.870
times 10,000 shares
gives us a market cap.

00:01:07.870 --> 00:01:20.480
So 21.50 times 10,000
gives us $215,000.

00:01:20.480 --> 00:01:25.030
And what this says is, look,
if each of those 10,000 slices

00:01:25.030 --> 00:01:29.060
of the equity is worth 21.50,
then the entire equity portion

00:01:29.060 --> 00:01:34.240
is going to be-- the market
is valuing it at $215,000.

00:01:34.240 --> 00:01:36.280
And this calculation,
this multiplication

00:01:36.280 --> 00:01:39.350
of the market price per share
times the number of shares,

00:01:39.350 --> 00:01:43.140
this is called the market cap.

00:01:43.140 --> 00:01:45.440
Short for market capitalization.

00:01:45.440 --> 00:01:47.090
The market cap of the company.

00:01:47.090 --> 00:01:49.850
And all it is, is
what is the market

00:01:49.850 --> 00:01:53.570
valuing the equity part
of Ben's company worth?

00:01:53.570 --> 00:01:55.660
Let's do the same thing
for Jason's company.

00:01:55.660 --> 00:02:07.560
You have $12.00 per share
times 10,000 shares.

00:02:07.560 --> 00:02:12.190
That gives us
$120,000 market cap.

00:02:12.190 --> 00:02:16.780
So the market is telling us
that even though on the books,

00:02:16.780 --> 00:02:20.280
Ben's equity-- based on
how he valued his assets

00:02:20.280 --> 00:02:22.640
and his liabilities--
is 135,000.

00:02:22.640 --> 00:02:26.574
The market is actually
valuing this at 215,000.

00:02:26.574 --> 00:02:27.990
And in the next
video, we'll think

00:02:27.990 --> 00:02:30.156
about what that means for
how the market is actually

00:02:30.156 --> 00:02:31.310
valuing the business.

00:02:31.310 --> 00:02:36.770
In the case of Jason's business,
instead of $35,000 of equity--

00:02:36.770 --> 00:02:39.370
just straight up from
what's on the books--

00:02:39.370 --> 00:02:45.221
the market is valuing this
piece right here at $120,000.

00:02:45.221 --> 00:02:46.970
So hopefully that gives
you a little sense

00:02:46.970 --> 00:02:49.850
of one, what shares
are a share of.

00:02:49.850 --> 00:02:52.770
They're a share of the owner's
equity, not of the assets.

00:02:52.770 --> 00:02:56.000
And also gives you a good
sense of what market cap is.

00:02:56.000 --> 00:02:59.850
It's the market's value
of the owner's equity.

00:02:59.850 --> 00:03:01.530
And notice, in both
cases-- and it's

00:03:01.530 --> 00:03:03.170
usually the case--
it's going to be

00:03:03.170 --> 00:03:06.230
a different number than the
book value, the number that's

00:03:06.230 --> 00:03:08.741
actually on the books.


Basic capital structure differences

WEBVTT
Kind: captions
Language: en

00:00:00.938 --> 00:00:06.877
In the last video I talk about how both Ben's Shoes and Jason' shoes are fundamentally the same business

00:00:06.877 --> 00:00:09.119
but they have different capital structures.

00:00:09.119 --> 00:00:12.786
And the way we saw that is that, their everything, their revenue, gross profit

00:00:12.786 --> 00:00:15.726
all the way down to their operating profit was exactly the same.

00:00:15.726 --> 00:00:20.126
They are generating the same economics from the operating part of their business.

00:00:20.126 --> 00:00:22.123
But because they have different capital structures

00:00:22.123 --> 00:00:24.290
what happens below that line was a little different.

00:00:24.290 --> 00:00:30.121
In particular, you saw interest expense on Jason's business and not on Ben's income statement.

00:00:30.121 --> 00:00:31.586
So let's look at what that means.

00:00:31.586 --> 00:00:33.788
So if you look at both of these guys' assets

00:00:33.788 --> 00:00:36.193
so this down here, this is kind of their balance sheet.

00:00:36.193 --> 00:00:37.919
You see that they are the same

00:00:37.919 --> 00:00:41.120
they both have 20 thousand dollars in cash, and I've drawn it over here

00:00:41.120 --> 00:00:46.392
this is Ben's assets, 20 thousand dollars in cash, 20 thousand dollars in cash.

00:00:46.392 --> 00:00:50.252
They both have one hundred thousand dollars in inventory

00:00:50.252 --> 00:00:54.655
and I've made the height proportional to how many dollars we're talking about

00:00:54.655 --> 00:01:00.211
so they both have a larger amount of inventory, and then they both have 20 thousand dollars

00:01:00.211 --> 00:01:02.039
let me do that in that same color

00:01:02.039 --> 00:01:07.798
and they both have 20 thousand dollars of equipment

00:01:07.798 --> 00:01:09.539
so their assets are the same

00:01:09.539 --> 00:01:12.131
the things that are actually generating the revenue

00:01:12.131 --> 00:01:14.319
and the profit are the exact same thing

00:01:14.319 --> 00:01:17.879
we're assuming that they are also renting in very similar locations

00:01:17.879 --> 00:01:21.797
that's what would have to happen for them to have such similar economics.

00:01:21.797 --> 00:01:25.054
Now what's different about them is what happens on the other side of the balance sheet

00:01:25.054 --> 00:01:28.521
and this is what I meant by them having different capital structures

00:01:28.521 --> 00:01:32.586
so let me draw the liability's side for both of these characters

00:01:32.586 --> 00:01:34.876
so let's do liabilities

00:01:34.876 --> 00:01:36.873
liabilities there

00:01:36.873 --> 00:01:40.126
and liabilities over here

00:01:40.126 --> 00:01:43.252
now, they both have the same amount of accounts payables

00:01:43.252 --> 00:01:43.253
maybe the people they are buying shoes from are able to delay paying those shoes just a little bit

00:01:48.721 --> 00:01:50.789
so by a few months, or a few weeks, or whatever

00:01:50.789 --> 00:01:52.545
so they owe those vendors some money

00:01:52.545 --> 00:01:56.589
so they both have 5 thousand dollars in accounts payables

00:01:56.589 --> 00:01:59.788
let me do that in pink

00:01:59.788 --> 00:02:02.212
So they both have 5 thousand dollars.

00:02:02.212 --> 00:02:03.919
I will try to do proportional to the size

00:02:03.919 --> 00:02:06.251
so that right over there, that is the accounts payable

00:02:06.251 --> 00:02:07.992
the five thousand dollars.

00:02:07.992 --> 00:02:10.524
they both have that on the liability size

00:02:10.524 --> 00:02:12.233
now where they really diverge

00:02:12.233 --> 00:02:13.261
so this is the same amount

00:02:13.261 --> 00:02:14.596
5 thousand dollars

00:02:14.596 --> 00:02:18.385
it should be about 1/4 of the size its not exactly how I've drawn it

00:02:18.385 --> 00:02:20.261
but where they really diverge is that Jason

00:02:20.261 --> 00:02:24.455
Jason over here let me do this in an appropriate colour

00:02:24.455 --> 00:02:28.053
Jason over here has 100,000 dollars in debt

00:02:28.053 --> 00:02:30.055
and Ben has no debt

00:02:30.055 --> 00:02:37.259
so in his liabilities he also has 100,000 dollars in debt

00:02:37.259 --> 00:02:41.261
this is the debt right over here, 100,000 dollars

00:02:41.261 --> 00:02:45.322
and Ben doesn't have it so the way you can think about capital structures

00:02:45.322 --> 00:02:47.722
they have the same assets, capital structures tells you

00:02:47.722 --> 00:02:49.592
how did they pay for their assets

00:02:49.592 --> 00:02:53.259
did they take it with debt are they deferring payments to some of their vendors

00:02:53.259 --> 00:02:55.055
or do they have equity

00:02:55.055 --> 00:02:56.630
and you can see whatever is left over

00:02:56.630 --> 00:03:00.322
remember owners equity is assets minus liabilities

00:03:00.322 --> 00:03:03.641
so what we have left over here is the owners equity

00:03:03.641 --> 00:03:11.473
so they both have 135,000 dollars in assets, you subtract 105,000 dollars in liabilities for Jason

00:03:11.473 --> 00:03:16.922
he has 35,000 dollars in owners equity

00:03:16.922 --> 00:03:18.659
On Ben's side he has much more

00:03:18.659 --> 00:03:22.553
so he kind of pays more of this or more of the capital structure

00:03:22.553 --> 00:03:24.528
equity here, more of it is debt

00:03:24.528 --> 00:03:29.928
140,000 dollars in assets you have 5000 dollar liability

00:03:29.928 --> 00:03:34.475
here he has 135,000 dollars in equity

00:03:34.475 --> 00:03:37.993
so when we talk about capital structure we're saying how are we funding the assets

00:03:37.993 --> 00:03:43.928
and not only do we talk about the composition between debt and equity

00:03:43.928 --> 00:03:46.053
we also talking about the equity is composed

00:03:46.053 --> 00:03:50.586
and we can see in both of these their equity is split into 10,000 shares

00:03:50.586 --> 00:03:55.788
so each of those shares would be 1/10,000 of just the equity piece

00:03:55.788 --> 00:03:59.788
so you can split that into 10,000 or you can split this right here into 10,000


Gross and operating profit

WEBVTT
Kind: captions
Language: en

00:00:00.559 --> 00:00:01.558
Voiceover: What I want to do in this video

00:00:01.558 --> 00:00:02.619
is to see if we can understand

00:00:02.619 --> 00:00:04.276
all of the different parts of kind of

00:00:04.276 --> 00:00:07.203
a traditional income statement.

00:00:07.203 --> 00:00:09.550
As we get into more and
more complicated examples,

00:00:09.550 --> 00:00:10.578
you'll see more and more

00:00:10.578 --> 00:00:11.879
complicated income statements,

00:00:11.879 --> 00:00:13.123
but this is a good start.

00:00:13.123 --> 00:00:13.941
What I've done here is

00:00:13.941 --> 00:00:15.109
I've drawn the income statements

00:00:15.109 --> 00:00:16.706
for actually two businesses.

00:00:16.706 --> 00:00:20.804
One is Ben's Shoes, and
one is Jason's Shoes.

00:00:20.804 --> 00:00:21.469
I did that because

00:00:21.469 --> 00:00:23.376
these are fundamentally the same business,

00:00:23.376 --> 00:00:25.734
but they have a slightly
different capital structure,

00:00:25.734 --> 00:00:26.956
and we'll talk about what that means

00:00:26.956 --> 00:00:28.214
in a second,

00:00:28.214 --> 00:00:29.903
but they're both shoe stores.

00:00:29.903 --> 00:00:32.307
They literally, they buy shoes

00:00:32.307 --> 00:00:33.555
from shoe manufacturers.

00:00:33.555 --> 00:00:34.711
They put them on their shelves,

00:00:34.711 --> 00:00:36.802
and then customers come
in and buy those shoes.

00:00:36.802 --> 00:00:37.740
The first line,

00:00:37.740 --> 00:00:38.964
we're pretty familiar with it already.

00:00:38.964 --> 00:00:40.209
This is the revenue,

00:00:40.209 --> 00:00:43.473
this is the sales for
each of these shoe stores.

00:00:43.473 --> 00:00:44.408
In the case of a shoe store,

00:00:44.408 --> 00:00:46.799
it's literally just
going to be a measure of

00:00:46.799 --> 00:00:50.209
the cash that the customers are paying

00:00:50.209 --> 00:00:51.000
for the shoes.

00:00:51.000 --> 00:00:52.151
You wouldn't have something like

00:00:52.151 --> 00:00:53.073
accounts receivables,

00:00:53.073 --> 00:00:54.733
where people can pay months later.

00:00:54.733 --> 00:00:56.875
Most of it will just be cash.

00:00:56.875 --> 00:00:58.268
Cost of goods sold,

00:00:58.268 --> 00:00:59.933
in this example,

00:00:59.933 --> 00:01:01.002
we're just going to assume it to be

00:01:01.002 --> 00:01:02.550
the actual cost of a shoe.

00:01:02.550 --> 00:01:05.677
If I sold a pair of $100 shoes,

00:01:05.677 --> 00:01:08.966
but I had to pay $50 to
the shoe manufacturer

00:01:08.966 --> 00:01:09.783
for those shoes,

00:01:09.783 --> 00:01:12.405
that $50 would be the cost of goods sold.

00:01:12.405 --> 00:01:15.469
So this $100,000 is actually the cost

00:01:15.469 --> 00:01:19.303
of the $200,000 in sales.

00:01:19.303 --> 00:01:21.316
Then when you just take
the cost of goods sold

00:01:21.316 --> 00:01:22.882
from that revenue,

00:01:22.882 --> 00:01:25.624
you get something called gross profit,

00:01:25.624 --> 00:01:26.675
and really, the focus of this is is,

00:01:26.675 --> 00:01:27.896
of this video is to

00:01:27.896 --> 00:01:28.962
try to understand the difference between

00:01:28.962 --> 00:01:30.808
gross profit, operating profit,

00:01:30.808 --> 00:01:33.142
pre-tax income, net income.

00:01:33.142 --> 00:01:34.672
Gross profit is the first time

00:01:34.672 --> 00:01:36.469
that you kind of think of profit,

00:01:36.469 --> 00:01:37.952
and the reason why it's called "gross"

00:01:37.952 --> 00:01:40.271
is because we've just
thought about the profit

00:01:40.271 --> 00:01:42.873
from selling that incremental shoe,

00:01:42.873 --> 00:01:44.952
and sometimes some other
costs are thrown in there.

00:01:44.952 --> 00:01:46.297
Sometimes advertising,

00:01:46.297 --> 00:01:48.769
sometimes some other cost associated

00:01:48.769 --> 00:01:49.698
with the store,

00:01:49.698 --> 00:01:50.540
but for this example,

00:01:50.540 --> 00:01:53.071
it's just the profit straight from selling

00:01:53.071 --> 00:01:55.003
that incremental shoe,

00:01:55.003 --> 00:01:56.354
and that's why we call it gross,

00:01:56.354 --> 00:01:59.145
since we haven't taken
out other things yet.

00:01:59.145 --> 00:02:00.252
Then, below that line,

00:02:00.252 --> 00:02:02.027
we have all of the other expenses,

00:02:02.027 --> 00:02:04.138
the expenses associated
with running the store.

00:02:04.138 --> 00:02:06.410
The kind of the overhead
of running that store,

00:02:06.410 --> 00:02:07.218
So we have the rent,

00:02:07.218 --> 00:02:08.512
you have the salaries,

00:02:08.512 --> 00:02:10.807
you have the depreciation
and amortization.

00:02:10.807 --> 00:02:12.668
Maybe you're depreciating the cost of

00:02:12.668 --> 00:02:14.603
your cash register and the shelves,

00:02:14.603 --> 00:02:15.807
and whatever else,

00:02:15.807 --> 00:02:16.805
and then you can have other things

00:02:16.805 --> 00:02:17.803
like utilities,

00:02:17.803 --> 00:02:19.077
and you can see both Ben's Shoes

00:02:19.077 --> 00:02:21.153
and Jason's Shoes are completely identical

00:02:21.153 --> 00:02:22.021
up to this point.

00:02:22.021 --> 00:02:23.551
They have the same revenue, gross profit,

00:02:23.551 --> 00:02:25.103
even the same expenses.

00:02:25.626 --> 00:02:27.799
And so when you take all
of these expenses out

00:02:27.799 --> 00:02:29.474
from the gross profits,

00:02:29.474 --> 00:02:31.939
you take 100,000 minus all of these,

00:02:31.939 --> 00:02:33.652
and I've written all of
the stuff you subtract

00:02:33.652 --> 00:02:35.212
with parentheses around them,

00:02:35.212 --> 00:02:36.467
so that these are expenses,

00:02:36.467 --> 00:02:37.736
these are negatives.

00:02:37.736 --> 00:02:39.767
You get the operating profit,

00:02:39.767 --> 00:02:41.837
and you see that both of these are

00:02:41.837 --> 00:02:43.791
the same number.

00:02:43.791 --> 00:02:45.426
What operating profit tells you

00:02:45.426 --> 00:02:48.616
is how much profit is
coming from the business.

00:02:48.616 --> 00:02:50.733
It's before we think
about how the business

00:02:50.733 --> 00:02:51.538
is structured.

00:02:51.538 --> 00:02:54.396
It doesn't think about
things like interest income

00:02:54.396 --> 00:02:55.540
from your bank account,

00:02:55.540 --> 00:02:57.362
or interest expense on any loans you have.

00:02:57.362 --> 00:03:00.272
It's from the business itself,

00:03:00.272 --> 00:03:01.217
operating profit,

00:03:01.217 --> 00:03:02.769
and since these are identical businesses,

00:03:02.769 --> 00:03:05.705
they have the same exact operating profit.

00:03:05.705 --> 00:03:09.221
Where they start to
diverge is below that line.

00:03:09.221 --> 00:03:11.143
Above this line right over here

00:03:11.143 --> 00:03:12.267
is the income statement,

00:03:12.267 --> 00:03:13.803
down here is the balance sheet.

00:03:13.803 --> 00:03:15.472
Their balance sheets are identical,

00:03:15.472 --> 00:03:20.198
except for Jason's Shoes
has $100,000 in debt,

00:03:20.198 --> 00:03:22.461
and Ben's Shoes has no debt.

00:03:22.461 --> 00:03:24.273
Ben has no interest expense,

00:03:24.273 --> 00:03:27.429
while Jason does have a
$10,000 interest expense,

00:03:27.429 --> 00:03:29.611
so it's about 10% per year.

00:03:29.611 --> 00:03:31.424
That's why these two income statements

00:03:31.424 --> 00:03:32.536
start to diverge,

00:03:32.536 --> 00:03:34.105
but notice, we didn't
put this expense up there

00:03:34.105 --> 00:03:35.843
because it has nothing to
do with the operations.

00:03:35.843 --> 00:03:38.216
It's dependent on how the operations

00:03:38.216 --> 00:03:39.670
were financed.

00:03:39.670 --> 00:03:41.397
Once you subtract that out,

00:03:41.397 --> 00:03:43.856
then you actually have
your pre-tax income,

00:03:43.856 --> 00:03:45.927
and if we assume that
we have to pay taxes,

00:03:45.927 --> 00:03:47.891
this is how much we pay in taxes,

00:03:47.891 --> 00:03:49.924
and this is actually the net income

00:03:49.924 --> 00:03:53.689
that goes to the owners of the company.


Amortization and depreciation

WEBVTT
Kind: captions
Language: en

00:00:00.660 --> 00:00:03.490
You'll often hear the words
depreciation and amortization

00:00:03.490 --> 00:00:04.200
used together.

00:00:04.200 --> 00:00:05.658
And what I want to
do in this video

00:00:05.658 --> 00:00:09.150
is to understand a little bit
better why they are similar

00:00:09.150 --> 00:00:12.590
and the slight difference
between the two.

00:00:12.590 --> 00:00:15.440
So in our previous examples,
we've done depreciation.

00:00:15.440 --> 00:00:17.150
And so you could
imagine in period zero

00:00:17.150 --> 00:00:20.080
we buy a truck for $60,000.

00:00:20.080 --> 00:00:22.480
And instead of just
expensing it in period zero,

00:00:22.480 --> 00:00:25.590
instead of putting $60,000
expense right over here,

00:00:25.590 --> 00:00:26.740
we capitalize it.

00:00:26.740 --> 00:00:29.420
We say that we have
a $60,000 asset.

00:00:29.420 --> 00:00:31.580
And so this is right at
the end of period zero

00:00:31.580 --> 00:00:33.840
or at the beginning
of period one.

00:00:33.840 --> 00:00:36.500
And what we do is we
spread out this expense

00:00:36.500 --> 00:00:38.540
over the period of time
that we're actually

00:00:38.540 --> 00:00:40.110
going to use the truck.

00:00:40.110 --> 00:00:43.620
So in period one, we depreciate
the truck by $20,000.

00:00:43.620 --> 00:00:45.912
We're assuming we have a
three year life of this truck.

00:00:45.912 --> 00:00:47.286
And we're just
going to do what's

00:00:47.286 --> 00:00:48.870
called straight
line depreciation.

00:00:48.870 --> 00:00:51.330
We're just going to take
the cost of the truck

00:00:51.330 --> 00:00:52.550
and divide it by its life.

00:00:52.550 --> 00:00:54.050
There's other ways
to depreciate it.

00:00:54.050 --> 00:00:55.870
Maybe you could imagine
that it depreciates faster

00:00:55.870 --> 00:00:58.000
in the first year, but
this is the simplest type.

00:00:58.000 --> 00:01:00.810
And it's actually used by
a lot of companies, just

00:01:00.810 --> 00:01:02.900
straight line depreciation.

00:01:02.900 --> 00:01:05.790
So after we use $20,000,
we depreciate the truck

00:01:05.790 --> 00:01:06.626
by $20,000.

00:01:06.626 --> 00:01:08.270
We expense it in that year.

00:01:08.270 --> 00:01:09.750
So this is literally an expense.

00:01:09.750 --> 00:01:11.130
Then at the end
of period one, it

00:01:11.130 --> 00:01:14.120
is now on our books for $40,000.

00:01:14.120 --> 00:01:15.860
Then in period two,
we depreciate it

00:01:15.860 --> 00:01:17.640
by another $20,000.

00:01:17.640 --> 00:01:21.940
It is going to be an expense, a
$20,000 expense in period two.

00:01:21.940 --> 00:01:25.290
Now on our books at the end of
period two, it'll be worth 20.

00:01:25.290 --> 00:01:28.542
Then in period three, we
expense another $20,000

00:01:28.542 --> 00:01:30.240
on our income statement.

00:01:30.240 --> 00:01:32.530
And then on, at least for
just this truck, assuming we

00:01:32.530 --> 00:01:34.710
haven't bought a
new one yet, we've

00:01:34.710 --> 00:01:36.280
completely written it off.

00:01:36.280 --> 00:01:38.530
It is now worth
zero on our books

00:01:38.530 --> 00:01:41.690
because based on
what we assumed,

00:01:41.690 --> 00:01:42.960
it's not useful anymore.

00:01:42.960 --> 00:01:45.010
We kind of have to
scrap this truck.

00:01:45.010 --> 00:01:46.780
That's depreciation.

00:01:46.780 --> 00:01:49.710
Now imagine if to run our
trucking business we also

00:01:49.710 --> 00:01:51.800
have to pay some
type of license fee.

00:01:51.800 --> 00:01:55.980
So let me call
this a license fee.

00:01:55.980 --> 00:01:59.730
And let's say that the
license fee was $4,000.

00:01:59.730 --> 00:02:02.320
And we get to use
it over four years.

00:02:02.320 --> 00:02:04.670
So once again, you could
have just put a $4,000

00:02:04.670 --> 00:02:07.520
expense right over here, but
that's not really accurate.

00:02:07.520 --> 00:02:09.690
You're not just using
the fee in that period.

00:02:09.690 --> 00:02:12.620
That fee is going to be useful
over the next four years.

00:02:12.620 --> 00:02:16.960
So once again, you would
put down the asset, the paid

00:02:16.960 --> 00:02:19.090
license fee or maybe
the prepaid license fee

00:02:19.090 --> 00:02:20.960
depending on how you view it.

00:02:20.960 --> 00:02:22.890
And then you would
amortize that cost,

00:02:22.890 --> 00:02:25.320
which is essentially the
same thing mathematically.

00:02:25.320 --> 00:02:27.900
You'd say, look, I'm going to
use this over the next four

00:02:27.900 --> 00:02:30.380
years, essentially
$1,000 a year.

00:02:30.380 --> 00:02:34.900
So my license fee amortization
in year one I'd say is $1,000.

00:02:34.900 --> 00:02:37.780
And then on my books I
would carry the license fee

00:02:37.780 --> 00:02:39.480
for $3,000.

00:02:39.480 --> 00:02:41.340
Then I'd amortize
another $1,000.

00:02:41.340 --> 00:02:43.560
Then it would go down to $2,000.

00:02:43.560 --> 00:02:45.049
Amortize another $1,000.

00:02:45.049 --> 00:02:46.590
Then at the end of
period three, it's

00:02:46.590 --> 00:02:49.160
now worth $1,000 on my books.

00:02:49.160 --> 00:02:51.900
Period four, amortize
another $1,000.

00:02:51.900 --> 00:02:53.920
Now I've completely
written it off

00:02:53.920 --> 00:02:56.990
and I probably have to get
another license at this point.

00:02:56.990 --> 00:02:58.760
So mathematically,
they're the same thing.

00:02:58.760 --> 00:03:00.860
Even philosophically,
they're the same thing.

00:03:00.860 --> 00:03:03.900
The idea that instead of
expensing these expenses

00:03:03.900 --> 00:03:06.620
all at once you're saying, look,
they have some useful life.

00:03:06.620 --> 00:03:10.300
Let me spread out the expense
over their useful life.

00:03:10.300 --> 00:03:12.140
The difference between
the two-- and you

00:03:12.140 --> 00:03:13.930
might have already
kind of realized

00:03:13.930 --> 00:03:17.880
this-- is depreciation is
when you have hard assets.

00:03:17.880 --> 00:03:19.640
If you have a
building or a truck

00:03:19.640 --> 00:03:23.940
or some type of equipment, you
would depreciate that asset.

00:03:23.940 --> 00:03:26.860
If you have a non-hard
asset or a financial asset

00:03:26.860 --> 00:03:28.760
or something that's
less tangible,

00:03:28.760 --> 00:03:30.910
then you would just amortize it.

00:03:30.910 --> 00:03:32.520
This is just kind
of a different word

00:03:32.520 --> 00:03:34.810
depending on how
tangible the asset is.

00:03:34.810 --> 00:03:37.230
So if it's a license fee
or some other type of fee

00:03:37.230 --> 00:03:40.400
or some type of it maybe
intellectual property,

00:03:40.400 --> 00:03:42.170
you would amortize the cost.

00:03:42.170 --> 00:03:44.980
If you have a truck or
a building or whatever,

00:03:44.980 --> 00:03:47.470
you would depreciate it.


Depreciation in cash flow

WEBVTT
Kind: captions
Language: en

00:00:00.000 --> 00:00:04.063
Let's see if we can better understand what a cash flow statement

00:00:04.063 --> 00:00:09.311
for my simplified shipping truck example company would actually look like.

00:00:09.311 --> 00:00:12.701
Now I say it's simplified because this is a very simplified income statement

00:00:12.701 --> 00:00:16.091
for each of these periods. I'm not really showing all the expenses

00:00:16.091 --> 00:00:18.506
or all of the details that you would actually have for a shipping company

00:00:18.506 --> 00:00:20.921
but we really just care about the accounting.

00:00:20.921 --> 00:00:22.918
So let'a just say that at the beginning of this fiscal year,

00:00:22.918 --> 00:00:26.587
when I started this company, I had $60,000.

00:00:26.587 --> 00:00:29.884
We know from our example that we used that $60,000

00:00:29.884 --> 00:00:32.903
to buy a $60,000 truck.

00:00:32.903 --> 00:00:35.600
And on the cash flow statement you express that saying

00:00:35.600 --> 00:00:39.219
"I spent $60,000 on Capital Expenditure"

00:00:40.403 --> 00:00:41.587
sometimes it's "property plant and equipment".

00:00:41.587 --> 00:00:46.600
So you would actually put the $60,000 right over here, on capital expenditures.

00:00:46.600 --> 00:00:48.553
and hopefully we'll understand this in a little bit

00:00:48.553 --> 00:00:52.354
Now remember, the cash flow statement is really a way of reconciling the profit

00:00:52.354 --> 00:00:54.484
with the starting and the ending cash.

00:00:54.484 --> 00:00:56.982
So let's just think about this a little bit.

00:00:56.982 --> 00:00:59.886
Our profit here, if we just take the number that we have here,

00:00:59.886 --> 00:01:03.507
Our profit in the first period is $30,000.

00:01:03.507 --> 00:01:07.222
We're assuming nothing shady is happening with the Accounts Payable,

00:01:07.222 --> 00:01:10.533
Accounts Receivable, that they're not changing over the course of the year.

00:01:10.533 --> 00:01:14.559
And then we have depreciation, and we want to think a little bit in this video,

00:01:14.559 --> 00:01:17.253
what does the depreciation do to the cash flow statement?

00:01:17.253 --> 00:01:19.110
So I'll just write down the number first.

00:01:19.110 --> 00:01:22.918
So we have this depreciation value. This is the truck depreciation.

00:01:22.918 --> 00:01:27.888
It's not just the expent value of the truck, we're spreading that cost over 3 years.

00:01:27.888 --> 00:01:30.906
So $20,000 over 3 years is the life of that truck.

00:01:30.906 --> 00:01:34.575
So the depreciation in each of these periods is $20,000.

00:01:34.575 --> 00:01:36.688
And what I'm going to show you here is,

00:01:36.688 --> 00:01:42.162
To figure out the cash from operations from actually how much cash the operations are producing.

00:01:42.193 --> 00:01:47.985
We want to add back this depreciation to the profit

00:01:47.985 --> 00:01:51.618
so our cash from operations is going to be $50,000.

00:01:51.618 --> 00:01:54.683
And it might not seem obvious to you at first, but I want you to think about it.

00:01:54.683 --> 00:01:58.631
This $20,000 that we're showing as an expense in every period,

00:01:58.631 --> 00:02:02.392
and it actually might be more obvious if we think about period 2 or period 3

00:02:02.392 --> 00:02:08.894
We're showing it as an expense but $20,000 did not go out of the door in year 2, or year 3.

00:02:08.894 --> 00:02:12.052
We're just showing some of the expense from previous years.

00:02:12.052 --> 00:02:14.049
So no cash went out of the door.

00:02:14.049 --> 00:02:16.557
So in any of these periods, the depreciation expense

00:02:16.557 --> 00:02:19.018
should be added back to the operating profit,

00:02:19.018 --> 00:02:22.036
to figure out the cash from operations.

00:02:22.036 --> 00:02:22.687
And you might say

00:02:22.687 --> 00:02:25.891
"Wait! But we spent that $60,000, especially in year 1"

00:02:25.891 --> 00:02:28.956
And that goes here, under Capital Expenditures.

00:02:28.956 --> 00:02:33.879
The operations didn't push that cash up, the business itself,

00:02:33.879 --> 00:02:35.225
this is just an investment that we made.

00:02:35.225 --> 00:02:39.359
So it all works out, because what we see is that we got

00:02:39.359 --> 00:02:42.888
$50,000 cash from operations, and that makes sense

00:02:42.888 --> 00:02:44.885
because our revenue was $100,000

00:02:44.885 --> 00:02:48.043
just the labor, the cash labor, people's salaries, were $50,000

00:02:48.043 --> 00:02:50.318
So that's $50,000 of profit.

00:02:50.318 --> 00:02:54.730
This was not a cash expense, so from our operations we had $50,000 dollars,

00:02:54.730 --> 00:03:00.814
But then we did have the capital expenditures of $60,000 for the actual truck.

00:03:00.814 --> 00:03:05.829
So our ending cash would be $60,000+$50,000-$60,000.

00:03:05.829 --> 00:03:08.848
So our ending cash is going to be $50,000

00:03:08.848 --> 00:03:11.170
Now it might make a little bit more sense if we go to the next period.

00:03:11.170 --> 00:03:16.185
Our starting cash here is $50,000. It's our ending cash of the previous period.

00:03:16.185 --> 00:03:19.343
Our profit, once again, is $30,000.

00:03:19.343 --> 00:03:25.178
You add the profit to the depreciation, you get a $50,000 operating profit

00:03:25.178 --> 00:03:27.238
same as the previous year.

00:03:27.238 --> 00:03:29.932
Or I should say cash form operations, and that makes sense,

00:03:29.932 --> 00:03:31.533
because our operations really haven't changed.

00:03:31.533 --> 00:03:33.182
We have a very, very steady business.

00:03:33.182 --> 00:03:36.573
But this year, I have no capital expenditures.

00:03:36.573 --> 00:03:42.563
So I'm using the same truck as last year. So now Our ending cash:

00:03:42.563 --> 00:03:46.511
Our starting cash was $50,000, we had $50,000 from operations,

00:03:46.511 --> 00:03:51.015
now our ending cash is $100,000.

00:03:51.015 --> 00:03:55.241
So hopefully that gives you a sense of why we add back depreciation

00:03:55.241 --> 00:03:57.424
when we figure out the cash from operations

00:03:57.424 --> 99:59:59.999
and how it works out in our cashflow statement.


Depreciating the truck

WEBVTT
Kind: captions
Language: en

00:00:00.593 --> 00:00:01.543
Voiceover: In the last video,

00:00:01.543 --> 00:00:04.248
we had this situation where
we have to buy a truck

00:00:04.248 --> 00:00:07.067
every 3 years, because
that's how long they last,

00:00:07.067 --> 00:00:09.465
and we were, at first,
just expensing the truck.

00:00:09.465 --> 00:00:12.072
It's $60,000 every 3 years,

00:00:12.072 --> 00:00:14.134
but it did something very strange

00:00:14.134 --> 00:00:15.339
to our operating profit.

00:00:15.339 --> 00:00:16.467
It made it look like,

00:00:16.467 --> 00:00:18.044
the years that we bought the truck,

00:00:18.044 --> 00:00:19.298
that our business didn't do well,

00:00:19.298 --> 00:00:21.136
and the other years, it did really well,

00:00:21.136 --> 00:00:23.337
even though this was a
really consistent business.

00:00:23.337 --> 00:00:24.805
What we hinted at in the last video is,

00:00:24.805 --> 00:00:27.622
maybe we can do something

00:00:27.622 --> 00:00:29.408
called "capitalizing" the expense.

00:00:29.408 --> 00:00:31.267
We could capitalize the truck.

00:00:31.267 --> 00:00:32.799
What we do is, instead of just saying

00:00:32.799 --> 00:00:34.301
that the truck is an expense,

00:00:34.301 --> 00:00:36.052
we can say that we're buying an asset,

00:00:36.052 --> 00:00:37.593
that has some useful life

00:00:37.593 --> 00:00:40.591
beyond the time that
we're just expensing it.

00:00:40.591 --> 00:00:43.005
What we do is, let's just put
a balance sheet right here,

00:00:43.005 --> 00:00:45.757
at the beginning of year 1.

00:00:45.757 --> 00:00:48.787
At the beginning of year 1,
this is our balance sheet.

00:00:48.787 --> 00:00:52.335
Balance sheet, right over here.

00:00:52.335 --> 00:00:54.335
By capitalizing a truck,

00:00:54.335 --> 00:00:56.394
we're essentially saying
we're going to spend $60,000.

00:00:56.394 --> 00:00:58.790
Let's say we start with $60,000 in cash.

00:00:58.790 --> 00:01:01.343
We use that $60,000 in
cash to buy a truck,

00:01:01.343 --> 00:01:04.521
so on our balance sheet
we now have only 1 asset,

00:01:04.521 --> 00:01:07.456
called "a truck."

00:01:07.456 --> 00:01:08.720
Let me do it this way.

00:01:08.720 --> 00:01:12.172
In the asset category, we have a truck,

00:01:12.172 --> 00:01:15.003
and we are saying that
right when it's brand new,

00:01:15.003 --> 00:01:16.835
it is worth $60,000,

00:01:16.835 --> 00:01:19.582
and we have no liabilities,

00:01:19.582 --> 00:01:21.332
so I'll just put a 0 there,

00:01:21.332 --> 00:01:24.338
and so our equity, our
shareholders' equity,

00:01:24.338 --> 00:01:27.338
60,000 - 0, which is 60,000.

00:01:27.338 --> 00:01:32.011
Our company is worth $60,000 on our books.

00:01:32.011 --> 00:01:34.208
The way that we account for this truck,

00:01:34.208 --> 00:01:35.867
that lasts 3 years,

00:01:35.867 --> 00:01:39.455
is we say, "Look, this has
a useful life of 3 years."

00:01:39.455 --> 00:01:43.736
Essentially, "Let's just
spread that $60,000 out,

00:01:43.736 --> 00:01:46.301
"over the 3 years," or
another way to say it,

00:01:46.301 --> 00:01:47.285
let's say that this truck

00:01:47.285 --> 00:01:50.137
is costing us $20,000 a year.

00:01:50.137 --> 00:01:52.950
$20,000 a year.

00:01:52.950 --> 00:01:55.536
Or, another way we can say that,

00:01:55.536 --> 00:01:58.343
is that we can depreciate
the value of the truck,

00:01:58.343 --> 00:02:01.803
and the depreciation is an expense.

00:02:01.803 --> 00:02:05.055
So, "depreciation of truck."

00:02:05.055 --> 00:02:06.206
Instead of just calling it truck,

00:02:06.206 --> 00:02:08.991
I'll call it the truck depreciation.

00:02:08.991 --> 00:02:10.265
You could just really view this

00:02:10.265 --> 00:02:13.458
as a way of spreading out
the cost of the truck.

00:02:13.458 --> 00:02:14.729
In the first year,

00:02:14.729 --> 00:02:17.337
we're going to depreciate
our truck by 20,000.

00:02:17.337 --> 00:02:19.064
We're going to say that it's 1 third ...

00:02:19.064 --> 00:02:21.460
1 third of its value has been served,

00:02:21.460 --> 00:02:24.685
or it's now $20,000 worth less

00:02:24.685 --> 00:02:25.737
at the end of the year,

00:02:25.737 --> 00:02:27.134
than it was at the beginning.

00:02:27.134 --> 00:02:28.692
In the second year, 20,000.

00:02:28.692 --> 00:02:30.459
In the third year, 20,000.

00:02:30.459 --> 00:02:32.394
We just really spread out the 60,000

00:02:32.394 --> 00:02:34.191
over the life of the truck.

00:02:34.191 --> 00:02:35.604
What that does is,

00:02:35.604 --> 00:02:37.938
it makes our operating profit consistent,

00:02:37.938 --> 00:02:38.595
which it should be,

00:02:38.595 --> 00:02:40.666
because we have a very
consistent business.

00:02:40.666 --> 00:02:44.934
100 - 50 - 20. We make 30 in year 1,

00:02:44.934 --> 00:02:46.674
30 in year 2,

00:02:46.674 --> 00:02:47.715
30 in year 3,

00:02:47.715 --> 00:02:48.770
and then we just keep going.

00:02:48.770 --> 00:02:50.529
These all become 20s,

00:02:50.529 --> 00:02:52.666
and so, because we have
such a consistent business,

00:02:52.666 --> 00:02:56.266
we make $30,000 the whole way through.

00:02:56.266 --> 00:02:58.934
What does depreciation
do to our balance sheet?

00:02:58.934 --> 00:03:00.535
At the beginning of year 1,

00:03:00.535 --> 00:03:03.063
we had a truck that was worth $60,000.

00:03:03.063 --> 00:03:05.330
If you forward to the end of year 1,

00:03:05.330 --> 00:03:06.803
or the beginning of year 2,

00:03:06.803 --> 00:03:07.862
what's going to happen is,

00:03:07.862 --> 00:03:10.603
because we're depreciating
the value of the truck,

00:03:10.603 --> 00:03:11.665
on our balance sheet

00:03:11.665 --> 00:03:14.991
we took $20,000 depreciation expense,

00:03:14.991 --> 00:03:16.799
on our balance sheet
the value of the truck

00:03:16.799 --> 00:03:17.819
over the course of the year

00:03:17.819 --> 00:03:21.868
will go from 60,000 to 40,000.

00:03:21.868 --> 00:03:23.596
To 40,000.

00:03:23.596 --> 00:03:24.904
Then at the end of year 2,

00:03:24.904 --> 00:03:26.334
if we go another year forward,

00:03:26.334 --> 00:03:29.272
the value that we keep the
trucks on the books for

00:03:29.272 --> 00:03:32.128
will go down to 20,000.

00:03:32.128 --> 00:03:34.072
Then at the end of year 3,

00:03:34.072 --> 00:03:36.598
it's going to go down to 0,

00:03:36.598 --> 00:03:38.330
and then we go buy another truck,

00:03:38.330 --> 00:03:40.661
so we'll go back to
60,000; we'll keep going.

00:03:40.661 --> 00:03:41.998
The cool thing about this

00:03:41.998 --> 00:03:44.267
is it makes the expense very consistent,

00:03:44.267 --> 00:03:46.007
and actually more consistent

00:03:46.007 --> 00:03:47.998
with what our business is actually doing.


Expensing a truck leads to inconsistent performance

WEBVTT
Kind: captions
Language: en

00:00:00.949 --> 00:00:03.311
You buy a truck for $60,000

00:00:03.311 --> 00:00:04.939
to start a shipping business.

00:00:04.939 --> 00:00:07.581
The truck has a useful life of 3 years.

00:00:07.581 --> 00:00:10.337
You then have to buy another truck.

00:00:10.337 --> 00:00:11.471
What I've done here is,

00:00:11.471 --> 00:00:13.413
I've drawn our actual ...

00:00:13.413 --> 00:00:16.414
a series of income statements
for our shipping business.

00:00:16.414 --> 00:00:19.247
This is year 1, year 2, year 3, year 4.

00:00:19.247 --> 00:00:22.536
This is the revenue that we
make in each of those years.

00:00:22.536 --> 00:00:24.004
It's kind of a business

00:00:24.004 --> 00:00:24.868
that right from the get go

00:00:24.868 --> 00:00:26.997
we start making $100,000 a year.

00:00:26.997 --> 00:00:28.670
This is all in thousands.

00:00:28.670 --> 00:00:29.869
Let me it write that.

00:00:29.869 --> 00:00:32.414
This is all in thousands.

00:00:32.414 --> 00:00:33.471
This is 100,000.

00:00:33.471 --> 00:00:35.003
It kind of just stays steady there.

00:00:35.003 --> 00:00:37.870
We just keep making
$100,000 a year in revenue,

00:00:37.870 --> 00:00:39.336
for the first 10 years.

00:00:39.336 --> 00:00:40.831
Then, we have to pay a driver.

00:00:40.831 --> 00:00:43.937
Let's say the cost of the
labor is $50,000 a year.

00:00:43.937 --> 00:00:48.178
Once again, this is in thousands.

00:00:48.178 --> 00:00:50.071
What I want to address in this video …

00:00:50.071 --> 00:00:51.095
This would be a cost.

00:00:51.095 --> 00:00:53.138
When you just subtract out the labor cost,

00:00:53.138 --> 00:00:54.678
you have $50,000 left.

00:00:54.678 --> 00:00:58.762
Then, your other cost is
going to be the truck itself.

00:00:58.762 --> 00:01:00.011
What I want to think
about in this video is

00:01:00.011 --> 00:01:04.094
how should we account for
the cost of the truck.

00:01:04.094 --> 00:01:07.068
You might just say,
"Hey look, to start off"

00:01:07.068 --> 00:01:09.834
"I spent $60,000."

00:01:09.834 --> 00:01:13.082
In year 1 we'll actually
go out to the truck store

00:01:13.082 --> 00:01:14.469
and buy the truck.

00:01:14.469 --> 00:01:17.870
Why don't I just call it
an expense of $60,000?

00:01:17.870 --> 00:01:19.403
One reality is, you can just say,

00:01:19.403 --> 00:01:23.603
"Hey look, in year 1
my truck cost $60,000."

00:01:23.603 --> 00:01:26.344
Then, in year 2 I don't have
to spend any money on a truck,

00:01:26.344 --> 00:01:27.470
because I have one.

00:01:27.470 --> 00:01:29.178
In year 3 I don't have to do it,

00:01:29.178 --> 00:01:33.427
but then in year 4 my first
truck now has to be scrapped,

00:01:33.427 --> 00:01:34.937
because I used it so much.

00:01:34.937 --> 00:01:38.678
In year 4 I have to buy
another truck for $60,000.

00:01:38.678 --> 00:01:40.204
Then, again in year 5, year 6

00:01:40.204 --> 00:01:41.513
I don't have to do anything.

00:01:41.513 --> 00:01:46.203
Then, in year 7 I have to buy
another truck for $60,000.

00:01:46.203 --> 00:01:47.428
8, 9, I don't have to do anything.

00:01:47.428 --> 00:01:51.603
Then, in year 10 I have to
buy another truck for $60,000.

00:01:51.603 --> 00:01:53.937
If you've counted for the
purchase of your truck

00:01:53.937 --> 00:01:56.012
every 3 years this way,

00:01:56.012 --> 00:01:58.761
your profit would look like this.

00:01:58.761 --> 00:02:00.803
In year 1, 100 - …

00:02:00.803 --> 00:02:03.871
This is revenue and these
2 lines are expenses.

00:02:03.871 --> 00:02:11.137
100 - 50 - 60, this is -10,000
in profit in that first year.

00:02:11.137 --> 00:02:13.470
The second year you make 50,000.

00:02:13.470 --> 00:02:15.071
The third year you make $50,000.

00:02:15.071 --> 00:02:16.538
Just 100 - 50.

00:02:16.538 --> 00:02:20.270
Then, fourth year, again, -10,000.

00:02:20.270 --> 00:02:22.762
Then, you make 50,000 and 50,000.

00:02:22.762 --> 00:02:24.138
Then, again -10,000.

00:02:24.138 --> 00:02:25.071
Then 50,000.

00:02:25.071 --> 00:02:26.205
Then 50,000.

00:02:26.205 --> 00:02:27.429
To someone who looked at

00:02:27.429 --> 00:02:30.543
this series of income statements,

00:02:30.543 --> 00:02:34.204
they'd say, "This is some
type of bizarre business."

00:02:34.204 --> 00:02:35.271
"In the first year …"

00:02:35.271 --> 00:02:37.871
"Every 3 years you lose a tone of money."

00:02:37.871 --> 00:02:38.604
"I don't know why."

00:02:38.604 --> 00:02:39.737
"Maybe it's being mismanaged,"

00:02:39.737 --> 00:02:41.203
"maybe something strange is happening,"

00:02:41.203 --> 00:02:43.003
maybe it's because of bad weather."

00:02:43.003 --> 00:02:43.872
"Who knows?"

00:02:43.872 --> 00:02:44.802
"Then, you make a ton of money."

00:02:44.802 --> 00:02:45.938
"Then, you lose some money."

00:02:45.938 --> 00:02:47.095
"Then, you make a ton of money."

00:02:47.095 --> 00:02:48.937
It seems like some type
of very bizarre business

00:02:48.937 --> 00:02:51.737
when you look at it from the operating ...

00:02:51.737 --> 00:02:53.405
when you look at it from the profit line.

00:02:53.405 --> 00:02:57.344
Just when you just expense
the truck every 3 years.

00:02:57.344 --> 00:03:00.202
An operating profit is the
profit from the operation.

00:03:00.202 --> 00:03:02.136
Before you think about how you're paying

00:03:02.136 --> 00:03:04.270
for the operations, how
you're financing them

00:03:04.270 --> 00:03:07.937
or taxes, or any of that type of thing.

00:03:07.937 --> 00:03:10.678
This is strange, because this
is a very stable business.

00:03:10.678 --> 00:03:13.345
It's very strange for
it's operating profit

00:03:13.345 --> 00:03:15.804
to kind of jump around like this.

00:03:15.804 --> 00:03:20.871
The way that we kind of reconcile this

00:03:20.871 --> 00:03:22.405
is by doing something called

00:03:22.405 --> 00:03:25.512
capitalizing the expense of the truck

00:03:25.512 --> 00:03:29.205
and then depreciating it
over the course of it's life.

00:03:29.205 --> 00:03:33.000
I'll cover that in the next video.