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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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is khanacademy.org sat prep free ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two .
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5 many students do not see all of this content in school any suggestions ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first .
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when taking the psat or sat are wrong answers counted against your final score ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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also is there practice for writing essays on khanacademy for the new sat ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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are there any restrictions when taking the sat in 8th grade ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those .
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if i take the practice sat here in khan academy , would the scores be saved in my college board account ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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how many times should a student take the sat during their junior year ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first .
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hi , need some clarification ... are these the same sats taken in england when a child is in year 6 ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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how do the sat and act differ in scores ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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what is a good sat score ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill .
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will the question be the same if you are still in the same level or will you be given different questions ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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what does sat stand for ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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is a ti-84 plus silver edition allowed on the sat ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations .
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what is the purpose of the college board , or what is their mission or goal ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing .
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how accurate are the sat practice tests ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat .
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can we use calculators for 2016 sats ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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what is different about this years sat ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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what is considered a `` good '' score on the sat ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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like , what are the ranges of not-so-good/medium/good/excellent scores ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule .
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my question is , can i take more than one test per session ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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can i import my old sat scores and get a personalized practice based on it too ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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does sat happends in all countries ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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what is the time limit given for the sat essay ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill .
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is the system reusing the same questions ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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if you take the sat twice , and do worse your second time , can you ditch that score ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem .
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is it possible to get successfully qualified insat within 1 month ?
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- [ kitt ] welcome to the official sat practice , i 'm kitt hirasaki the lead designer . our team here at khan academy has partnered with the college board , the makers of the sat to bring you official , personalized and completely free practice for the sat . our system works by figuring out what skills we need to practice most , and focusing your time on those . we also help you create a practice schedule based around when your test is , and we have full-length exams from college board to help you get ready for the real thing . so when you first sign in , you 'll arrive on this page . if you 've already taken the psat or sat , you can connect your khan academy and college board accounts and automatically send your test results to us . that way you can start by practicing what you missed on the psat , and we 'll set the question difficulties to match where you are right now . if you have n't taken the psat or sat , no worries . we have a series of diagnostic quizzes that you can take that 'll figure out your strengths and weaknesses and what you should practice first . so when you click sign in to college board , you 'll be taken to college board , so you can send your test results to khan academy . now that we 're connected , we 'll read in your results and create your personalized practice recommendations . alright , looking good . so on your first day you 'll get started by practicing one of the skills that you missed on the test . you 'll also go through the steps to create your practice schedule . i have already created one here , let me scroll down . so i 'm scheduled to take the test on june 4th , and the system helped me figure out when i should take my practice exams , and i also scheduled the days when i want to practice throughout the week . so let 's go ahead and practice that first skill . we have two areas , math and reading and writing . your top three recommended skills to practice are shown here , and you can see these are being recommended because they 're ones that we missed on the psat . so for the ones i missed on psat , the system has me starting at level two . as i answer questions right , i 'll climb up to level four , which has the hardest questions . now let me fire up this first recommended skill . when i 'm working on a practice question , i can show hints or i can also watch a video example for this skill . and then once i 've made my answer , i can check it . oh , did n't get that . but fortunately we give you an explanation for how to solve the problem . after you finish practicing these first three skills , you 'll do a timed mini section , which is like a real test section where you 're under time pressure . but it 's much shorter , just 10 or 11 questions long . and then , once you 're done with that the system will give you three new skills to practice , based on what you missed on the timed mini section , combined with what you missed on your psat or your diagnostic quizzes . then if there 's specific skills that you want to get more practice on , you can come down to the library and choose what you want to practice . you can also watch videos where sal works through different examples . in our tips and planning section , we have videos and articles about the test , as well as tips for preparing for the test . and in our full exam section , we have four full exams you can take to get ready for the real thing . the sat 's a long test , it 's three hours or four hours if you signed up for the optional essay . and it 's very important to take practice exams to build up the endurance you 'll need to do well on your test day . then once you 've finished a practice test , you 'll get your score , you can review your answers , and you 'll get new practice recommendations for the questions that you missed . so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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so that 's it . you can go to khanacademy.org/sat to get started preparing for the sat , all for free . good luck .
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i think i could get a good enough sat score.i am pretty smart ; - ) i have to take the sat anyway as i am a american citizen , but do i need to take the psat too ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b .
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can variables be any thing like decimals fractions and percents ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b .
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i do n't get how it is different from one variable algebra , you just replace the letters to numbers , the only thing that is hard is to solve a algebra with variable on both side wile do do n't know what the variable and how do we do that ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x .
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guys why do n't you explain to me the difference between bodmas & pemdas and when to use each one ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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when the equation comes to `` 6 - 2 + 9 '' would the answer not be minus 5 ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b .
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why is it that the expressions in the mastery challenge are pictured as fractions ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one .
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how many variables can an expression/problem have ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ?
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also why do people more commonly use x than a , b , or c ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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if a/4 = ( 6+bx ) / ( 2x+5 ) , then what is the value of b ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x .
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why are the letters x , y , p , and w always so common in algebra ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ?
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could it also be like 4 to the second power is 400 , or is that something else ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one .
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what is the difference between an expression and a equation ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b .
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why did they put letters in math ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b .
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thx.. how do you write a exponent on a computer ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 .
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how are you going to write `` three to the power of 4 '' in number form* ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own .
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how do letters equal numbers ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b .
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but my friend did n't learn variables until 5th grade ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance .
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how do you know that a=7 b=2 .dose someone know ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b .
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will pemdas be required for the second equation how and why ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one .
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okay , so the work we do is having to do with expression and variables , but it says stuff like `` timmy made a patters using this and that '' , or `` multiplay the number by this and add that '' what i ca n't get is , what is a pattern rule ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 .
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when doing b+a can be anynumber ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 .
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what is negative plus negative ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 .
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how would you evaluate 7u^3 + 9v^2 + 5w + 3 when the variables u , v , and w are equal to 8 , 6 , and 9 , respectively ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b .
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how do i tell when a number is a negative or subtraction ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one .
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how can an algebraic expression have two variables ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x .
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i am having a hard time in all math subjects what should i try to make my grades go up ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b .
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how did the human race start ?
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b . and i want to evaluate this expression when a is equal to 7 and b is equal to 2 . and i encourage you to pause this and try this on your own . well , wherever we see the a , we would just replace it with the 7 . and wherever we see the b , we 'd replace it with the 2 . so when a equals 7 and b equals 2 , this expression will be 7 plus 2 , which , of course , is equal to 9 . so this expression would be equal to 9 in this circumstance . let 's do a slightly more complicated one . let 's say we have the expression x times y minus y plus x . actually , let 's make it plus 3x . or another way of saying it plus 3 times x . so let 's evaluate this when x is equal to 3 and y is equal to 2 . and once again , i encourage you to pause this video and try this on your own . well , everywhere we see an x , let 's replace it with a 3 . every place we see a y , let 's replace it with a 2 . so this is going to be equal to 3 times y . and y is 2 in this case . 3 times 2 minus 2 plus this 3 times x . but x is also now equal to 3 . so what is this going to be equal to ? well , this is going to be equal to 3 times 2 is 6 . this 3 times 3 is 9 . so it simplifies to 6 minus 2 , which is 4 , plus 9 , which is equal to 13 . so in this case , it is equal to 13 .
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now , let 's think about expressions with more than one variable . so say i had the expression a plus -- i 'll do a really simple one , a plus b .
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why do n't we use multiplication symbols ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 .
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can you provide an example ( possibly ) from an industry in today 's market ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ?
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would someone be willing to buy a debt for debt to have a market value ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares .
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i mean why consider same p/e ratio when they are likely to have different price/share ( huge difference ) ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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minus $ 8,100 . is that right ? yeah .
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for the second company on the right , why the asset is taken to be 100k and not 110k ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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or across the street from each other . it 's the same asset . let me draw that out .
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when there is 10k in cash on top of 100k asset , would n't that mean total asset is 110k instead of 100k ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy .
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would using the price to book ratio give some light to such a misvaluation ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate .
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standard 's and poors rankings take into effect the amount of liquidity and debt of a company to provide their assessment of confidence of a company , so could n't that be used in conjunction with the p/e ratio to judge which would be the better investment ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax .
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i see its coming from the net income , but what is the calculation ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share .
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it is true company a owns all the shares , but for company b , is it fair 10k equity owns 10,000 shares as well ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy .
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if p/e is 10 for both companies , so that means the price for every dollar of earnings is 10 ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity .
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how is company b growing faster ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax .
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would n't the net income for the first pizza place be 11k ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further .
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company a at $ 21/share or company b at $ 18.90/share ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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i 'll arbitrarily switch colors . 10,000 . so eps .
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you quickly said `` they both deserve a p/e of 10 '' how does one determine that value ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy .
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how do u then determine the price of the share ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy .
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could n't you just look at the price/book value in addition to the p/e ratio to determine if the price is just ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical .
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in this case , for company b , would n't the book value be $ 1 ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense .
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does it mean if people sell their company whose capital structure consists of debt and equity , they could sell a higher price because the market value of the total asset being over evaluated ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this .
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what is zero physical assets ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate .
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what does it mean when sal says referring to b company `` how much we are overpaying `` ?
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let 's say we have two entrepreneurs . and they are both interested in buying a pizzeria and eventually turning it into a public company . so let 's compare the two . so let me draw a dividing line here between the first and the second entrepreneurs . and they 're actually going to buy identical assets . so they 're going to buy a pizzeria with the ovens inside of them . and the same amount of cash in the cash register . everything they need to operate the pizzeria and they may be in identical locations . maybe right next to each other at the same intersection . or across the street from each other . it 's the same asset . let me draw that out . i do n't want to draw this box . so that 's the asset . and it costs $ 100,000 . that includes the building . it includes the oven . it includes the places where the customers come sit . it even includes the cash needed to operate the business . so you need some cash to pay vendors just to get started and to pay for things like dough . and have some money in the cash register . and to have a little bit of a bank account . things like that . so that 's all inclusive . all of the assets needed to start the firm , the pizzeria . so this is the assets . and they both buy identical assets . so let me copy and paste that . they buy identical assets . now , the first entrepreneur , he 's very conservative and he 's been saving all his whole life to do this . so he actually has $ 100,000 of cash to buy his pizzeria , so he buys it outright . so he owns it outright so all of the $ 100,000 of asset value is actually his equity . let me do equity in a different color . it 's all his equity . so that 's all his equity . this guy here , maybe he 's a little bit earlier in his career , or he 's just not as good at saving money . so he does n't quite have $ 100,000 . he actually only has $ 10,000 in his pocket . but he 's a smooth talker . so he goes to the local bank and says , hey i have this great idea for -- let me write this down , $ 10,000 of equity , that 's what he has -- but he tells the guy at the bank , and he buys him lunch , and he says , i have this great idea for a pizzeria . and they agree to give him not just $ 90,000 . this guy , he 's a little ambitious too . he thinks not just beside a pizzeria . in the name of the pizzeria he 's going to borrow some money and then maybe invest that in stocks or something . so he gets a sweetheart deal on the loan . and he 's able to actually borrow a little bit more than what he even needs . he only needs $ 90,000 , but let 's say he borrows $ 100,000 . so he borrows $ 100,000 of debt . and so , he has $ 110,000 to play with . he buys a $ 100,000 pizzeria . and then he has another $ 10,000 left over to do with what he wants . and he puts it in the pizzeria 's name , in the pizzeria 's bank account . because he has to show the bank that it 's going towards the pizzeria . but his real intent is to maybe gamble with it on the side in the pizzeria 's name , and maybe invest in stocks or speculate on pork belly futures or something like that . but for all intents and purposes it 's cash . and so they go off and they start their pizzeria . let 's see what happens . so let 's look at them over the course of one year . so let 's say , revenue . so let 's say the first year they 're identical . they both make $ 100,000 in revenue . let 's say their cost of goods sold is roughly 50 % of that . so it 's $ 50,000 . i 'll put a minus there because it 's an expense . minus $ 50,000 . so both of their gross profit is $ 50,000 . and then their sg & a is the same . if you 've watched the video on depreciation and amortization , this might even include the depreciation on some of the physical assets they 've bought , or maybe the amortization on the rights to the name super pizzeria . in either case . maybe the brands are identical . so that 's another $ 20,000 . minus $ 20,000 . so far they look very , very identical . and that 's because they have the same exact asset . so their operating profit . 50 minus 20 is $ 30,000 . and now we 'll start to see a little difference . and this goes back to the very first video we saw . it says if you have an identical asset and it 's being managed identically , which it is in this case , they will generate an identical amount of operating profit . but when i talk about the asset , i 'm talking about only the operating assets . this guy has some non-operating assets , although it 's officially part of the company . he does n't need it to operate . this is cash above and beyond what 's needed in the cash register . and we might have a little bit of cash here in this asset that 's needed for the cash register . and i 'll teach you more about working capital . but in order to pay vendors and things like this . this is cash above and beyond what 's necessary . this guy has a little bit of cash just to operate the business . he just does n't have this gambling cash out here . so now we add an interesting line . non-operating income . this guy does n't make anything . he 's not gambling . this guy 's pretty good with this $ 10,000 of speculation cash . he makes , say , 20 % on it in this first year . so he makes $ 2,000 . and then we have interest expense . this guy has no debt . very prudent . he has no interest . so his pre-tax income is $ 30,000 . this guy , he does have interest . and let 's say on that $ 100,000 of debt , he got a really good deal . let 's say that the fed thought that he was systemically important to the future of our financial system . so he gave him a sweetheart 2 % debt deal , because he was afraid that if this pizzeria were to fail , it would bring down the entire financial system . so given that 2 % on $ 100,000 debt . that 's $ 2,000 of debt a year . so minus $ 2,000 . i 'll make it a little bit more realistic . let 's say it 's 5 % . so 5 % on $ 100,000 is $ 5,000 per year in interest . so that 's his interest expense . let me write that . this was interest . this was non-op income . this was operating profit . you just have to carry the lines over . and so his pre-tax income is now 30 plus 2 minus 5 is $ 27,000 . they both pay 30 % in taxes . and so this guy 's paying $ 10,000 . well , actually , $ 9,000 would be 30 % . and this guy , 30 % of 27 . so let 's see . taxes . 3 , 6,000 plus -- 8,100 . minus $ 8,100 . is that right ? yeah . that 's $ 9,000 . and then if you have $ 3,000 less , you should be $ 900 less . yep , that 's right . and so , we 're finally at the net income line . this guy makes $ 21,000 . this guy makes -- what is this ? this is $ 18,900 net income . and of course the difference is the money that he had to spend on tax . on interest expense . if you net out all of his little financial engineering , he had to pay $ 3,000 more in interest , if you net out his profit he made on his little cash bets , his side bets . and that was able to be a tax deduction . so the actual effect ends up being $ 2,100 . which is essentially $ 3,000 of a 30 % tax rate . so , fair enough . that 's not what i want to do here . i do n't want to focus too much on the tax savings on interest . what i want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation , where you have an identical asset but very different capital structures . so let 's say they both have 10,000 shares . i 'll arbitrarily switch colors . 10,000 . so eps . this guy made $ 21,000 this year . divided by 10,000 shares is $ 2.10 per share . this guy , $ 18,900 divided by $ 10,000 is $ 1.89 per share . and we could have modeled out their income statements further . and actually , this guy , even if the top line , even if the revenue grew the same and the operating profit grew the same , because of his leverage he would actually grow a little bit faster . i 'll do another video on how that works with leverage . but let 's say that someone looks at this and says , ok , it 's the same business and everything . and if anything , this guy 's growing a little bit faster because he 's got that leverage , that extra juice from the financials , from the capital structure he 's got . so they both deserve at least a price to earnings of 10 . so you say , they both deserve a price to earnings of 10 . so 10 price to earnings . you 'd say , i 'm willing to pay $ 21 for this guy . and i 'm willing to pay $ 18.90 for this guy . now what does that result in their valuation , or in terms of their market cap ? so in this guy 's case , market cap . $ 21 times 21,000 times 10,000 shares , means that you are ascribing a -- 21 times 10 -- you 're saying that the equity in this company is worth $ 210,000 . in this case , you 're saying that the equity in this company is worth $ 189,000 . so this one 's worth a little bit more , because it 's earning a little bit more money . although i do n't want to complicate it , but you might be willing to pay a higher multiple here . so something very interesting is happening . by applying the same price to earnings , we 're saying that the market value of this equity is $ 210,000 , while the market value of this equity is -- what was it ? -- $ 189,000 . something does n't seem to make sense . this guy put up $ 100,000 , and sure , they invested it and did all that . so now the market 's willing to say , hey , you know what ? this is a pretty profitable business , more profitable than most . you 're making good margins . and i 'll do a bunch of videos on margins in the future . we 're willing to say that the market value of your equity is $ 210,000 . which implicitly means that the market value of this asset is $ 210,000 . they 're saying , this is worth $ 210,000 . that 's because this must be worth $ 210,000 . but if you look here , by giving the same price to earnings , because they 're the same business . and maybe this guy 's even growing faster , so maybe they 're being conservative by only giving this guy a 10 price to earnings . you get a $ 189,000 market cap for this equity . which , all of a sudden , this guy only put in $ 10,000 , and people are saying it 's worth $ 189,000 ? and if this little fraction right here is $ 189,000 , then it implies what about this asset ? what does it imply about the value of that asset ? you have $ 189,000 as the value of this equity . the value of this debt is $ 100,000 . so the market is saying , the right-hand side of the balance sheet is what ? it 's $ 189,000 plus $ 100,000 . it 's $ 289,000 . and let 's say this cash is still cash . it 's worth $ 10,000 . so if you subtract it out , the market is saying , this is $ 289,000 minus this $ 10,000 , $ 279,000 . so something is very bizarre right here . that the market -- just because of how this guy has capitalized his company -- if they just apprised a superficial price to earnings of 10 to both companies , it 's willing to say that this asset is worth $ 279,000 , and this asset 's only worth $ 210,000 , even though they 're identical assets ! so i 've already used more than enough time on this video , so i 'll let you ponder that a little bit . in the next video , i 'll show you that the reason why this is kind of breaking down is because a price to earnings ratio does break down to a certain degree when you start comparing things with different capital structures . and in the next video , i 'll introduce you to other ways of comparing things with a different capital structures , or essentially deleveraging them . that when you just talk about price to earnings or market capitalization -- when you just looked at market capitalization , it looked ok. oh , they 're similar businesses . this one 's worth a little bit more because this one has debt . but when you actually back out the implicit value of the asset , all of a sudden you realize that you 're really overpaying for this asset . so think about that a little bit . what 's the conundrum here ? what went wrong ? and in the next video i 'll give you some tools to actually do this right .
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let me write that . this was interest . this was non-op income .
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why is only the interest considered , why not the annuity ?
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let 's think about how many blocks we have here . what number these blocks represent . well , i have four groups of a hundred here , so i could say that i have four hundreds . four hundreds . i have three groups of 10 here . so i could write plus three tens . plus three tens . and then i have six ones here . so i could write plus six ones . plus six ones . and , so i can write that as ... i could write that as ... i could write a six in the ones place for my six ones . three in the tens place for my three tens . for my three tens . and then a four in the hundreds place for my four hundreds . so this is 436 . four hundred thirty-six . 436 . now let 's subtract from that . let 's subtract from that ... let 's subtract from that the number ... the number 300 ... 312 . 312 and let 's think about what we would do here for subtracting 300 ... if we are subtracting 312 . well , we had six ones before , we 're taking away two ones . so let me write that down . we 're gon na take away two ones . we 're taking away one 10 . so we 're taking away one 10 . so minus one 10 . and we 're taking away three hundreds . so we 're taking away ... so we 're taking away three hundreds . three hundreds . so what 's that going to do to us ? what 's that going to do to us ? well , we had four hundreds , we 're taking away three hundreds , so let 's take them away . let 's take away ... let 's take away the ... let 's take way the one ... two ... and three hundreds and we 're just left with one hundred . one hundred . we could do it over here . four hundreds minus three hundreds is going to be one hundred . now we had three tens , we 're taking away one ten . so let 's do that . so we 're going to be left with two tens . so plus two tens . three minus one is two . three minus one is two . and then last , then we had six ones , we 're taking away two ones , and we 're going to be left with four ones . six minus two is four . six minus two is four . and we 're done ! 436 minus 312 is 124 . and you see how we did that . we took away three hundreds . we took away one ten . and we took away two ones . to get 124 . which is one hundred , two tens , and four ones .
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let 's take away ... let 's take away the ... let 's take way the one ... two ... and three hundreds and we 're just left with one hundred . one hundred . we could do it over here .
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is the word hundred a number and place value ?
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let 's think about how many blocks we have here . what number these blocks represent . well , i have four groups of a hundred here , so i could say that i have four hundreds . four hundreds . i have three groups of 10 here . so i could write plus three tens . plus three tens . and then i have six ones here . so i could write plus six ones . plus six ones . and , so i can write that as ... i could write that as ... i could write a six in the ones place for my six ones . three in the tens place for my three tens . for my three tens . and then a four in the hundreds place for my four hundreds . so this is 436 . four hundred thirty-six . 436 . now let 's subtract from that . let 's subtract from that ... let 's subtract from that the number ... the number 300 ... 312 . 312 and let 's think about what we would do here for subtracting 300 ... if we are subtracting 312 . well , we had six ones before , we 're taking away two ones . so let me write that down . we 're gon na take away two ones . we 're taking away one 10 . so we 're taking away one 10 . so minus one 10 . and we 're taking away three hundreds . so we 're taking away ... so we 're taking away three hundreds . three hundreds . so what 's that going to do to us ? what 's that going to do to us ? well , we had four hundreds , we 're taking away three hundreds , so let 's take them away . let 's take away ... let 's take away the ... let 's take way the one ... two ... and three hundreds and we 're just left with one hundred . one hundred . we could do it over here . four hundreds minus three hundreds is going to be one hundred . now we had three tens , we 're taking away one ten . so let 's do that . so we 're going to be left with two tens . so plus two tens . three minus one is two . three minus one is two . and then last , then we had six ones , we 're taking away two ones , and we 're going to be left with four ones . six minus two is four . six minus two is four . and we 're done ! 436 minus 312 is 124 . and you see how we did that . we took away three hundreds . we took away one ten . and we took away two ones . to get 124 . which is one hundred , two tens , and four ones .
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let 's think about how many blocks we have here . what number these blocks represent .
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how do you draw at the computer ?
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let 's think about how many blocks we have here . what number these blocks represent . well , i have four groups of a hundred here , so i could say that i have four hundreds . four hundreds . i have three groups of 10 here . so i could write plus three tens . plus three tens . and then i have six ones here . so i could write plus six ones . plus six ones . and , so i can write that as ... i could write that as ... i could write a six in the ones place for my six ones . three in the tens place for my three tens . for my three tens . and then a four in the hundreds place for my four hundreds . so this is 436 . four hundred thirty-six . 436 . now let 's subtract from that . let 's subtract from that ... let 's subtract from that the number ... the number 300 ... 312 . 312 and let 's think about what we would do here for subtracting 300 ... if we are subtracting 312 . well , we had six ones before , we 're taking away two ones . so let me write that down . we 're gon na take away two ones . we 're taking away one 10 . so we 're taking away one 10 . so minus one 10 . and we 're taking away three hundreds . so we 're taking away ... so we 're taking away three hundreds . three hundreds . so what 's that going to do to us ? what 's that going to do to us ? well , we had four hundreds , we 're taking away three hundreds , so let 's take them away . let 's take away ... let 's take away the ... let 's take way the one ... two ... and three hundreds and we 're just left with one hundred . one hundred . we could do it over here . four hundreds minus three hundreds is going to be one hundred . now we had three tens , we 're taking away one ten . so let 's do that . so we 're going to be left with two tens . so plus two tens . three minus one is two . three minus one is two . and then last , then we had six ones , we 're taking away two ones , and we 're going to be left with four ones . six minus two is four . six minus two is four . and we 're done ! 436 minus 312 is 124 . and you see how we did that . we took away three hundreds . we took away one ten . and we took away two ones . to get 124 . which is one hundred , two tens , and four ones .
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let 's think about how many blocks we have here . what number these blocks represent .
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if 500+500=1000 what is 50+50= ?
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let 's think about how many blocks we have here . what number these blocks represent . well , i have four groups of a hundred here , so i could say that i have four hundreds . four hundreds . i have three groups of 10 here . so i could write plus three tens . plus three tens . and then i have six ones here . so i could write plus six ones . plus six ones . and , so i can write that as ... i could write that as ... i could write a six in the ones place for my six ones . three in the tens place for my three tens . for my three tens . and then a four in the hundreds place for my four hundreds . so this is 436 . four hundred thirty-six . 436 . now let 's subtract from that . let 's subtract from that ... let 's subtract from that the number ... the number 300 ... 312 . 312 and let 's think about what we would do here for subtracting 300 ... if we are subtracting 312 . well , we had six ones before , we 're taking away two ones . so let me write that down . we 're gon na take away two ones . we 're taking away one 10 . so we 're taking away one 10 . so minus one 10 . and we 're taking away three hundreds . so we 're taking away ... so we 're taking away three hundreds . three hundreds . so what 's that going to do to us ? what 's that going to do to us ? well , we had four hundreds , we 're taking away three hundreds , so let 's take them away . let 's take away ... let 's take away the ... let 's take way the one ... two ... and three hundreds and we 're just left with one hundred . one hundred . we could do it over here . four hundreds minus three hundreds is going to be one hundred . now we had three tens , we 're taking away one ten . so let 's do that . so we 're going to be left with two tens . so plus two tens . three minus one is two . three minus one is two . and then last , then we had six ones , we 're taking away two ones , and we 're going to be left with four ones . six minus two is four . six minus two is four . and we 're done ! 436 minus 312 is 124 . and you see how we did that . we took away three hundreds . we took away one ten . and we took away two ones . to get 124 . which is one hundred , two tens , and four ones .
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so we 're taking away one 10 . so minus one 10 . and we 're taking away three hundreds .
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2 4 6 8 10 are evan and 1 3 5 7 9 11 is odd right ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha !
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regarding lactic acid buildup due to pyruvate - why does continued conditioning result in less lactic acid buildup ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen .
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what are the effects of having too much atp ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar .
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if atp is the `` biological currency '' , would n't there be inflation ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen .
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could we use atp to create electrical power ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp .
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what is keeping us from using it to power our civilization ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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how much atp does our bodies ' use a day ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s .
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what does nadh stand for ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen .
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how does it power atp production ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen .
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is there any alternative that can be used when our body is not able to synthesis the needed amount of atp ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh .
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is the process around ( when the three carbon chain is converted into a 2 carbon chain which binds with coenzyme-a to form acetyl coa ) oxidative decarboxylation ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle .
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the difference between respiration and perspiration ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp .
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do plants produce atp the same way ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid .
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why does atp turn into adp ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 .
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is hydrolysis where hydraulics got its name ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose .
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why is oxygen eccentrial to brain cells and other cells ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat .
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is the adenine in the atp somehow related to the adenine in the dna ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before .
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how does breaking off a phosphate group release energy ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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why does the body movement react to the drugs regarding influments ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps .
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what is phosphoglucoisomerase ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration .
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what is the equation for aerobic respiration ?
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hank : oh , hello there i 'm at the gym . i do n't know why you 're here , but i 'm going to do some push-ups . so you can join me on the floor if you want . now i 'm not doing this just to show off or anything , i 'm actually doing this for science , okay . ( grunts ) you see what happened there ? my arms moved . my shoulders moved . my back and stomach muscles moved . my heart pumped blood to all of those different places . it 's pretty neat , huh ? well , it turns out that how we make and use energy is a lot like sports or other kinds of exercise . it can be hard work and a little bit complicated , but if you do it right , it comes with some tremendous payoffs . but unlike hitting a ball with a stick , it 's so marvelously complicated and awesome that we 're still unraveling the mysteries of how it all works , and it all starts with a marvelous molecule that is one of your best friends , atp . ( energetic music ) today , i 'm talking about the energy and the process our cells and other animals ' cells go through to provide themselves with power . cellular respiration is how we derive energy from the food that we eat , specifically from glucose since most of what we eat ends up as glucose . here 's the chemical formula for one molecule of glucose . in order to turn this glucose into energy , we 're going to need to add some oxygen . six molecules of it , to be exact . through cellular respiration , we 're going to turn that glucose and oxygen into six molecules of co2 , six molecules of water , and some energy that we can use for doing all of our push-ups . so that 's all well and good , but here 's the thing , we ca n't just use that energy to run a marathon or something . first , our bodies have to turn that energy into a really specific form of stored energy called atp or adenosine triphosphate . you 've heard me talk about this before . people often refer to atp as the currency of biological energy . think of it as an american dollar . it 's what you need to do business in the u.s. you ca n't just walk into a best buy with a handful of chinese yuan or indian rupees and expect to be able to buy anything with them even though they technically are money . same goes with energy , in order to be able to use it , our cells need energy to be transferred into adenosine triphosphate to be able to grow , move , create electrical impulses in our nerves and brains , everything . a while back , for instance , we talked about how cells use atp to transport some kinds of materials in and out of its membranes . to jog your memory about that , you can watch that episode right here . now before we see how atp is actually put together , let 's look at how cells can cash in on the energy that 's stashed in there . well , adenosine triphosphate is made up of a nitrogenous base called adenine with a sugar called ribose and three phosphate groups attached to it . now one thing you need to know about these three phosphate groups , is that they are super uncomfortable sitting together in a row like that , like three kids on a bus who hate each other all sharing the same seat . so because the phosphate groups are such terrible company for each other , atp is able to do this nifty trick where it shoots one of the phosphate groups off the end of the seat , creating adp , or adenosine diphosphate , because now , there are just two kids sitting on the bus seat . and this reaction when the third jerk kid is kicked off the seat , energy is released . and since there are a lot of water molecules just floating around nearby , an oh pairing , that 's called a hydroxide , from one of the h2os comes over and takes the place of that third phosphate group , and everybody is much happier . by the way , when you use water to break down a compound like this , it 's called hydrolysis , `` hydro '' from water and `` lysis '' from the greek word `` for separate '' . so now that you know how atp is spent , let 's see how it is minted , nice and new , by cellular respiration . like i said , it all starts with oxygen and glucose . in fact , textbooks make a point of saying that through cellular respiration , one molecule of glucose can yield a bit of heat and 38 molecules of atp . now , it 's worth noting that this number is kind of a best-case scenario . usually it 's more like 29 or 30 atps , but whatever . people are still studying this stuff , so let 's stick with that number , 38 . now , cellular respiration is n't something that just happens all at once . glucose is transformed into atps over three separate stages . glycolysis , the krebs cycle , and the electron transport chain . traditionally , these stages are described as coming one after the other but really everything in the cell , is kind of happening all at the same time . but let 's start with the first step , glycolysis , or the breaking down of the glucose . glucose , of course , is a sugar , you know this because it 's got an `` ose '' at the end of it . and glycolysis is just the breaking up of glucose 's six-carbon ring into two three-carbon molecules called pyruvic acids or pyruvate molecules . now in order to explain how exactly glycolysis works , i 'd need about an hour of your time , and a giant cast of finger puppets each playing a different enzyme , and though it would pain me to do it , i would have to use words like phosphoglucoisomerase , but a simple way of explaining it , is like this , if you wan na make some money , you got ta spend some money . glycolysis needs the investment of two atps in order to work and in the end , it generates four atps , for a net profit if you will of two atps . in addition to those four atps , glycolysis results in two pyruvates and two super energy-rich morsels called nadh , which are sort of the love children of a b vitamin called nad+ pairing with energized electrons and a hydrogen to create storehouses of energy that will later be tapped to make atp . to help us keep track of all the awesome stuff we 're making here , let 's keep score . so far we 've created two molecules of atp and two molecules of nadh , which will be used to power more atp production later . now , a word about oxygen . like i mentioned , oxygen is necessary for the overall process of cellular respiration . but not every stage of it . glycolysis , for example , can take place without oxygen , which makes it an anaerobic process . in the absence of oxygen , the pyruvates formed through glycolysis gets rerouted into a process called fermentation . if there 's no oxygen in the cell , it needs more of that nad+ to keep the glycolysis going . so fermentation frees up some nad+ , which happens to create some interesting byproducts . for instance , in some organisms , like yeasts , the product of fermentation is ethyl alcohol , which is the same thing as all of this lovely stuff . but luckily for our day-to-day productivity , our muscles do n't make alcohol when they do n't get enough oxygen . if that were the case , working out would make us drunk , which actually would be pretty awesome but instead of ethyl alcohol , they make lactic acid . which is what makes you feel sore after that workout that kicked your butt . so , your muscles used up all the oxygen they had and they had to kick into anaerobic respiration in order to get the energy that they needed . and so you have all this lactic acid building up in your muscle tissues . ha ! ah ! ah ! back to the score . now we 've made two molecules of atp through glycolysis , but your cells really need the oxygen in order to make the other 30-some molecules that they need . that 's because the next two stages of cellular respiration , the krebs cycle and the electron transport chain , are both aerobic processes , which means that they require oxygen . and so we find ourselves at the next step in cellular respiration . after glycolysis , comes the krebs cycle . so , while glycolysis occurs in the cytoplasm or the fluid medium within the cell that all the organelles hang out in , the krebs cycle happens across the inner membrane of the mitochondria , which are generally considered the power centers of the cell . the krebs cycle takes the products of glycolysis . those carbon-rich pyruvates and reworks them to create another two atps per glucose molecule , plus some energy and a couple of other forms , which i 'll talk about in a minute . here 's how . first , one of the pyruvates is oxidized , which basically means that it 's combined with oxygen . one of the carbons off the three-carbon chain bonds with an oxygen molecule and leaves the cell as co2 . what 's left is a two-carbon compound called acetyl coenzyme a or acetyl coa . then , another nad+ comes along , picks up a hydrogen and becomes nadh . so our two pyruvates create another two molecules of nadh to be used later . as in glycolysis , and really all life , enzymes are essential here . they are the proteins that bring together the stuff that needs to react with each other , and they bring them together in just the right way . these enzymes , for example , bring together a phosphate with an adp , to create another atp molecule for each pyruvate . enzymes also help join the acetyl coa and a four-carbon molecule called oxaloacetic acid . i think that 's how you pronounce it . together they form a six-carbon molecule called citric acid and i 'm certain that that 's how you pronounce that one because yeah , it 's the stuff that 's in orange juice . ( lively piano music ) fun fact , the krebs cycle is also known as the citric acid cycle because of this very byproduct . however , it is usually referred to by the name of the man who figured it all out . hans krebs , an ear , nose , and throat surgeon who fled nazi germany to teach biochemistry at cambridge , where he discovered this incredibly complex cycle in 1937 . for being such a total freaking genius , he was awarded the nobel prize for medicine in 1953 . anyway , the citric acid is then oxidized over a bunch of intricate steps , cutting carbons off left and right , to eventually get back to oxaloacetic acid , which is what makes the krebs cycle a cycle . and as the carbons get cleaved off the citric acid , there are leftovers in the form of co2 or carbon dioxide , which are exhaled by the cell , and eventually by you . you and i , as we continue our existence as people , are exhaling the products of the krebs cycle right now . good work . ( breathes out loudly ) this video , by the way , i 'm using a lot of atp making it . now , each time a carbon comes off of the citric acid , some energy is made , but it 's not atp . it 's stored in a whole different kind of molecular package . this is where we go back to nad+ and its sort of colleague fad . nad+ and fad are chummy little enzymes that are related to b vitamins . derivatives of niacin and riboflavin , which you might have seen in the vitamin aisle . these b vitamins are good at holding onto high energy electrons and keeping that energy until it can get released later in the electron transport chain . in fact , they 're so good at it , that they show up in a lot of those high-energy vitamin powders that the kids are taking these days . nad+s and fads are like batteries , big awkward batteries that pick up hydrogen and energized electrons from each pyruvate , which in effect charges them up . the addition of hydrogen turns them into nadh and fadh2 , respectively . each pyruvate yields three nadhs and one fadh2 per cycle , and since each glucose has been broken down into two pyruvates that means each glucose molecule can produce six nadhs and two fadh2s . the main purpose of the krebs cycle is to make these powerhouses for the next and final step , the electron transport chain . and now comes the time when your saying , `` sweet pyruvate sandwiches , hank , `` are n't we supposed to be making atp here ? `` let 's make it happen , capt'n ! what 's the holdup ? '' well friends , your patience is finally paying off because when it comes to atps , the electron transport chain is the real moneymaker . in a very efficient cell , it can net a whopping 34 atps . so , remember all those nadhs and fadh2s we made in the krebs cycle ? well , their electrons are going to provide the energy that will work as a pump along a chain of channel proteins across the inner membrane of the mitochondria where the krebs cycle occurred . these proteins will swap these electrons to send hydrogen protons from inside the very center of the mitochondria , across its inner membrane to the outer compartment of the mitochondria . but once they 're out , the protons want to get back to the other side of the inner membrane , because there 's a lot of other protons out there and as we 've learned , nature always tends to seek a nice , peaceful balance on either side of a membrane . so all of these anxious protons are allowed back in through a special protein called atp synthase . and the energy of this proton flow drives this crazy spinning mechanism that squeezes some adp and some phosphates together to form atp . so , the electrons from the 10 nadhs that come out of the krebs cycle , have just enough energy to produce roughly three atps each . and we ca n't forget our friends the fadh2s . we have two of them and they make two atps each . and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again . we made two atps for each pyruvate during glycolysis . we made two during the krebs cycle , and then during the electron transport chain we made about 34 . and that is just for one molecule of glucose . imagine how much your body makes and uses every single day .
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and voila ! that is how animal cells , the world over , make atp through cellular respiration . now just to check , let 's reset our atp counter and do the math for a single glucose molecule once again .
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what is the net profit of atp in cellular respiration.how ?
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