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40 Cards in this Set
- Front
- Back
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Difference between Fundamental Analysis and Technical Analysis?
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Fundamental analysis reviews the condition of a company and its financial statements to predict its performance. Technical analysis forucses on market sentiment or trading trends to predict how the market, and by extension companies, will do.
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The Balance sheet is made up of...
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Assets, Liabilities and Stockholders' Equity. Assets = Liabilities + Stockholder's Equity |
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Assets of a Company |
Current Assets: Cash and items that may be converted into cash within one year Fixed Assets: used by company in day-to-day operations. These assets depreciate Intangible Assets: Do not have physical value but add substantial value to company. Things like patents, trademarks, franchises |
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Liabilities Section
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Current Liabilities: Debts due in less than one year, like accounts payable, dividends payable Long-term Liabilities: Payable in more than one year, like bonds and long-term bank loans |
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Stockholders Equity
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Represents company's net worth and indicates shareholder's ownership interest. Preferred stock listed at par value of company's outstanding shares, common stock listed at par value and arbitrarily set.
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Income Statement
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Sales represent total money received, reduced by day-to-day operating expenses to arrive at operating income
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Net Working Capital |
Net Working Capital: represents difference between company's current assets and liabilities. Total Current Assets - Total Current Liabilities |
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Current Ratio
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Indicative of a company's ability to pay its current liabilities by using its current assets Total Current Assets/Total Current Liabilities Typically 2-1 indicates safety |
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Quick Asset Ratio (Acid Test)
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More stringent thancurrent ration in measuring a company's liquidity because it subtracts inventory (Total Current Assets - Inventory)/Total Current Liabilities Ratio of more than 1-1 is considered safe as company can pay off its bills without having to borrow money |
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Cash Flow
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Reflects the amount of money generated by a company's operations. Assesses company's ability to meet its current expenses as well as pay dividends Net Income (or loss) + Annual Depreciation Positive cash flow indicates sufficient income EBITDA is another measure of cash flow |
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Long-Term Capital
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Long-Term Liabilities + Stockholders Equity
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Bond Ratio
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Indicative of percentage of long-term capital attributable to bonds Par Value of Bonds/ Total Long-Term Capital |
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Common Stock Ratio
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Shows % of long-term capital attributable to common stock (Common Stock at Par + Capital Surplus + Retained Earnings)/ Total Long-Term Capital |
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Debt-to-Equity Ratio
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Compares securities with fixed charges (bonds) to securities without fixed charges (stocks). Used to evaluate credit strength of a corporation (Bonds + Preferred Stock)/(Common Stock at Park + Capital Surplus + Retained Earnings) |
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Book Value per Common Share
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Determines amount of assets backing the securities issued by a company (Total Assets - Intangibles - Total Liabilities - Preferred Stock) / Number of Outstanding Common Shares |
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Return on Common Equity
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Compares amount of income available to common shareholders to value of company's common stock. (Net Income - Preferred Dividends)/ (Common Stock at Par + Capital Surplus + Retained Earnings) |
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Earnings per Share (Primary EPS)
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Indicative of amount of earnings available to common stockholder (Net Income - Preferred Dividends)/ Number of Common Shares Outstanding |
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Price/Earnings Ratio
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Measures relationship between market price and EPS Market Price/Earnings per Share |
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Dividend Payout Ratio
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Measures % of net income being paid to common stockholders in form of cash dividend. Annual Dividend Paid on Common Stock/ Earnings per Share |
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Current Yield
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Expresses rate of return that the dividend represents based on stock's current market price Annual Dividend per Share/Current Market Price |
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Annual Reports (10-K)
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Contains all the important financial data needed by a fundamental analyst to study a company
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Indexes to Follow to Track Markets
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Dow Jones Averages S&P 500 - follows broader range than Dow, includes industrial, transportation, financial and utility stocks NYSE Composite Index - same breakdown as S+P Wilshire Associates Equity Index |
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Short Interest Theory |
When a company is frequently sold short it is a bullish indicator since so many people will then turn around and buy the stock to cover the short position
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Put/Call Ratio
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Ratio found by dividing volume of puts by volume of calls. The higher the ratio, the more oversold the market and the higher probability the market will turn bearish |
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Odd-Lot Theory
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Do the opposite of what small investors do since they are often wrong
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Advance-Decline Theory
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If there are more securities going up in value than down, it is a bullish indicator. But if the market averages (Dow average) is up but advance-decline figures are negative it is a bearish sign
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Dow Theory
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Theory attempts to determine cahnges in underlying trend of market. A major trend is confirmed only when the Dow Jones Industrial Average and Dow Jones Transporation Average reach a new high or low. Without confirmation, the market will drift back to previous patterns
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Resistance and Support Levels
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A resistance level is a price that is too expensive to buy a stock and buying ceases. The stock hits this price but won't go above. Support level is the opposite (won't go below). A breakout is when the stock goes above the resistance level, and is a bullish sign. A breakout below the support level is a bearish sign |
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Head and Shoulders Pattern
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This is when a stock goes up and then down, then up higher and down, then up again and way down (or vice versa). That type of pattern can then be used to sell short if you think it will continue negatively
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Saucer Pattern
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A half-circular pattern that believes a stock will gradually go up or down and then after reachin gits high point it will go down because the buying opportunity at that high point was too tempting |
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Random Walk (Efficient Market) Theory
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Believes security analysis does not produce investment recommendations that will allow investors to consistently outperform a portfolio. Believes stock prices represent all available information so it is futile to try and identify undervalued securities |
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Growth Analysis
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Used by investors who want to find companies with rapidly growing earnings in the hope growth will continue. Usually purchase stocks with high P/E ratios, high level of retained earnings, low dividend payout ratios
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Value Analysis
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Used by investors interested in stocks of companies that are undervalued or trading at a discount to book value. These stocks are attractive to long-term investors since depressed prices make them good value. Have low P/E ratio, history of profits, high dividend yield, low market to book ratio
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Top-Down versus Bottom-Up Analysis
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Top-down focuses on the economy first and tehn specific industries are identified. Bottom Up is based on analysis of companies, from there you can move outwards to find other companies in similar position
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Momentum Investing
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Investors move rapidly from one sector of market to another to chase money flows. These investors often use sector specific ETFs to accomplish this movement |
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Indexing
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Investors choose index funds or ETFs as they believe individual investors cannot outperform the market
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Modern Portfolio Theory
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Shifts attention away from individual securities to focus on the portfolio as a whole. Suggests there are a series of mixes that are optimal along an efficient frontier line within a graph measuring risk to return. MPT has found that investing in asset classes with low degrees of correlation is a good sign for return
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Capital Asset Pricing Model (CAPM)
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Attempts to describe how market prices investments and provides insight into nature of risks. Categories risk into diversifiable risk, which can be avoided, and non-diversifiable risk, which cannot. As a result, investors are compensated for non-diversifiable risk
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Beta
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The amount of non-diversifiable risk associated with a particular portfolio is measured as beta. Describes the risk of a portfolio or asset as compared to market which has beta of 1. A value below one says that if market goes up/down the stock won't go up/down as much |
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Alpha
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Measures portion of a stock's return that is achieved independent of market. Influenced by factors unique to company and industry group.
Represents difference between asset's expected return and its actual return. If security's actual return is higher than its beta, it has a positive alpha |
