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13 Cards in this Set
- Front
- Back
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What are Porter's Five Forces? |
1. Threat of New Entrants 2. Bargaining Power of Suppliers 3. Bargaining Power of Buyers 4. Rivalry among existing competitors 5. Threat of Substitutes |
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What is Barriers to Entry? |
Entry barriers are advantages that incumbents have relative to new entrants. The threat of entry in an industry depends on the heights of entry barriers that are present and on the reaction entrants can expect from incumbents. |
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What are seven major sources of Barriers to Entry? |
1. Supply-side economies of scale 2. Demand-side benefits of scale / Network effect 3. Customer Switching costs 4. Capital Requirements 5. Incumbency advantages independent of size 6. Unequal access to distribution channel 7. Restrictive government policy |
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What do security analysts do? |
- Use financial statements to value business firms - Predict future performance - Measure value of shares - Recommend buy/sell/hold |
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Five steps of Financial Statement Analysis |
1. Identify economic characteristics of industry 2. Identify strategies that a firm pursues 3. Assess quality of financial statements 4. Analyze future profitability and risk 5. Value the firm |
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Some tools of analyzing economic characteristics of an industry |
1. Value Chain Analysis 2. Porters' Five Forces Analysis 3. Economic attributes 4. Common Size financial statements 5. Overview of Income Statement and BS |
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Herfindahl-Hirschman Index (HIH) |
A measure of concentration within an industry and is often used by regulators to evaluate the effects of a merger on the level of competition in an industry. |
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Current Ratio |
Current Assets/Current Liabilities |
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Inventory Turnover |
Costs of Goods Sold / Inventories |
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PE ratio |
Price Per Share / Earnings Per Share |
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Primary objective in most financial statement analysis? |
To value a firm's equity securities (That, in turn, depends on future profitability an investor anticipates relative to the risk involved.) |
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What does Profitability Analysis evaluate? |
PA evaluates whether managers are effectively executing a firm's strategy. |
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Key measure of profitability |
Net Income (or) Earnings |
