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28 Cards in this Set
- Front
- Back
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fundamental analysis
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- economy
- industry - company - analyst determines what industry needs attention |
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economy
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- GDP - total value of all goods and services - published quarterly
- CPI - measure of inflation - Business cycle - always begins with expansion or recovery - Expansion(recovery), peak, decline or contraction (recession is 2 consecutive quarters; depression is 6 consecutive quarters), trough - economic indicators - leading (building permits, manufacturers new orders, s%p 500 index (markets move on rumors and forecasts), M2), coincident indicators (GDP, industrial production, personal income, manufacturing and trade sales), lagging indicators (turn after economy; corporate profits; duration of unemployment) - influences: 1) Fiscal policy 2) monetary policy 3) balance of payments (strength of dollar vs. foreign currency) 4) value of dollar |
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keynesian theory
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- belief that demand for goods ultimately controls employment and prices
- balancing act b/w enflation and unemployment - monetarist theory is the belief that the quantity of money is the major determinant of price levels |
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Fiscal policy
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- congress/president (tax laws) - taxation decreases the economy - Government spending increases economy
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Monetary policy
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- money supply - M1 = cash + demand deposits(checking); M2 = M1+time deposits (savings acts, cds, money markets, repos); M3 = M2+ jumbo CDs (100k or more) + institutional money market funds + term repos (last more than a day)
- FRB - tools to impact money supply - 1) reserve requirement - least used - a) multiplier (most drastic) - money tight and interest rates go up b) fed funds - banks excess reserves to lend - most volitile rate 2) discount rate - government gives DR - only interest rate set by the feds 3) open market operations - most frequently used - fed buys t-bills and sells t-bills to banks |
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defensive industry
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- still good in down economies
- food - utilities - clothing - drugs - tobacco - liquor |
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cyclical industries
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- good only when the market is good
- steel - heavy equipment - capital goods - autos |
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growth industries
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- technology - lowest dividend payout
- just looking for appreciation |
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strength of company
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- financial statements - balance sheet - asset equal liabilities plus net worth - net worth is shareholder value
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liquidity and short term solvency
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- working capital = current assets - current liabilities
- current ratio = current assets divided by current liabilities |
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capitalization and long term solvency
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- debt ratio = long-term debt divided by total capitalization
- total capitalization = long term debt + net worth - earnings per share = earning avaliable to common divided by number of common shares - fully diluted earnings per share assumes all bonds are converted - price to earnings ratio = market price divided by EPS - dividend payout ratio = common dividends divided by EPS |
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price, price history, and volume
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- resistance is the typical high point and support is the typical lowpoint
- breakouts - if price breaks through resistance or support levels it keeps on going - consolidation - narrowing of resistance and support levels - head and shoulders top - reversal of bull trend - head and shoulders bottom - reversal of a bear trend |
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odd lot trading theory
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- small investors engage in odd lot trading
- believe that small investors buy and sell at the wrong times |
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short interest theory
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analyst looks at # of open short positions and if there are a lot it is looked at as a buying opportunity
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averages and indices
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- dow jones composite - 65 stocks make up dow jones (30 industrials, 20 transportation, 15 utilities)
- NYSE composite - about 3000 - all common stock - Wilshire - 5000 - broadest measure of the market - s&p 500 - 400 companies |
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investment risks
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- credit risk - financial risk or default risk - danger of losing principal through an issuer's failure
- business risk - market risk (bonds - interest rate risk; stocks - beta risk - measure of volitility - beta greater than 1 is more volitile) - purchasing power risk - marketability - liquidity risk - legislative risk - no control - political risk - callable risk - reinvestment risk - nonsystematic risk - lack of diversification - systematic risk - overall market risk - risk prevails despite diversification - capital risk - timing risk - buying or selling at wrong time |
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capital gains
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- short term - less than 1 year
- long term - more than one year - losses are deductible and can carry forward - can only deduct 3k per year and carry the rest forward |
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inherited shares
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- step up in cost basis when inherited
- when gifted no step up |
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30 day wash sale rule
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- if investor purchases the same security within 30 days of loss, the loss does not count
- substantially identical positions are convertibles, long calls, rights or warrants - to avoid a 30 day wash sale rule do a bond swap - alter issuer or both coupon and maturity significantly |
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alternative minimum tax
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- esures that upper income tax payers pay their taxes
- will add excluded items back to tax to reach the min. tax amt - preference items are industrial revenue bond interest and intangible drilling costs written off in 1 year instead of 5 |
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progressive taxes
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- income
- estate - gift tax |
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regressive taxes
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- sales taxes
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GDP
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- gross domestic product
- includes personal consumption, government spending, gross private investment, foreign investment and the total value of exports |
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Federal Reserve board
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- FRB - consists of 12 regional FR banks and hundreds of national and state banks
- determines monetary policy and takes actions to implement its policies - FRB affects money supply through its use of: open market operations (buying and selling gov. securities), changes in the discount rate, and changes in reserve requirements |
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discount and federal funds rate
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- discount rate - rate the fed charges its members for short term loans
- federal funds rate - rate banks charge each other for loans |
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capitalization ratios
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- debt to equity ratio - measure of leverage
- bond ratio -measures percentage of total capitalization provided by long term debt financing - common stock ratio - measures the percentage of total capitalization contributed by common stockholders - preferred stock ratio - measure the percentage of total capitalization from preferred stock |
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liquidity ratios
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- measure a firms ability to meet its current financial obligations
- debt service ratio - reflects company's ability to meet the principal and interest payments on its bonds |
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valuation ratios
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- used by analysts to compare companies within an industry as well as in different industries
- Earnings per share = earnings available to common / no. of common shares outstanding - dividends per share = annual cash dividends / no of common shares outstanding - current yield(dividend yield) = annual dividends per common share / market value per common share - dividend payout ratio = annual dividends per common share / earnings per share - price to earnings ratio (PE ratio) = current market price of common share / earnings per share |
