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28 Cards in this Set

  • Front
  • Back
fundamental analysis
- economy
- industry
- company
- analyst determines what industry needs attention
- 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
keynesian theory
- 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
Fiscal policy
- congress/president (tax laws) - taxation decreases the economy - Government spending increases economy
Monetary policy
- 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
defensive industry
- still good in down economies
- food
- utilities
- clothing
- drugs
- tobacco
- liquor
cyclical industries
- good only when the market is good
- steel
- heavy equipment
- capital goods
- autos
growth industries
- technology - lowest dividend payout
- just looking for appreciation
strength of company
- financial statements - balance sheet - asset equal liabilities plus net worth - net worth is shareholder value
liquidity and short term solvency
- working capital = current assets - current liabilities
- current ratio = current assets divided by current liabilities
capitalization and long term solvency
- 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
price, price history, and volume
- 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
odd lot trading theory
- small investors engage in odd lot trading
- believe that small investors buy and sell at the wrong times
short interest theory
analyst looks at # of open short positions and if there are a lot it is looked at as a buying opportunity
averages and indices
- 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
investment risks
- 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
capital gains
- 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
inherited shares
- step up in cost basis when inherited
- when gifted no step up
30 day wash sale rule
- 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
alternative minimum tax
- 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
progressive taxes
- income
- estate
- gift tax
regressive taxes
- sales taxes
- gross domestic product
- includes personal consumption, government spending, gross private investment, foreign investment and the total value of exports
Federal Reserve board
- 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
discount and federal funds rate
- discount rate - rate the fed charges its members for short term loans
- federal funds rate - rate banks charge each other for loans
capitalization ratios
- 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
liquidity ratios
- 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
valuation ratios
- 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