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55 Cards in this Set
- Front
- Back
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Write out the Income Statement structure
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SCGSEDEIETN
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Which side of the balance sheet is the source of capital?
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right side
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which side of the balance sheet makes money?
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left side
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When closing the books, what goes where?
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Net Income goes to Retained Earnings
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EBITDA is what?
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measure of cash earnings; focuses on operations of the firm
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EBIT is also called what?
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Operating Income
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EPS=
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Net Income available to common shareholders / avg. number of shares outstanding
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FCFF definition
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cash the firm has available to buy back stock, make acquisitions, make interest and principal payments
- used as an indicator of firm's financial health |
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FCFF formula
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EBIT(1-tax) + Depr. - Investment in cap ex - investment in WC
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What is WC
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money needed to run firm on a daily basis
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Liquidity trader=
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buys when they have excess money they need to invest
sells when they need money to pay bills or w/e ie, they are less price sensitive |
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information traders=
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perform research to discover new information that leads to deviation between price and value
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is price objective or subjective?
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objective... value is subjective
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active management
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injecting active risk into portfolio- trying to identify mis-priced assets and beat the market index.
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Passive management/indexing
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trying to match the performance of a benchmark
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Fundamental analysis goal/process:
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calculate the intrinsic value of an asset then compare to market price
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Top down fundamental analysis steps:
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1) macro factors/ general economic view
2) industry impact 3) sector impact 4) individual firm impact : sales growth, margins, mkt share, P/E, EPS 5) Valuation: DCF or Multiple 6) compare mkt price to value 7) make a market call (buy, sell, hold) |
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Bottom up fundamental analysis steps:
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1) analysis of the major business drivers of the firm
2) valuation: DCF or Multiple 3) compare mkt price to value 4) make a market call (buy, sell or hold) |
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Technical analysis definition:
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trying to predict future price trends by studying historical price and volume data
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Technical analysis underlying principle:
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markets are imperfect and therefore they can be predicted
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Support Point definition and implication
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point at which the price stops declining and starts increasing
- buying pressure is greater than selling pressure |
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resistance level definition and implication
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price above which the price doesn't advance
- selling pressure greater than buying pressure |
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channel/ channel trend
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range w/in which the stock's price fluctuates
-if the price breaks out of the channel, it is viewed as a reversal of a historical trend |
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Why is volume data useful?
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has potential to provide useful info. about the future direction of prices by measuring the level of conviction amongst buyers and sellers
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Describe a bullish trend in terms of volume as it would relate to a bullish price trend:
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Increasing volume on increasing prices
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Describe a bearish trend in terms of volume as it would relate to a bullish price trend:
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increasing prices on low or decreasing volume
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Market Bottom: definition and what happens
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everyone who wanted to sell has sold; characterized by heavy trading volumes
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Selling to strength: describe situation and the move
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situation: you already own stock and believe that it will decline in short term but appreciate in long term
move: sell long position (partially or only for a short time and then rebuy) or establish a short position for a short amount of time |
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buying on weakness: describe situation and the move
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situation: you already have a short position on the stock and you believe that the stock will increase in prince in the short term but decline in the long run
move: either close out all or part of the short for a small period of time OR buy into a long position for a short amount of time, then either re-short or sell the long |
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double top=
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when a price movement tests an important resistance level twice and is unable to break thru due to selling pressure
-considered a bearish symbol draw this |
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double bottom=
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when price movement tests an important support level twice and is unable to break thru due to buying pressure
- considered a bullish symbol draw this |
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Market Breath:
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number of advancing stocks vs. number of declining stocks.
- as long as the number of advancing is bigger than number of declining, the market is bullish |
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advance - decline ratio:
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advancing stocks / declining stocks
-bullish market if ratio is >1 |
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why is using stop loss orders seen as bad?
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shows lack of conviction in investment decisions
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trade vs. investment
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bad for a trade to become an investment because investment implies non-disciplined actions and emotions.
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value of the firm is what?
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equity
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Multiple methods of valuation; what are the assumptions?
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1) all firms in the industry have thesame capital structure
2) industry behavior (historical) will continue going forward 3) investor expectations (historical) will continue going forward |
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P/E: what does it measure?
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how much investors are willing to pay today for a dollar of earnings
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high P/E vs low P/E
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High = growth stock; people bid up price based on future earnings growth beliefs
low = value stock; good company and probably undervalued/priced and hopefully price will go up |
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P/E forward vs P/E ttm; definitions and meaning of interaction
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forward = uses earnings projections for next year
ttm = 12 months trailing; uses the past 12 months so it is the current one, not based on projections -- if ttm > fwd, mkt expects higher earnings going forward |
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What multiple method is used to value firms with little or negative CFs? (like the social media companies)
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P/Sales
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Valuation formula using P/E:
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V= P/E * EPS
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Steps in the Discounted Cash Flow Valuation Method (DCF):
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1) find enterprise value (PV of the FCFF + terminal value discounted by WACC)
2) find firm value (enterprise value + cash + marketable securities) 3) Find equity value (Firm value - debt) 4) equity value per share (equity value / # of shares) |
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EBITDA multiple valuation method
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multiply projected EBITDA * the multiplier and divide by the number of shares.
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PEG valuation:
and the interpretations of the result |
PEG = trailing P/E ratio/ projected EPS growth
-PEG = 1: price is inline w/ growth expectations -PEG < 1: growth expectations are greater than price indicates, so stock is UNDERVALUED -PEG > 1: growth expectations are lower than price indicates, so stock is OVERVALUED |
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Buy side analyst vs. sell side analyst:
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buy side does research for in-house use; sell side does research and sells it to clients
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Define loss aversion and the implications of it:
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individuals dislike losses more than they like gains.
causes people to hold on to losing stocks longer than they should hoping for a "bounce back" |
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Representativness
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tendency to draw strong conclusions from limited examples
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narrow framing
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when investors only consider investments on their own merits and don't consider how it wil correlated with his/her existing portfolio
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consequences of overconfidence
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1) underestimate risk
2) make unduly positive forecasts 3) participate in excessive trading |
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biased self-attribution:
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investors take undue credit for good selections and blame others for bad decisions
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Short interest:
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amount of investors who borrow stocks to sell in anticipation of falling rices
this is more of an overall market measure than an individual stock measure |
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Key to momentum trading:
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price acceleration/action
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When is a stock in equilibrium and now long does it say there for?
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when market price = intrinsic price
and not very long |
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why do stocks change prices?
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new information changes the risk premium which changes the price
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