Monetarist Theory
Fed controlling the influence of the economy by controlling money supply and influencing interest rates.
Keynesian Theory
Theory that the government must spend money to stimulate the economy. This theory is based off of spending and consumption.
Supply side theory
the belief that lower taxes and fewer regulations will stimulate the economy
Three types of investment types
Consumer
Business
Financial/Securities
Passive Management
Assumes the markets are efficient. Usually lower management fees.
Active management
Assuming you can try to actively try to mange accounts to beat bench marks.
Short against the box
Strategy that locks in return by going short the same # of shares as the long position
Arbitrage
the purchase of securities in one market for immediate resale in another to profit from a price discrepancy. Like day trading.
Wilshire 5000 Total Market Index
Index now contains more than 5,000 stocks. The Wilshire 5000 is the broadest index of the U.S. stock market.
Fundamental Analysis
Study of companys financial statements
Balance Sheet
Income
Earnings
Dividends
Ratioss
Whats a companies Full Financial Statement consist of?
Balance Sheet
Income Statement
Cash Flow
Shareholder equity
What is the formula that best describes a Balance sheet?
Assets = Liabilities + Net worth
What are Current assets? ***
All assets that are normally converted into cash in the ordinary course of business WITHIN a year.
Generally Cash+Accounts Receivable + Inventory
Fixed Assets
Assets that are not intended for sale, but bought to produce income like machinery.
Other assets
Intangible assets are trade marks, patents etc.
Liabilities
Amounts owed to other companies/individuals
two categories: Current and long term liabilities.
Current Liabilities
liabilities due within a year.
Long term liabilities
liabilities owed for more than a year
Net worth
The amount the shareholders would get if the company were to liquidate the business on the date of the balance sheet.
Book Value Formula
(Net worth - Preferred PAR)/(Number of outstanding shares)
S.O.N.A.R
Sales, Operating Cost, Net Income, Available Earnings, Retained Earnings
E.D.I.T
Expenses, Depreciation, Interest, Taxes
D.D
Dividend & dividend Preferred and common.
Determine operating income subtract SONAR
...
EPS formula
Divide the available earnings then divide that amount by the common shares outstanding.
Current Ratio
Current Assets/ Current Liabilities
ability for company to pay current liabilities.
Quick Asset Ratio
Current Assets- Inventory / Current Liabilities
used to determine inventory hard to convert into cash
Debt/Equity Ratio
Longterm Debt/ Net worth
Used to determine the debt the company is using relative to shareholder equity.
Dividend Payout Ratio
Common Dividends/Available Income OR
Common dividends per share / EPS
Indicates the percentage of the company's total net income that is paid to shareholders.
Working Capital
WC= Current Assets - Current Liabilites
What happens when a bond is issued?
Total assets, liabilities, and working capital are affected.
What happens when Convertible bond is issued?
Liabilities are affected.
What happens when dividends are declared?
Current liabilities, retained earnings, and net worth, and working capital is affected.
Equipment is purchased for cash?
Only working capital is affected (current/fixed assets)
Alpha
Measurement of a stock or portfolios return, independent of market related factors.
Beta
Measurement of volatility of a stock or portfolio compared to the market.
Dow theory
Market prices reflect all available information and confirms up or down trend.
Odd Lot Theory
A technical analysis theory based on the assumption that the small investor is always wrong. Therefore, if odd-lot sales are up�that is, small investors are selling stock�it is probably a good time to buy.
Advance-decline
if the advance-decline ratio rises faster than the index, a rise in the market will occur (and vice versa).
Capital Asset Pricing Model (CAPM)
Method used to compare systematic risks with expected returns.
Important fundamental analysis factors are
Debt/Equity ratio
Fixed Charges Coverage
Two formulas used to calculate fixed charge coverage
The interest coverage ratio:
Total Revenues - Expenses /Yearly Interest
?
The debt service coverage ratio:
Total Revenues - Expenses/
Yearly Interest and Principal Payment
Net Direct Debt
Old Debt + Newly Proposed Debt/ City pop