Week 4 - Reading Ch. 19 & 20

The Federal Reserve is primarily involved in _______ policy.

monetary

The process of moving investment dollars from one industry to another based on perceived trends is called investing.

rotational

Book value per share is calculated as _______ divided by the number of shares outstanding.

equity

Another term for forecasted financial statements is ______ statements.

pro forma

A ____ is the annual company report filed with the SEC.

10K

The balance sheet identity is _________.

Assets = Liabilities + Equity

______ CPI excludes food and energy prices in its calculation

Core

_______ is the electronic archive of company filings with the SEC

EDGAR

_____ is the difference between all of a company's revenues and expenses.

Income

______five forces is a model used to identify the competitiveness of an industry and determine which firms are best positioned for success.

Porter's

This piece of the Porter's five forces model analyzes how difficult it would be for a customer to switch to another seller.

bargaining power of buyers

_________ sectors have relatively little sensitivity to the business cycle.

defensive

A company's (gross/operating) margin will generally be higher than its (gross/operating) margin.

gross, operating

The term "bottom line" is synonymous with ________.

net income

Reducing the capital gains tax rate would _____ investment.

spur

The _________ is an analysis of a firm's sources and uses of cash over an accounting period.

statement of cash flow

True or false: The percentage of sales approach to forecasting financial statements assumes that all accounts vary with sales.

FALSE *certain accounts are assumed to vary, while others are relatively fixed

True or false: A firm's net income is equivalent to the cash flow generated over the course of the year.

FALSE *due to noncash items, net income is not cash flow

True or false: Shareholder equity increases each year by the amount of net income.

FALSE *equity only increases by the income not paid out as dividends

True or false: If the S&P experiences a positive return, then each of the sectors will also have a positive return.

FALSE *rotational investing can cause deviation in returns across sectors

True or false: Forecasting stock prices using the P/E ratio is always preferred to using the P/B ratio.

FALSE *some sectors/companies are better valued using book value (e.g., financial companies)

True or false: Supply-side economics suggests that lower tax rates will also result in lower total tax revenues.

FALSE *supply-side economics suggests a lower tax rate will increase tax revenues due to higher economic activity stimulated by the lower tax rates

True or false: There is always a clear ratio that should be used over other ratios when using ratios to predict future profitability.

FALSE *Which ratio to use may depend on which industry the firm under evaluation is in and can be subjective. There is typically not a ratio that is necessarily better than the othe

The market value of the goods and services produced over time is ____.

GDP

The _________ is a summary statement of a firm's revenues and expenses over a specific accounting period.

Income statement

True or false: International investors can use futures contracts to reduce currency risk.

TRUE *International investors can use futures contracts to reduce currency risk.

The capital intensity ratio estimates the amount of ______ needed to generate $1 in sales.

assets

The Federal reserve has control over the _______ rate.

discount

The labor force participation rate equals the labor force _____ the nonmilitary working-age population.

divided by

The capital intensity ratio is a firm's total assets ______ by its sales

dividend

The largest noncash expense that a company incurs is usually

depreciation

What is the term for all nonmilitary working-age people who are employed or unemployed but seeking employment?

labor force

Average duration of unemployment is a (leading/lagging) indicator.

lagging

Economic data that tends to change in advance of the economy is referred to as ________ economic indicators.

leading

Assume you are a U.S. investor who purchases stock in a company listed on the Brazilian stock exchange. While you are invested, assume the dollar appreciates in value relative to the Brazilian real. This will result in a _______ (higher/lower) net dollar denominated return.

lower

Nominal GDP adjusted for inflation is called ____ GDP

real

An investor who employs _________ analysis will be more focused on economic cycles and macroeconomic policies.

top-down