SERIES 65 FINAL MEMORIZE

Issue a bond

- Current A - Total L - Working capital **NOT shareholder's equity

Issue common stock

- Current A increases - Working capital increases - Net worth increases

Pay a dividend

- Current A will decrease - Current L will decrease - Net work decreases -Working capital does not change!

Declare cash dividend

-Current L increases - Working capital decreases - Total liabilities increases

CAPM

CAPM = Risk-free rate + (market return - risk-free rate) X beta used to determine the required rate of return

Capitalization

Capitalization = net worth + long-term debt

Decrease in net income

Caused by: - Increase in taxes - Interest on bank loans (NOT cash dividend because paid out of retained earnings)

Issues bonds, all of the following would be affected EXCEPT A) working capital. B) total assets. C) total liabilities. D) shareholder's equity.

D) shareholder's equity - Increase in cash = increasing current assets (and thus total assets). - long-term liabilities increase reflecting the debt (and thus total liabilities) - Working capital increases because of the increase in current assets. Shareholder's equity, or net worth, is only affected by the sale of new equity securities or by any profit or loss generated by the corporation.

Debt to equity ratio

Debt to equity ratio = long-term debt / capitalization (net worth + long-term debt)

Gross Margin

Gross Margin = revenue - cost of goods sold / revenue

Gross margin ratio

Net revenue - Cost of goods sold / Net revenue

A measurement of investment return that takes INFLATION into consideration

Real rate of return

gross margin

Revenue - cost of goods sold

Bond's duration

Sensitivity (to interest rate changes) long duration = more sensative

Sharpe Ratio

Sharpe Ratio = average return - risk free rate / standard deviation Also called risk-adjusted return

net present value

The difference between the sum of the discounted cash flows that are expected from an investment and its initial cost.

book value per share

Uses: I.Goodwill II.Long-term debt III.Retained earnings IV.Par value of the preferred stock

Dividend payout ratio

dividends paid per share / earnings per share

Keynesian

encourages a government to spend money to move the economy into an expansionary phase

One of the critical components of making suitable recommendations is the ability to evaluate risk. Risk measurement tools would include all of the following EXCEPT: beta sharpe ratio standard dev future value

future value - measures time value of money

The future value of an invested dollar is dependent upon

interest rate it earns over a period of time

A measurement of investment return that takes the TIME VALUE OF MONEY into consideration is

internal rate of return (IRR)

Standard deviation

measures volatility

Cash flow operations

net income + depreciation expense (only from income statement)

A financial ratio used by some analysts to help determine if a company's stock is over or undervalued is

price to book value ratio

The financial ratio that shows the relationship between the price of a company's stock and the company's net worth (stockholders' equity) is the

price to book value ratio

A measurement of investment return that takes RISK into consideration

risk-adjusted return or sharpe raito rate - risk free rate / standard dev