Chapter 7: Analyzing Common Stocks
Cash from Investing Activities 1. Acquisitions of property, plant, and equipment-- Net $ (150.9) 2. Net Cash Flow from Investing Activities = ?
(150.9)
Cash from Financing Activities 1. Proceeds from Long-Term Borrowing $ 749.8 2. Reduction in Long-Term debt, including current maturities and early retirements $ (728.7) 3. Net Repurchase of capital stock $ (47.2) 4. Payment of dividends on common stock $ (9.3) 5. Net cash flow from financing Activities. = ?
(35.4)
If a company's annual sales are $2,000 and its Accounts Receivable is $200, what is its Accounts Receivable Turnover?
10
If a company's current assets are 10 and its current liabilities are 5, what is its Current Ratio?
2
Cash from Operating Activities 1. Net Earnings $ 139.7 2. Depreciation and Amortization $ 77.1 3. Other noncash charges $ 5.2 4. Increase/Decrease in Current Assets $ (41.7) 5. Increase/ Decrease in Current Liabilities $ 21.8 6. Net Cash Flow From Operations = ?
202.1
If a company's current assets are $10 and its current liabilities are $5, what is its Net Working Capital?
5
Which Activity Ratio shows how quickly a company is collecting its accounts receivable (sales to customers on credit)?
Accounts Receivable Turnover
Which ratios show how well the company is managing its assets?
Activity Ratios
What a company owns (e.g., cash, inventory, account receivable, equipment, buildings, land) is called what?
Asset
Assets, Liabilities, and Equity are on which statement?
Balance Sheet
Capital the stockholders have invested in the company can be found on which statement?
Balance Sheet
Relative amounts (large vs. small) and Trends (improving vs decreasing) are what one looks for on which statement?
Balance Sheet
What a company owes (e.g., bills, debt) can be found on which statement?
Balance Sheet
What a company owns (e.g., cash, inventory, account receivable, equipment, buildings, land) can be found on which statement
Balance Sheet
What is a summary of a company's assets, liabilities, and shareholders' equity at a point in time?
Balance Sheet
The behavior of the economy is captured in the__________, which reflects changes in total economic activity over time
Business Cycle
The following are key Economic Factors that Affect the ____________: 1. Government Fiscal Policy 2. Monetary Policy 3. Inflation 4. Consumer Spending 5. Business Investment 6. Foreign Trade 7. Currency Exchange Rates
Business Cycle
Which ratios converts key financial information into per share basis to simplify financial analysis?
Common Stock Ratios
_____________ is an economic measure that tracks inflation
Consumer Prices/Producer Prices
_____________is an economic variable which when high, are good for the stock market.
Corporate Profits
Which Liquidity Ratio shows how many dollars of short term assets are available for every dollar of short term liabilities owed?
Current Ratio
What is the study of general economic conditions that is used in the valuation of common stock?
Economic Analysis
Gross Domestic Product (GDP) and Industrial Production are Key ___________s
Economic Measure
The following are sources for ____________: 1. Wall Street Journal 2. Barron's 3. Fortune, Business Week, Forbes 4. Government Publications 5. Brokerage Firm/ Commercial Bank Reports
Economic Outlook
Which source is used to evaluate individual companies? (e.g., will sales/ profits go up or down?)
Economic Outlook
Which source is used to identify areas for additional research? (E.g., what industries will benefit, what industries will be hurt)
Economic Outlook
The concept that the market is so efficient in processing new information that securities trade very close to or at their correct values at all times is called what?
Efficient Market
____________Advocates believe: 1. Securities are rarely substantially mispriced in the marketplace 2. No security analysis is capable of finding mispriced securities more frequently than using random chance
Efficient Market
_____________ is an economic measure that tracks business production
Employment
Capital the stockholders have invested in the company is called what?
Equity
A prudent investor will only buy a stock if its market price does not __________what the investor thinks the stock is worth.
Exceed
Funds used to pay for materials, labor, and other business costs are called what?
Expenses
_____________is an economic variable which may be a positive sign for a depressed economy but can lead to inflation in a stronger economic environment and therefore have a negative impact on the stock market.
Federal Budget Deficit
_____________is an economic variable which are good for interest rates and stock prices.
Federal Budget Surplus
The value of a stock is influenced by the __________________of the company that issued the stock.
Financial Performance
The purpose of what is to develop information about the past that can be used to get a handle on the future?
Financial Ratios
What shows the relationships between financial statement accounts?
Financial Ratios
The following are Sources for what? 1. Company's Annual Report 2. Company's 10K 3. Company's 10Q 4. Securities and Exchange Commission (Sec.gov) 5. Standard & Poor's or Moody Reports 6. Internet Financial Portals 7. Brokerage Firm Reports
Financial Statements
Stock prices usually change before the actual ______________s become apparent in the economy.
Forecasted Change
Evaluating the financial condition and operating results of a specific company describes which step in the Top Down Approach to Traditional Security Analysis?
Fundamental Analysis
Evaluating the following describes which step in the Tp Down Approach to Traditional Security Analysis? 1. Competitive Position 2. Composition and Growth in Sales 3. Profit margins and Dynamics of earning 4. Asset Mix (i.e., cash balance, inventory, accounts receivable, fixed assets) 5. Financing Mix (i.e., debt, stock)
Fundamental Analysis
The following describes Step :____________ of the top down Approach to Traditional Security Analysis. 1. Financial condition of specific company 2. Historical behavior of specific company's stock
Fundamental Analysis
What is often the most demanding and most time-consuming phase of stock selection?
Fundamental Analysis
_____________ is still important in an Efficient Market because: 1. All of the people doing [answer] are the reason the market is efficient 2. Financial markets may not be perfectly efficient 3. Pricing errors are inevitable.
Fundamental Analysis
Taxes, Government Spending, and Debt management are _______________Factors which affect the business cycle.
Government Fiscal Policy
The market value of all goods and services produced in a country over the period of a year, and is a reflection of the state of an economy, is called what?
Gross Domestic Product (GDP)
The following describe the ____________. 1. Initial Development 2. Rapid Expansion 3. Mature Growth 4. Stability or Decline
Growth Cycle
What reflects the vitality of an industry or a company over time?
Growth Cycle
With respect to the Accounts Receivable Turnover, a __________Turnover is better.
Higher
With respect to the Current Ratio, which is better: Higher or Lower?
Higher
_____________ is an economic measure that tracks availability and cost of money
Housing Starts
A summary of a company's operating results over a specific period of time, usually one year, is called what?
Income Statement
Revenues, Expenses, and Profit/Loss are on which statement?
Income Statement
relative amounts (large vs. Small), Relationships (are expenses growing faster or slower than revenues?), and Trends (improving vs. decreasing), are what we are looking for on which statement?
Income Statement
_____________ is an economic measure that "predicts" the direction of the GDP.
Index of Leading Indicators
A measure of the activity/output in the industrial or productive segment of the economy, and is generally a reflection of the state of an economy, is called what?
Industrial Production
_____________is an economic variable where continued increases are a sign of strength, and is good for the stock market.
Industrial Production
The following are some issues that affect a(n)_______________: 1. What is the nature of the industry? 2. Is the industry regulated? 3. What role does labor play in the industry? 4.How important are technological developments? 5. Which economic forces have the most impact on the industry (e.g., interest rates, foreign trade)? 6. What are the important financial and operating considerations (e.g., access to capital)?
Industry
The following describe step 2:____________ of the Top Down Approach to Traditional Security Analysis: 1. Evaluate the competitive position of a particular industry in relation to other industries (Looking for new opportunities and growth potential) 2. Identify companies within the industry that look promising (looking for strong market positions, pricing leadership, economies of scale, etc.)
Industry Analysis
The following describes Step 2:____________ of the top down Approach to Traditional Security Analysis. 1. Outlook for Specific Industry 2. Level of Competition in Industry
Industry Analysis
The following are sources for ______________: 1. Trade Publications 2. Wall Street Journal 3. Fortune, Business Week, Forbes 4. Standard and Poor's Industry Surveys 5. Brokerage House Reports 6. Yahoo! Finance.com
Industry Outlook
_____________is an economic variable which is detrimental to stock prices. Higher [answer] leads to higher interest rates and lower price-to-earnings multiples, and generally makes equity securities less attractive.
Inflation
Which stage of the growth cycle is an industry new and risks are very high?
Initial Development
The underlying or inherent value of a stock, as determined through fundamental analysis is called what?
Intrinsic Value
What depends upon several factors: 1. Estimates of future cash flows 2. Discount rate 3. Amount of risk
Intrinsic Value
Which ratios show the amount of debt used by the company?
Leverage/ Debt Ratios
What a company owes (e.g., bills, debt) is called what?
Liability
The higher the Current Ratio, the more _________ the company.
Liquid
Which ratios show the companies ability to meet day to day operating expenses and satisfy short term obligations as they become due?
Liquidity Ratios
With respect to the Accounts Receivable Turnover, a __________Turnover is worse.
Lower
Which stage of the growth cycle does expansion come from growth in the economy and returns are more predictable?
Mature Growth
Money Supply and Interest Rates are ______________Factors that affect the business cycle.
Monetary Policy
_____________ is an economic measure that tracks the growth of the economy and inflation.
Money Supply
_____________is an economic variable, which when growth is moderate, can have a positive impact on the economy and the market.
Money Supply
_____________is an economic variable, which when growth is rapid, causes inflation and therefore is detrimental to the stock market.
Money Supply
Which liquidity ratio shows how many dollars of working capital are available to pay bills and grow the business?
Net Working Capital
_____________ is an economic measure that tracks consumer buying habits
Personal Income
Revenues less expenses equals what?
Profit/Loss
Which ratios measure how successful the company is at creating profits?
Profitability Ratios
Which stage of the growth cycle is product acceptance growing and investors become very interested?
Rapid Expansion
_____________is an economic variable which potentially has a positive impact on the stock market.
Real Growth in GDP
_____________ is an economic measure that tracks consumer attitudes
Retail Sales
Funds received for providing products and/ or services are called what?
Revenues
_____________is an economic variable which tend to have a negative effect on the market for stocks.
Rising Interest Rates
The process of gathering information, organizing it into a logical framework, and then using it to determine the intrinsic value of a share of common stock is called what?
Security Analysis
Proceeds from sale of products/services, sales of equipment, borrowing money, and sale of stock are called what?
Sources of Cash
Which stage of the growth cycle is demand for product diminishing and investors avoid this stage?
Stability or Decline
A summary of a company's cash flows and other events that caused changes in a company's cash is called what?
Statement of Cash Flows
Payment of wages and/ or materials, payment of operating expenses, purchases of equipment, payment of debt, and payment of dividends are found on which statement?
Statement of Cash Flows
Proceeds from sale of products/services, sales of equipment, borrowing money, and sale of stock are found where?
Statement of Cash Flows
Relative amounts (more cash or less cash), liquidity, Trends (improving vs. decreasing) are what we are looking for on which statement?
Statement of Cash Flows
Sources of cash and use of cash are found on which statement?
Statement of Cash Flows
What are heavily influenced by the state of the economy and by economic events on both a global and domestic basis?
Stock Price
_____________ trends are another leading indicator often used to help predict the direction of the economy itself.
Stock Price
If a firm's Net Working Capital is low, then it operates with less working Capital.
T
If a firms net working capital is high, then it is making large investments in working capital.
T
The following describes the "________" ____________. 1. Economic Analysis 2. Industry Analysis 3. Fundamental Analysis
Top Down Approach to Traditional Security Analysis
Payment of wages and/ or materials, payment of operating expenses, purchases of equipment, payment of debt, and payment of dividends are called what?
Use of Cash
_____________is an economic variable which is often the result of big trade imbalances, and has a negative effect on the stock market.
Weak Dollar
_____________is an economic variable which makes our markets less attractive to foreign investors. However, it also makes our products more affordable in overseas markets and therefore can have a positive impact on our economy.
Weak Dollar
