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CSC 2 > 13 - F & T Analysis > Flashcards

13 - F & T Analysis Flashcards

1
Q

Fundamental analysis looks at what three levels in order to determine stock value?

A
  1. Economy has a whole
  2. The industry sector
  3. The firm itself
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2
Q

What are the four ways of classifying an industry?

A
  1. Product or service
  2. Stage of growth
  3. Competitive forces
  4. Stock characteristics
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3
Q

What are the four stages of growth in an industry’s life cycle?

A
  1. Emerging
  2. Growth
  3. Declining
  4. Mature
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4
Q

Which stage of growth has above average rates of earnings, good prospects for future growth, but might not offer dividends?

A

Growth

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5
Q

Which industry stage of growth has slowing demand for product, potentially high cash flow and possibly low profit levels?

A

Declining

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6
Q

Which stage of growth has slower sales growth, increased price competition, difficult product differentiation, falling margins, and strong financial resources?

A

Mature

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7
Q

Which stage of industry growth has sales and earnings growth higher than most industries, but companies might not yet be profitable?

A

Emerging

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8
Q

What are the five competitive forces (Porter’s 5) that determine how attractive an industry is an how likely it is to change?

A
  1. Ease of entry
  2. Degree of competition btwn firms
  3. Threat of substitute products
  4. Ability to exert pressure on selling price of products
  5. Ability to exert pressure on purchase price of inputs
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9
Q

How are cyclical industries affected by the economy’s cycle?

A
  1. Affected by swings in prices of commodities
  2. Changes in CAD level affect price
  3. Revenue is higher during booms and expansion is lower during contractions
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10
Q

How are defensive industries compared to cyclical?

A

They are more stable during recessions, their ROE is more stable, long term growth is stable.

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11
Q

What kind of industry is considered to be speculative?

A

Emerging industries (show great profit potential in the future)

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12
Q

What is ROE?

A

Return on equity is the ratio between net earnings (n) and total common equity (q) … n / q.

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13
Q

What formula can be used to determine a fair stock price using the Dividend Discount Model?

A

Price = Div1 / (r - g)
Div1: expected dividend pay in 1y
r: required rate of return on stock
g: assumed constant growth rate for dividend

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14
Q

How can Price/Earnings ratio be calculated with DDM?

A

P/E = (dividend/earnings) / (r - g)

r: req rate of return
g: constant growth rate of div

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15
Q

What is a support level vs a resistance level?

A 
Support = low of the trading range ($ when most investors will buy)
Resistance = high range (supply exceeds demand, so price falls)
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16
Q

What formation is an example of a reversal pattern?

A

Head-and-shoulders formation (or h&s bottom). Reversal occurs when the price breaks through the neckline.

17
Q

What is an example of a continuation pattern?

A

A symmetrical triangle (pause in bull or bear market)

18
Q

What type of signal (buy/sell) if stock price breaks through the moving average line from below on heavy volume?

A

Buy

19
Q

What type of signal (buy/sell) if stock price breaks through the moving average line from above on heavy volume?

A

Sell

20
Q

What are oscillators used for?

A

To monitor a horizontal pattern (or indefinite trend) to determine whether the current price move has gone too far (eg +/- 1 or 0-100)

21
Q

What is the Moving Average Convergence-Divergence?

A

Oscillator that takes the diff of two moving averages (eg 12-day vs 26-day); then a 9-day avg of MACD is taken as signal line. MACD crossing signal line is an indicator.

22
Q

How do contrarian investors use sentiment indicators?

A

Contrarians do the opposite of what the majority of investors do (eg if most investors expect prices to keep rising, then probably not enough buying power left)

23
Q

What are four general categories of cycle lengths for cycle analysis?

A

Long-term: >2 y
Seasonal: 1y
Primary/intermediate: 9-26 weeks
Trading: 1 month

24
Q

What do volume changes indicate?

A

In bull mkt: when price rises but volume doesn’t, could be start of bearish reversal
Bear mkt: should see opposite (high volume on price declines)

25
Q

What does the advance-decline line measure?

A

Breadth of mkt by comparing the # of stocks advancing vs # declining each day.

26
Q

What 4 macroeconomic factors affect investor expectations and the price of securities?

A
  1. Fiscal Policy
  2. Monetary Policy
  3. Flow of Funds
  4. Inflation
27
Q

What is the Efficient Market Hypothesis?

A

At any time a stock’s price will fully reflect all available info and thus represents the best estimate of a stock’s true value.

28
Q

What is the Random Walk Theory?

A

New info concerning a stock is disseminated randomly, therefore price changes are random and bear no relation to previous price changes.

29
Q

What is the Rational Expectations Hypothesis?

A

Assumes people are rational and make intelligent decisions after weighing all available info.

30
Q

What are three key assumptions underlying technical analysis?

A
  1. All market influences are automatically accounted for in price
  2. Price moves in trends that tend to persist for long periods
  3. The future repeats the past
31
Q

If investors perceive a decline in the Canadian dollar, what industry would they shift their investments to?

A

Cyclical Industries (benefit from weak dollar)

32
Q

If inflation goes up, P/E ratios will likely go ____?

A

Down

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