3/27/2023 Flashcards
Draw The Balance Sheet
Components:
CA
LTA
OA
CL
LTL
What are
Current Assets
Current Liabilities
CA - Assets that can be liquidated in 12 months
CL - Liabilities that need to be paid in the next 12 months
Income Statement
Shows How much The Company Made or Lost during the specified period of time
Revenue - Operating expenses = Net Revenue
- Taxes = Net Earnings
- Dividends = Retained Earnings
P&L
(Profit and Loss Statement)
Same as Income Statement
List out all Ratios/ Formulas For Income Statement
P/E Ratio
EPS
EPS fully diluted
Dividend payout Ratio
Debt Service Ratio
Net Present Value
What its worth - How much it Cost to have it
usually reflected in $ signs
If NPV is negative its probably not a good investment
What’s an example of Net Present Value
Stock Worth $110
Current Stock Price: $100
NPV $10
IRR
Internal Rate of Return
the rate you actually get compared to what’s expected
The Rate you actually get - the Expected rate
is shown in ___%
DOES NOT ADJUST FOR INFLATION
Shown how much of your rate of return is value (how much is more than what they market is paying)
Standard Deviation
The amount the Stock price Fluctuates
High Fluctuation = High Standard Deviation
Low Fluctuation = Low Standard Deviation
You want your return to be as close as possible to the standard deviation
is Shown in ___%
Whats an example of Standard Deviation
Expected Return 12%
Standard Deviation 5
Means the Security might return anywhere from 7% to 17% most of the time
Beta
Measures the volitility of a security compared to the market
Market is always a 1
the stock might be a 1.1 or .7
Higher Return = Higher Risk
example of Beta
Market return is 10%
securities Beta is 1.2
means return would be 12%
Alpha
Measure of how much a portfolio out preforms the market
Beating the market isnt Impressive but beating it without taking any extra risk IS
Alpha is reflected in
+___% means you out preformed the market by __%
or
-___% Means you under preformed the market by __%
Correlation
Positive Correlating - if 2 Securities go up and down at similar times and at similar rates
Negative Correlating - if 2 Securities DONT go up and down at similar times and at similar rates
Working Capital
current Assets - current liabilities
Current Ratio
Current Assets/ Current Liabilities
Higher # = Higher Liquidity of the company
Quick Ratio
Current Assets - Inventory = Quick Assets
Quick Assets/current Liabilities = Quick Ratio
Higher # = Higher Liquidity of the company
Cash Asset Ratio
Cash and Equivelants / Current Liabilities
Higher # = Higher Liquidity of the company
Types of Municipal Bonds
General Obligation
Revenue
CMO’s
Collateralized Mortgage Obligation
A Pool of Mortgages That pay interest to Investors
Issued By Goverment Agencies or Private Finance Companies
Risks of CMO’s
Prepaid Risk - Interest rates go Down - Homeowner pays off mortgage early
Extension Risk - Interest rates go Up - Homeowner pays off mortgage late
types of Cmo’s
PO - principle Only
IO - Interest Only
PAC - Planned Ammortization Class (Most protection)
TAC - Target Ammortization Class
Private Label - (Issued by private sector)
STRIPS
Zero coupon bond issued by the US goverment
To hedge against a short sell what options should you do
Buy calls against the shorted security
what action can reset the holding period for short and long term gains and losses
Buying a put
P/E
(Price To Earnings Ratio)
Price of Stock / EPS
EPS
(Earnings Per Share)
Net Earnings / # Shares Outstanding
EPSFD
(Earnings Per Share Fully Diluted)
Net Earnings / # Shares Outstanding
Assuming all convertible securities issued by company have been converted into common stock
Dividend Payout Ratio
Dividends per share / EPS
Or just
Total Company Dividends paid / Net Earnings
if they give both of those in the question
Audited Statement
Accurate Numbers
CPA’s Verify the books
Big Companies publish these 2x per year
UnAudited Statements
just a ball park figure of what a companies books look like
Cash Accounting
Cash if posted on books whenever its received or payed
Accrual Accounting
You can post items on your books before you actually recieve it or pay it
Give example of Accrual Accounting
Boeing gets a $20 MILLION contract to make planes but will be paid that in 4 years.
instead of it being reflected on the books in 4 years it can be reflected now
Mean
Average
Median
The Middle #
Mode
Which Occurs Most often
Lower Standard Deviation =
Lower Risk
Higher Standard Deviation =
Higher Risk
If IRR is greater than Expected Return what happens to NPV
NPV = Positive
Real Rate of Return
Is the rate of return minus inflation
shows what the actual purchasing power will be of that return
process of solving Inflation Adjusted After-tax Yield Questions
1) Take out taxes 1st
2) Take Out Inflation 2nd
How to calculate how much 2 securities are correlating
divide the bigger return by the smaller return (ignore if a security has a negative return)
ie:
+4%
-12%
means negatively correlating by 3
ie:
+4%
+16%
means positivly correlating by 4
If you want to pick 2 securities that are most diverse from Eachother
Pick the 2 that are most NEGATIVELY Correlating
List All Types of Money Market Securities
T Bills
T Notes (If they mature in less than 12 months)
T Bills (If they mature in less than 12 months)
Negotiable (Jumbo) CD’s
Commercial Paper
Bankers Acceptance
REPO (Repurchase agreement)
Negotiable (Jumbo) CD’s
100k Face amount
Just like normal bank CD’s but much bigger and can be bought and sold
Commercial Paper
pool of debt issued by a company to investors
270 day max duration
Ususally has no Interest and sold at a discount to par (like zero coupon bond)
Bankers Acceptance
Great for Imports and Exports
a loan from a bank that pays the exporter to ship the goods then is paid back by the Importer once shipment is recieved
REPO (Repurchase agreement)
instead of getting a loan from the bank
company sells the bank their own securities with a contract to buy them back at a specified date and Price (usually higher than when bank bought them)
Municipal Bonds Interest are Taxed
Federal - Tax-Free
State - Tax Free (If Resident of State)
Local - Tax Free (If resident of Locality)
Muni Bonds Issued by a Territory interest are taxed
Tax free at all levels
Treasury Securities Interest is taxed how
Federal - Taxed
State - Tax Free
Local - Tax Free
Difference between Normal Revenue bonds and Double Barrel Bonds
Normal Revenue Bonds are not additionally backed by Municipality in the event of facility defaulting whereas double barrel bonds are
Are IDR bonds taxed?
Some are and some aren’t it depends upon who is benefiting from it
