Accounts/Statements (+formulas), Analysis of a stock when buying, Funds, Flashcards
Capital Gains
The rise in the value of an asset over time
Mutual Fund
A place where investors pool their money. The fund managers decides what percentages of the company pooled goes to which companies. If the fund performs well, the investors get a return and the fund manager takes a one or two percent management fee of the total money pooled
Index
A collection of companies in a certain area
Index Fund
A fund that invests in an index
Inflation
The rising of prices of things over time
Investment Portfolio
An investor’s collection of investments
Quantitative Analysis includes analysing…
- Balance sheets
- Income statements
- Cash flow
Balance sheet
Balances assets and liabilities
How to check for level of risk when reading a balance sheet? (Current Ratio)
Using the calculation
Total Current Assets/Total Current Liabilities
we can work out the level of risk. This number should be above 1 (the higher the better)
Income statements
Shows us the total revenue and net income
Net Income
The money that a company makes after all the expenses have been deducted from their revenue, this shows the general performance of the company.
3 Expenses a company has
- Cost of goods sold
- Operating expenses
- EBIT (Earnings before interest and taxes)
Current Assets
Assets that can easily be turned into cash within a year
Fixed Assets
Assets and property that cannot easily be turned into cash, such as the headquarters of a company which are not casually sold
Intangible assets (non-physical assets)
These are abstract assets, such as the brand recognition of an established business that has been trusted for generations
Qualitative analysis
Not analyzing numbers but more the abstract qualities that make a company great.
Acid Test Ratio
How well a company can pay its current liabilities
Current assets - inventory (stock) / Current liabilities
This information can be found on the balance sheet
Net Profit Margin
Revenue - total expenses (Net Profit) / Total revenue x 100
Net Profit Margin shows the profitability of the business, for example if NPM is 10%, then that means for every one dollar of revenue, 0.10$ is earned net profit.
This information can be found on the income statement.
What is the difference between the current ratio and the acid test ratio?
The acid test ratio is more “careful” when calculating if they can pay off current liabilities since it excludes inventory, which is harder/may take longer to liquidate.
What are the two ways to increase net profit margin?
- Increase revenue
- Decrease expenses
Gross profit margin
(Revenue - COGS / Revenue) x 100%
GPM also shows the profitability of a business but it only includes the direct cost of goods sold and completely ignores any indirect operating expenses.
This information can be found on the income statement.
What is the COGS (Cost of good sold) ?
The costs of producing the good sold by a company. This includes the cost of the materials and labor directly used to create the good. It can also be know as the “cost of sales”
Operating Margin
(Revenue - Operating costs + COGS / Revenue) x 100
OPM also shows the profitability of a business but it only takes away cost of goods sold and all operating expenses, ignoring interest expenses and tax expenses (Earning before interest and tax, EBIT). Look for above 15% when inspecting an income statement
What are operating expenses?
Ongoing cost for running a business, for example research & development, depreciation & amortization, etc.
