Balance Sheet and Income Statement Flashcards
What is the easiest way to avoid selection risk?
Diversification
What is the easiest/most common way to diversify?
Buy Mutual Funds
Beta
Measurement of a stock/MF’s volatility compared to the market
Alpha
Return in excess
What is the easiest way to avoid capital gains tax?
Do not transact (buy/sell)
CAPM
Capital Asset Pricing Model (AKA Modern Portfolio Theory) describes the relationship between systematic risk and expected return
10K
An annual report of a public company that is reported to the SEC (+ market center) and shareholders
What is in a 10K Financial Statement?
Blanace sheet, income statement, statement of cash flow, and footnotes
10Q
Quarterly reports of a public company that come out 3x/year to the SEC (+ market center) and shareholders
True or False: 10Ks are audited
True
True or False: 10Qs are audited
False
What is included on a balance sheet?
Current Assets (assets that are liquid within 12 months), Fixed Assets, Current Liabilities (things to be paid within 12 months), Long Term Liabilities, Cash Flow
True or False: Cash Flow on a balance sheet includes depreciation.
False
True or False: Depreciation is considered a non-cash expense.
True
EPS [equation]
Earnings Per Share
Net Income / Number of Shares Outstanding
Book Value
Theoretical liquidation of the corporation (what would be left after selling everything post-expenses)
Shareholders’ Equity [equation]
Assets (Current + Fixed) - Liabilities (Current + Long Term)
Depletion (Allowance)
Tax incentive for companies to find replacements (depletion of naturally wasting resources)
Goodwill
Intangible assets (ie patents, brands)
LIFO
Last-in, First-out; provides lower profit margin
FIFO
First-in, First-out; provides higher profit margin
(Filing for) Chapter 7
Complete liquidation of the business (ie Toys-R-Us)
Working Capital
Current Assets - Current Liabilities (remember: working = NOW = CURRENT)
If the Board of Directors declares a dividend, what happens to the current assets/liabilities? To Working Capital?
It becomes a Current Liability, which causes a decrease in Working Capital
Current Ratio [equation]
Current Assets / Current Liabilities (remember: CURRENT)
Quick Assets [equation]
Current Assets - Inventory (remember: we want assets quickly = cannot sell off inventory)
Acid Test/Quick Ratio [equation]
Quick Assets / Current Liabilities (remember: ratio b/w current assets and liabilities, but only quick assets not coming from inventory)
What does the capitalization of a company consist of?
Equity and Debt
Debt-to-Equity Ratio (Solvency) [equation]
Debt / Total Capitalization (Debt + Equity)
PE Ratio [equation]
Price-Earnings Ratio
Current Market Price / EPS
Divident Payout Ratio [equation]
Dividend / EPS
Current Yield [equation]
Annual Dividend / Current Market Price
(remember: Current Yield = What it PAYS you / What it COSTS you)
On the test: BE CAREFUL of Quarterly Dividend or Semiannual Dividend
(Quarterly Dividend * 4) / Current Market Price
(Semiannual Dividend *2) / Current Market Price
