Business III Flashcards
What is value line?
An investment survey with professional research and recommendations on around 1,700 stocks from all sectors.
Valuation
The process of determining the current worth of an asset or company.
There are many techniques to do this, both subjective and objective.
Give an example of analyst judging valuation.
An analyst valuing a company may look at its management, the composition of its capital structure, the prospect of future earnings, and market value of assets.
Judging the contribution of a company’s management would be a subjective valuation technique, while calculating intrinsic value based on future earnings would be an objective technique.
Windfall profits
Huge profits that occur unexpectedly due to fortuitous circumstances.
In the past, surging prices for crude oil have led to record profits for energy companies, leading to demands from politicians that they be taxed as windfall profits.
Oil companies resist paying the taxes, saying that record profits lead to record taxes paid by them.
Dead cat bounce
A temporary recovery from a prolonged decline or bear market, followed by a continuation of the downtrend.
BPS
Basis points
A basis point (or BP) is a common unit of measure for interest rates and other percentages in finance.
One basis point is equal to 1/100th of 1%, or 0.01% (0.0001).
So, 1% = 100 basis points
0.01% = 1 basis point
Example: a bond whose yield increases from 5% to 5.5% has increased 50 basis points.
Example: interest rates that have risen 1% have increased 100 basis points.
Ostrich
Someone who ignores news that may have a negative effect on their financial position in the hopes that it will not affect them.
Pig
Any investor who puts greed ahead of sound strategy.
“Pigs get slaughtered”
Sheep
An investor who has no investment strategy or focus of their own.
They just listen to what others say and try to glean the best info they can.
Who is Mario Draghi?
Head of the ECB (European Central Bank).
Peter Praet
ECB chief economist
Plaza Accord
a.k.a. “Plaza Agreement”
1985 agreement among G5 nations (France, Germany, US, UK, Japan) to manipulate exchange rates by depreciating the US dollar relative to the Japanese yen and the German deutcshe mark (it only succeeded with the latter).
Intention was to correct trade imbalances between the US and Japan and the US and Germany.
Both the yen and the deutche mark increased dramatically in value relative to the dollar.
The “Louvre Accord” was signed in 1987 to stop the continuing decline of the dollar.
What was an unintended consequence of the Plaza Accord?
Japan increased trade and investment with East Asia, making it less dependent on the US.
Outlay costs
a.k.a. Explicit costs
Any concrete business expenses that can be identified in the past, present, or future (rent, salaries, equipment maintenance).
Leverage
Leverage is created through options or debt.
Option example: say you have $1,000 to invest. You could buy 10 shares of GE, but to increase leverage, you could invest the $1,000 in five options contracts that would give you control of 500 shares.
(Most companies use debt to finance operations. By doing so, a company increases it’s leverage because it can invest in business operations without increasing its equity.
Debt example: a company is formed with $5million from investors. The CEO can put the $5million back into the company or it can borrow $20million in debt, which it can use to invest in company operations and get a return for investors.
