Ch 19 - Equity Securities Flashcards
what are preferred shares charaterized by?
par value and dividend rate
what are cumulative dividends preferred shares?
dividends not paid out accrue and must be paid ahead of dividends on common shares.
what happens to value of preferred shares when interest rates rise?
value goes down, just like bonds
6 Canadian exchanges
• TMX Group: Toronto Stock Exchange (TSX) TSX Venture Exchange, including NEX TSX Alpha Exchange • Canadian Securities Exchange (CSE) • Neo Exchange • Nasdaq Canada
alternative trading systems
off-exchange, private, electronic network that discreetly and directly matches buyers and sellers, requiring no intermediaries
three types of analysis to estimate return and risk of a stock
Industry analysis
Company analysis
Equity valuation
Industry analysis is important for three reasons:
- different industries have different returns over a period of time
- can help predict future performance.
- Easier to find good stocks in industry that is expected to do well
Shorter, more frequently released research reports are called (3 things)
comments, notes, or flashes
research report includes (5 things(
- description company’s operations
- Overview of the industry i
- competitive landscape
- Ginancial models
- company valuation
four major parts of a company’s financial
statements:
statement of financial position
statement of comprehensive income
statement of changes in equity
statement of cash flows
statement of financial position (balance sheet)
lists a company’s assets, equity, and
liabilities at a specified time.
statement of comprehensive income
company’s revenue and expenses over a specified period
statement of changes in equity
Link between the statement of comprehensive income and the statement of financial position at a specified time.
statement of cash flows
cash inflow and outflow for the company over a specified period.
Relationship between Assets, Equity, and Liabilities (formula)
Assets = Equity + Liabilities
3 activities for statement of cash flow
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Cash flow from operating activities equals
cash received from the sale of goods or services minus cash used to
generate the revenue.
Cash flow from investing activities
Cash received from the sale of long-term assets minus cash used to buy long-term assets plus any dividends received
Cash flow from financing activities
cash received from the sale of new shares or the issuance of new debt securities minus cash paid to buy back shares, repay debt securities, or pay dividends.
current ratio
current assets divided by current liabilities
quick ratio
current assets minus inventories divided by current liabilities
Risk analysis ratios are used to
measure the company’s ability to service required debt payments and to assume more debt
Operating performance ratios are used to
measure how well the company has made use of its resources
2 mesure for Operating performance ratios
gross margin, net profit margin
Value ratios are used to
gauge the market’s perception of the value of a company’s shares
2 measure for Value ratio
P/E Ratio
Dividend Yield
3 factors to assess company management
- Experience and expertise in the area of products and services
- Reliance of the company on one person
- Integrity of personnel
2 most used Absolute valuation models
dividend discount model
discounted cash flow model
3 sources to determine Benchmark Values
- price multiple of other stocks in the company’s sector / industry
- The price multiple of the broad equity market
- The stock’s historical price multiple
3 TYPES OF TECHNICAL ANALYSIS
- chart analysis
- statistical analysis
- sentiment analysis
three purposes of technical analysis
- Improve market timing
- Forecast price movements
- Act as a leading indicator
Value investors can be grouped into three categories
- Investors who focus on low P/B ratios
- Investors who focus on low P/E ratios
- Yield investors, who focus on stocks with above-average dividend yields
three non-style approaches
- fundamental approach
- quantitative approach
- technical approach
