Ch 5 - Fundamental Analysis Flashcards
Aggregate demand Curve Equation
Total spending = C + I + G + (X-M)
Consumption
Private Investements
Government purchases of goods and services
Net exports
What factors is consumption affected by
- Wealth
- Taxes
- Expectations
- Consumer Debt
What factors are Private investments affected by
- Taxes
- Expectations of profits
- Technological Changes
What factors are Government purchases affected by
- Taxation
- Borrowing
- Printing Money
What factors are Net Exports affected by
- Foreign Income
- Tariffs
- Exchange Rates
3 ways to use Monetary Policy
- Change the bank Rate
- Open market operations (buy/sell Gov’ Bonds
- Switch government deposits from banks to BOC and Vice Versa
What is econometrics?
Bridge between economic theory and applied economics. real world observations combined mathematically to test a theory
Endogeneous Variables
Variables that are generated from a forecast
Exogenous variables
Variables that are not determined from within the model
whisper estimate
people on the trading and sales desks will discuss this estimate in the lead-up to the report
an industry follows four life cycle phases:
- pioneering
- expansion
- mature
- declining
business cycle sensitivity. There are four groups:
- growth
- cyclical
- defensive
- cyclical growth
Difference between IFRS and GAAP
IFRS is principles based, GAAP is rules based.
More discretion given for principles based
4 financial statements
- Statement of Financial Position
- Statement of comprehensive income
- Statement of changes in Equity
- Statement of Cash Flows
Balanced Sheet Equation
Assets = Liabilities + Equity
3 Sources and uses of Cash for Statement of Cash Flows
- Operating Activities
- Investing
- Financing
Cash flow from operating activities Equals
cash received from the sale of goods or services minus cash used to generate revenue.
Cash flow from investing activities equals
cash received from the sale of long-term assets minus cash used to buy long-term assets
Cash flow from financing activities equals
cash received from the sale of new shares or debt securities minus cash paid to buy back shares, repay debt securities, or pay dividends.
Management’s Discussion & Analysis (MD&A)
synopsis of a company’s previous year of
operations and a review of its performance. Outlook for future performance as well.
The following are some items to look for in the MD&A:
- Significant financial trends.
* Potential risks and uncertainties
qualitative analysis considers four areas of its operations
- Corporate issues
- Products and markets
- Production and distribution
- Competition
Liquidity ratios measure…
company’s ability to meet its short-term obligations.
Risk analysis ratios measure…
how well a firm services its debt obligations and its capacity to assume more debt.
Operating performance ratios are used to
help determine a firm’s long-run growth prospects. They also measure how well the company has made use of its resources.
Value ratios are used to
Assess the market’s opinion on the worth of the company’s share price relative to its dividends, earnings, or book value.
Earnings per share (EPS) is
the amount of profit attributable to each outstanding common share.
retention ratio
The amount not paid out by the firm from total earnings in the form of dividends
Intrinsic value can be estimated by one of two methods:
- Absolute valuation
2. Relative Valuation
What is the Dividend discount model?
intrinsic value is equal to the present value of its stream of future dividends
