Ch 5 - Fundamental Analysis

Question 1

Aggregate demand Curve Equation

Answer 1

Total spending = C + I + G + (X-M)

Consumption
Private Investements
Government purchases of goods and services
Net exports

Question 2

What factors is consumption affected by

Answer 2

• Wealth
• Taxes
• Expectations
• Consumer Debt

Question 3

What factors are Private investments affected by

Answer 3

• Taxes
• Expectations of profits
• Technological Changes

Question 4

What factors are Government purchases affected by

Answer 4

• Taxation
• Borrowing
• Printing Money

Question 5

What factors are Net Exports affected by

Answer 5

• Foreign Income
• Tariffs
• Exchange Rates

Question 6

3 ways to use Monetary Policy

Answer 6

• Change the bank Rate
• Open market operations (buy/sell Gov’ Bonds
• Switch government deposits from banks to BOC and Vice Versa

Question 7

What is econometrics?

Answer 7

Bridge between economic theory and applied economics. real world observations combined mathematically to test a theory

Question 8

Endogeneous Variables

Answer 8

Variables that are generated from a forecast

Question 9

Exogenous variables

Answer 9

Variables that are not determined from within the model

Question 10

whisper estimate

Answer 10

people on the trading and sales desks will discuss this estimate in the lead-up to the report

Question 11

an industry follows four life cycle phases:

Answer 11

• pioneering
• expansion
• mature
• declining

Question 12

business cycle sensitivity. There are four groups:

Answer 12

• growth
• cyclical
• defensive
• cyclical growth

Question 13

Difference between IFRS and GAAP

Answer 13

IFRS is principles based, GAAP is rules based.

More discretion given for principles based

Question 14

4 financial statements

Answer 14

• Statement of Financial Position
• Statement of comprehensive income
• Statement of changes in Equity
• Statement of Cash Flows

Question 15

Balanced Sheet Equation

Answer 15

Assets = Liabilities + Equity

Question 16

3 Sources and uses of Cash for Statement of Cash Flows

Answer 16

• Operating Activities
• Investing
• Financing

Question 17

Cash flow from operating activities Equals

Answer 17

cash received from the sale of goods or services minus cash used to generate revenue.

Question 18

Cash flow from investing activities equals

Answer 18

cash received from the sale of long-term assets minus cash used to buy long-term assets

Question 19

Cash flow from financing activities equals

Answer 19

cash received from the sale of new shares or debt securities minus cash paid to buy back shares, repay debt securities, or pay dividends.

Question 20

Management’s Discussion & Analysis (MD&A)

Answer 20

synopsis of a company’s previous year of

operations and a review of its performance. Outlook for future performance as well.

Question 21

The following are some items to look for in the MD&A:

Answer 21

• Significant financial trends.

* Potential risks and uncertainties

Question 22

qualitative analysis considers four areas of its operations

Answer 22

1. Corporate issues
2. Products and markets
3. Production and distribution
4. Competition

Question 23

Liquidity ratios measure…

Answer 23

company’s ability to meet its short-term obligations.

Question 24

Risk analysis ratios measure…

Answer 24

how well a firm services its debt obligations and its capacity to assume more debt.

Question 25

Operating performance ratios are used to

Answer 25

help determine a firm’s long-run growth prospects. They also measure how well the company has made use of its resources.

Question 26

Value ratios are used to

Answer 26

Assess the market’s opinion on the worth of the company’s share price relative to its dividends, earnings, or book value.

Question 27

Earnings per share (EPS) is

Answer 27

the amount of profit attributable to each outstanding common share.

Question 28

retention ratio

Answer 28

The amount not paid out by the firm from total earnings in the form of dividends

Question 29

Intrinsic value can be estimated by one of two methods:

Answer 29

1. Absolute valuation

2. Relative Valuation

Question 30

What is the Dividend discount model?

Answer 30

intrinsic value is equal to the present value of its stream of future dividends