Chapter 12 - Macroeconomic & Industry Analysis Flashcards
What are the 2 broad-based aspects of fundamental analysis?
- Macroeconomics
2. Industry Analysis
What is the analysis of determinants of firm value, such as prospects for earnings and dividends?
Fundamental Analysis
3 approaches to fundamental analysis (from notes)
- Global (and domestic) economic analysis
- Industry Analysis
- Company Analysis
True or False:
Top-down approach DOESN’T call for analysis of the economy with the goal of identifying industries and companies that will perform well in that economic environment.
FALSE!!!!
What international economic factors might affect a firm’s success?
- export prospects
- price competition from foreign competitors
- profits from investments abroad
the concept ‘it is harder for businesses to succeed in a contracting economy than in an expanding one is called _____?
country/region performance variability
3 GLOBAL economic considerations
- highly country/region performance variability (comparing against)
- Political risk
- Exchange rate risk (sales, profits, stock returns)
examples of political risk
- currency crisis (euro crisis - interplay btw politics and economics)
- government bailouts
- government budget deficit issues
- Protectionism
- Trade Policy
- Free Flow of capital
- Status of nation’s workforce
_____ is the rate at which domestic $$ can be converted into foreign $$$
Exchange Rate (p.374)
appreciation vs depreciations (dollar for example)
less dollars needed vs. more dollars are needed
What are the 6 Key macroeconomic indicators (p.376)
- Gross Domestic Product
- Unemployment Rates
- Interest Rates
- Inflation
- Budget Deficit
- Consumer (public market) Sentiment
what is the measure of the economy’s TOTAL production of goods & services?
Gross Domestic Product (GDP)
what another popular measure of economic activity more narrowly focuses on manufacturing side of the economy?
Industrial production
% of total labor force yet to find work. measures extent to which economy is at full capacity operation
unemployment rate
ratio of actual output from factories to potential output
capacity utilization rate (p.376)
______is the rate at which general level of prices is rising.
Inflation
‘overheated’ economies refer to what?
high rates of inflation
_____ reduces PV of cash flows & reduces attractive investment opportunities. also affects housing and auto financings.
high Interest Rates
____ is when government spends more than they earn (and must borrow for shortfalls). forces interest rates rise due to raising demand & ‘crowd out’ funds available to the private sector.
budget deficit
perhaps most important macroeconomic factor to consider in investment analysis
interest rates
4 fundamental factors of interest rate determinents
- Supply of funds (household savers)
- Demand for funds (businesses)
- Government net supply/demand for funds (Federal Reserves)
- Expected rate of inflation
True or false.
At higher real interest rates, households will choose to save more than spend; opting to use later future disposal [supply curve rises]
True
True or False.
Lower real interest rates does NOT spur more business investments on physical capital. [demand curves up?]
False & FALSE!!!
the point of intersection of the supply and demand curves, point ‘E’
Equilibrium interest rate