Chapter 16 - Fundamental Analysis Flashcards
____ investors accumulate shares due to the assumption that eventually the markets will come back to the correct pricing. By their nature, these type of investors tend to be very long-term holders.
Value investors
_____ analysis focuses on analyzing individual companies and their industry groups.
Important items include a company’s financial statements (e.g., it’s balance sheet and income statement), details regarding the company’s product line, the experience and expertise of the company’s management, and the outlook for the company’s industry
Fundamental analysis
Technical analysis focuses on
Market sentiment or trading trends. Investors who subscribe to technical analysis tend to be more short-term oriented and may even attempt to time markets as a security fluctuates and value
Also called a statement of financial condition
Balance sheet
Represents the financial picture of a company as of a specific date
The balance sheet is divided into three major sections such as
Assets, liabilities, and stockholders equity
What is the formula for the balance sheet
Assets = liabilities + equity (net worth)
Or
Assets - Liabilities = equity (networth)
Assets represent all the items that are __ by a corporation, while the liability section contains all of the items that are ___ by the corporation
Owned, owed
______ represent cash and other items that maybe convert into cash with a short period (usually one year).
The assets that be converted into cash include:
- marketable securities
- accounts receivable
- inventories
Current assets
Of the two methods used for valuing the inventory, in a period of rising prices, which results in a greater earnings before interest expense and taxes
FIFI.
FIFO applies the cost of the first item produced to the money received from the first item sold. In a period of rising prices, FIFO results in a greater earnings before interest expense and taxes (EBIT) because a lower cost basis is used for the units that are being sold. Therefore the company would report greater profits and pay greater amount of taxes. If LIFO is used during an inflationary period, it results in lower profits and taxes.
What are fixed assets
Items that are used by the company in its day-to-day operations to create its products.
This includes physical property, such as land, buildings, equipment, and furniture.
With the exception of land, fixed assets lose some of their value each year due to normal use. The IRS allows a company to claim this wear and tear on assets as a depreciation deduction against income. On the balance sheet, fixed assets are shown at a value which represents their original cost less accumulated depreciation.
Define current liabilities
Deaths that become due in less than one year and are easily identified by the word payable.
This includes accounts payable, dividends payable, interest payable, notes payable, and taxes payable.
Define long-term liabilities
That’s incurred by corporation that become payable in one year or more, such as bonds and a long-term bank loans
With the exception of land, fixed assets lose some of their value each year due to normal use. The IRS allows a company to claim this wear and tear on assets as a _ deduction against income. On the balance sheet, fixed assets are shown at a value which represents their original cost less accumulated _
Depreciation
Although _ assets don’t have physical value, they add substantial value to a company. Some _ assets differentiate the company from its competitors and are proprietary such as patents, intellectual property, trademarks, franchises, and copyrights. Goodwill is another _ asset that’s created when a company buys or mergers with another company. It represents the amount that was paid above the fair market value to acquire a company.
Intangible Assets
_ are debts incurred by a corporation that become payable in one year or more, such as bonds and long-term bank loans.
Long-term Liabilities
represents the amount of money that a company receives from investors in excess of the par value of its issued stock. In other words, it is the amount that investors are willing to pay above the nominal value of the shares when the company issues new stock. This additional capital indicates the investors’ confidence in the company’s future growth and profitability.
Capital surplus, also known as paid-in capital
Capital surplus does not encompass the funds generated through a company’s business operations and profits.
Earnings that are generated, but not distributed, are referred to as ______________ or
earned surplus. The __________ entry represents net profits that have been retained for future use by
the corporation. Typically, dividends that are paid by a corporation come from its _________.
Retained Earnings
The income statement shows a company’s financial performance during a
specified period and provides detailed information about the company’s revenues and expenses. If
revenues exceed expenses, the difference represents the company’s net income. However, if expenses
exceed revenues, the result for the company is a net lossalso known as a profit and loss (P&L) statement
Income Statement
The income statement shows a company’s financial performance during a
specified period and provides detailed information about the company’s revenues and expenses. If
revenues exceed expenses, the difference represents the company’s net income. However, if expenses
exceed revenues, the result for the company is a net loss
