Chapter 5

Question 0

____ believe the main drivers of a company’s prospects are determined in large part by the growth of its industry within the growth of the overall economy.

Answer 0

Top-down analysis

Question 1

_____ is the study of variables (including management, sales, regulatory environment and labour costs) that affect the profitability of a company, it’s industry and the economy within which it operates.

Answer 1

Fundamental analysis

Question 2

____ believe that the individual attributes of a company determine its profitability regardless of industry or macroeconomic factors.

Answer 2

Bottom-up analysis

Question 3

The ____ is the schedule of the amount of real output consumers, firms, government and foreigners will buy at each price level.

Answer 3

Aggregate demand curve

Question 4

What’s the formula for total spending?

Answer 4

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

C = Consumption
I = Investment by government and business 
G = Government purchases and spending
X = Gross exports
M = Gross Imports

Question 5

The excess of gross exports over gross imports in goods and services is net exports (X-M). This is also known as the _____

Answer 5

Balance of trade

Question 6

____ is the management of a nation’s money supply.

Answer 6

Monetary policy

Question 7

The ____ is the rate that the Bank of Canada charges to chartered banks for the use of short-term money.

Answer 7

The Bank Rate

Question 8

In the simplest terms, ____ is the bridge between economic theory and applied economics.

Answer 8

Econometrics

Question 9

Not all economic forecasts are generated solely by mathematically deduced results for the underlying components. Some components are themselves forecasts based on available data. These are known as ____ variables.

Answer 9

Endogenous

Question 10

A ____ are based on interim information after the consensus is calculated but before the actual data is released

Answer 10

Whisper estimate

Question 11

Understanding the impacts of the business cycle on different industries is the goal of _____

Answer 11

Industry analysis

Question 12

Name the 4 industry life cycles

Answer 12

1. Pioneering
2. Expansion
3. Mature
4. Declining

Question 13

Name the 4 business cycle sensitivity groups

Answer 13

1. Growth
2. Cyclical
3. Defensive
4. Cyclical-Growth

Question 14

____ involves adjusting the portfolio weights of different economic sectors or industry categories in anticipation of trends.

Answer 14

Sector rotation

Question 15

____ is both a quantitative and qualitative evaluation of a company’s business.

Answer 15

Company analysis

Question 16

The ____ presents a synopsis of the previous year’s operations and a review of its performance. It provides information not found elsewhere in the financial statements.

Answer 16

MD&A

Question 17

With in how many days must shareholders receive audited annual financial statements?

Answer 17

90 days of the end of the company’s fiscal year.

Question 18

To determine a firm sustained competitive advantage, the qualitative analysis considers four areas of a company’s operations

Answer 18

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

Question 19

____ is principal base where as ____ is rules based.

Answer 19

IFRS

GAAP

Question 20

Advisors at a minimum should be at least familiar four categories of financial ratios. They are:

Answer 20

1. Risk Analysis
2. Liquidity ratios
3. Operating Performance Ratio
4. Value Ratios

Question 21

What’s the formula for total spending?

Answer 21

Total Spend = C + I + G + X - M
C = household consumption
I = Investment by government and business
G = government purchases of goods and services
X = gross exports
M = gross imports

Question 22

Calculate LCA’s return-on-equity if the firm has a profit margin of 12.50%, asset turnover of 24.55% and financial leverage of 2.1x.

Answer 22

ROE = (0.1250)(0.2455)(2.1) = 0.0644 or 6.44%.