Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

SIE - Achievable > Common Stock > Flashcards

Common Stock Flashcards

You may prefer our related Brainscape-certified flashcards:
SIE Exam flashcards
1
Q

There are two types of stock; what are they?

A
  1. Common Stock

2. Preferred Stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is common stock?

A

Representation of ownership in a company (issuer).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Since shares of stock represent overall ownership of a company, what is common stock referred to?

A

Equity position.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Define “Issuer”

A

An organization that distributes and sells securities to investors.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Define “Security”

A

Legal term for investment.

Ex.: common stocks, bonds, mutual funds, ETFs, options.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Equity

A

Formal term for ownership.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are stock prices dictated by?

A

Supply and demand.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the two general ways to make money on common stock?

A

Capital appreciation or cash dividends.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is capital appreciation?

A

Also known as growth or capital gains, when an investor purchases stock, it is purchased at a specific price. If the company does well and the stock prices increase, you can sell your shares for a gain. This is capital appreciation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are cash dividends?

A

Represents a profit made by a company and is distributed to shareholders.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are retained earnings?

A

Profits retained by a company that are often used to expand and reinforce business operations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are “growth companies”?

A

Companies that grow faster than the general economy. Think Amazon. Investments in growth companies provide the opportunity for capital appreciation, but do not pay income (dividends) to shareholders.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

List seven (7) rights of stockholders:

A
  1. Right to pro rata share of dividends;
  2. Right to vote for BOD;
  3. Right to inspect books and records;
  4. Right to maintain proportionate ownership;
  5. Right to vote for stock splits;
  6. Right to assets upon dissolution;
  7. Right to transfer ownership;
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Do stockholders have the right to vote for dividends?

A

No. They have the right to receive their pro-rata share of dividends.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What does “pro-rata” refer to in the ownership context?

A

Pro-rata relates to the amount of shares owned. For example, if a stockholder owns 10% of the outstanding shares, they should receive 10% of the dividends paid.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Who approves dividend payouts?

A

Only the BOD.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Common stocks may pay dividends in three forms. What are they?

A
  1. Cash
  2. Stock
  3. Product
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

When a company makes a profit, what choice do they face in terms of how to use the profit?

A

The company can either retain the profit (retained earnings), pay the profit to their shareholders in the form of a cash dividend, or do a little of both.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Which companies are more likely to pay a cash dividend?

A

Companies that are beyond their initial growth phase and don’t need to invest profits to grow their business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

How often do companies make cash dividend payments?

A

Generally payments are made quarterly, although this is not required.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is a “stock dividend??

A

A payment of extra shares to stockholders. They are a “re-shuffling” of numbers in order for the company to manipulate its stock price. Each investor will end up with more stock, but each share will drop proportionately in price.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Does a stock dividend increase the overall value of a stock position?

A

No.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

How do you answer a stock dividend question?

I.e., “An investor owns 100 shares of stock at $20/share. The investor receives a 25% stock dividend. What changes?”

A
  1. Find the stock dividend factor.
  2. Find the number of shares adjustment.
  3. Find the price per share adjustment.
  4. Put it all together and confirm that the investor ends with the same overall value they started with.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

How do you find the stock dividend factor?

A

To find the stock dividend factor, add the stock dividend percent (in decimal form) to 1.

SD factor = SD (decimal form) + 1

Ex. Stock dividend of 25% equals a SD factor of 1.25.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

How do you find the number of shares adjustment?

A

Multiply the original number of shares by the stock split number.

New shares = old shares x SD factor.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

How do you find the price per share adjustment?

A

Divide the original price per share by the stock dividend factor.

New price = old price / SD factor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

An investor owns 300 shares of JPM stock at $115. They receive a 15% stock dividend. What changes?

A
  1. Find the SD:
    - SD = 1.15
  2. Find the number of shares adjustment:
    - 300 shares x 1.15 = 345
  3. Find the price per share adjustment:
    - $115 / 1.15 = $100 per share
  4. Summarize:
    - Before split: 300 shares at $115 = $34,500
    - After split: 345 shares at $100 = $34,500
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

List three stock dividend consequences.

A
  1. More shares outstanding
  2. Lower price per share
  3. Same overall value
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

How do stockholders exert influence over the direction of the company they’re invested in?

A

By voting for the Board of Directors.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

List some of the BOD’s powers.

A

Hiring and/or firing of senior level employees.

Managing senior level employee compensation.

Creating and implementing general company policies.

Approving dividend payouts to investors.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Is the BOD responsible for the day to day management of the company?

A

No.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Name the two voting structures for the BOD.

A
  1. Statutory

2. Cumulative.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

How does a statutory voting scheme work?

A

Allows the stockholder to apply only the amount of votes they have to each BOD position being voted on.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

How does a cumulative voting scheme work?

A

Allows the stockholder to apply the total amount of votes they have to any BOD position being voted on.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Which voting scheme is better for small stockholders, statutory or cumulative?

A

Cumulative.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Which voting scheme is better for large stockholders, statutory or cumulative?

A

Statutory.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

What are the two primary ways a stockholder can vote?

A
  1. At the annual stockholder meeting; or

2. Through a proxy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

How do publicly traded companies fulfill their shareholders’ right to inspect books and records?

A

By supplying investors with financial disclosures.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

What are the two most common financial disclosures?

A
  1. 10-K annual report (audited)

2. 10-q quarterly report (unaudited)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

What does it mean for a company to “dilute” your ownership?

A

Lessen.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

List two dilutive efforts tested on the SIE exam.

A
  1. Issuance of new shares

2. Issuance of convertible securities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Define “security”

A

a formal way of referring to an investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Examples of securities

A

stocks, bonds, mutual funds, options, ETFs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

What is the “initial public offering”?

A

First public sale of their shares.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

List the four categories of types of shares available

A
  1. Authorized
  2. Issued
  3. Outstanding
  4. Treasury
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

Define “Authorized stock”

A

the amount of stock that a company is permitted to sell to investors.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Define “Issued stock”

A

Those shares that are sold to investors.

Typically, companies don’t sell all of their issued shares up-front.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

Define “Outstanding stock”

A

Shares that are owned by the public. After the initial sale of shares, the number of issued shares and outstanding shares is the same.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

Define “Treasury stock”

A

Shares repurchased from the market by the company.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

What is the “pre-emptive right”?

A

The right buy new shares being offered by a company before they’re publicly offered. When the company issues new shares, you have the opportunity to purchase the same percentage of the new shares as what you currently own in order to maintain the same ownership percentage.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

How do “pre-emptive rights” work?

A

Investors receive one right for every share of stock owned. Each right will have a specific value (for example, five rights may equal 1 new share).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

Do rights have intrinsic or extrinsic value?

A

Intrinsic.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

What does it mean for a right to have intrinsic value?

A

Rights have immediate value. For each right that a stockholder has, the shareholder can purchase a new share at reduced cost.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

Why do rights have intrinsic value?

A

Because the company saves money by avoiding the services of an underwriter.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

What services does an underwriter provide?

A

Underwriters are hired to help organizations market and sell securities to the public.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

What options do investors have when they receive rights?

A
  1. Investors can exercise them and purchase the new shares at the exercise price.
  2. If the investor doesn’t want to buy new shares, they may sell the rights in the market.
  3. Investors can let the rights expire (typically within 90 days).
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
57
Q

If a stockholder exercises all their rights, is their ownership diluted?

A

No.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
58
Q

What are warrants?

A

They are similar to rights as they provide the right to purchase shares from a publicly traded company at a fixed price.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
59
Q

What kind of value do warrants have?

A

Time value, meaning the length of time they exist gives them value. They have an exercise price that’s fixed over time. The market price is not. So, over time, warrants add value.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
60
Q

How long do warrants last?

A

Typically, five or more years.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
61
Q

Why are warrants considered a “sweetener” during the sale of another security?

A

Because if a company is having trouble selling a bond, they can make the offering more attractive by attaching a warrant to the bond.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
62
Q

True or false, the issuing of a warrant is a dilutive action?

A

True.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
63
Q

Why is a warrant considered a dilutive action?

A

If a publicly traded company issues warrants, they’re giving out new shares, but not to everyone.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
64
Q

Does the issuance of warrants require stockholder approval?

A

Yes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
65
Q

Why are bonds valuable?

A

They pay interest to their investors.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
66
Q

What is a “convertible bond”?

A

A bond that can be turned into common stock.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
67
Q

Why is a “convertible bond” considered a dilutive action?

A

Because if you choose to convert your bond to common stock, you alone will receive new shares of the company - others will not.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
68
Q

Does a company need stockholder approval to issue a convertible security?

A

Yes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
69
Q

Why would a company want to issue convertible securities?

A

Because a company can offer them with lower payment rates due to the fact that they’re being offered with an extra benefit (the conversion feature). The less the company pays on their bonds or preferred stock, the more earnings they keep.

70
Q

Name the two types of stock splits.

A
  1. Forward stock split

2. Reverse stock split

71
Q

What do forward stock splits do?

A

Increase the number of outstanding shares (and decreasing share price).

72
Q

What do reverse stock splits do?

A

Decrease the number of outstanding shares (and increasing share price).

73
Q

Why would a company consider a stock split?

A

If it feels that its stock price is too expensive or too cheap.

74
Q

When should a company pursue a forward stock split?

A

When the company feels its stock price is too expensive for the average investor.

75
Q

List the steps to follow in answering a stock split question – i.e., A stockholder owns 100 shares of ABC Company at a current market price of $150 per share. How will a 2:1 forward stock split impact shareholders?

A
  1. Find the stock split factor.
  2. Find number of shares adjustment.
  3. Find the price per share adjustment.
  4. Combine and compare. Total should be same.
76
Q

How do you find the stock split factor? Ex. 2:1

A

SS factor = first SS number/second SS number

  • 2/1 = 2
77
Q

How do you find the number of shares adjustment? Ex. 100 shares at 2:1 forward stock split.

A

New shares = old shares x SS factor

New shares = 100 x 2

New shares = 200

78
Q

How do you find the price per share adjustment? Ex. 100 shares at 2:1 forward split with current price of $150 per share.

A

New price = old price/SS factor

New price = $150/2

New price = $75

79
Q

Summarize: A stockholder owns 100 shares of ABC Company at a current market price of $150 per share. How will a 2:1 forward stock split impact shareholders?

A

Before split:
- 100 shares @ $150 = $15,000

After split:
- 200 shares @ $75 = $15,000

80
Q

Simple summary: A stockholder owns 100 shares of ABC Company at a current market price of $150 per share. How will a 2:1 forward stock split impact shareholders?

A

100 shares of ABC @ $150

(100x2) shares of ABC @ ($150/2)

200 shares of ABC @ $75

81
Q

When is a reverse stock split pursued?

A

When a company feels their stock price is too low.

82
Q

What is a liquidation?

A

The sale of company assets.

83
Q

List the order of payout during a company’s liquidation.

A
  1. Unpaid wages
  2. Unpaid taxes
  3. Secured creditors
  4. Unsecured creditors
  5. Junior unsecured creditors
  6. Preferred stockholders
  7. Common stockholders
84
Q

What is a “lien”?

A

The right to property if a loan cannot be repaid.

85
Q

What does it mean to “liquidate” an asset?

A

To turn an asset into cash; to cash in an investment.

86
Q

What does a “transfer agent” do?

A
  • Transfer ownership from sellers to buyers after trade occurs;
  • Maintain book of stockholders;
  • Make dividend payments to stockholders;
  • Distribute proxies (voting materials) to stockholders;
  • Keep accurate count of shares outstanding.
87
Q

Is common stock “negotiable”?

A

Yes.

88
Q

What does “negotiable” mean?

A

It can be bought and sold among investors who are “negotiating” prices.

89
Q

What is the “secondary market”?

A

Where stocks trade after the initial public offering (IPO). Commonly referred to as the “stock market.”

90
Q

If a security is not negotiable, it’s _______.

A

Redeemable.

91
Q

What is a redeemable security?

A

One that is purchased directly from the issuer, not from another investor in the market.

92
Q

Define “Issuer”

A

The organization responsible for creating, registering, and selling a security.

93
Q

What is the one reason a company sells its stock in an IPO?

A

To raise money.

94
Q

What is a “primary distribution”?

A

Where the sale of securities occurs and the proceeds goes to the issuer. An IPO is a type of primary distribution.

95
Q

When does a “secondary distribution” occur?

A

When stock is being sold to the public, but the shares have been previously owned by a party other than the issuer.

96
Q

The secondary market is divided into four subsections:

A
  1. First market
  2. Second market
  3. Third market
  4. Fourth market
97
Q

What trades on the first market?

A

Listed stocks trading on exchanges.

98
Q

Define “listed”

A

When a stock is capable of being traded on a stock exchange.

99
Q

Define “stock exchange”

A

A specific place where stocks trade.

100
Q

Define “over-the-counter” (OTC) trade

A

When a trade of a security takes place between two parties, but not on an exchange.

101
Q

What is the third market?

A

Where listed stocks trade OTC.

102
Q

What is the second market?

A

Where unlisted stocks trade OTC.

103
Q

What is the fourth market?

A

Where large institutions trade without brokers. Operates through Electronic Communications Networks (ECNs).

104
Q

What does a “transfer agent” do?

A

Change ownership of the stock from the seller to the buyer.

105
Q

What does a “clearing agent” do?

A

Finalizes the trade. They are responsible for ensuring the buyer and seller fulfill their ends of the trade.

106
Q

What are the two types of settlement?

A
  1. Regular-way

2. Cash settlement

107
Q

When does a “regular-way” settlement occur?

A

Two business days after trade (T+2).

108
Q

When does a “cash settlement” occur?

A

Same day if executed by 2:30 pm EST.

109
Q

What does it mean to sell short?

A

To sell borrowed securities in the hopes of buying them again at a lower price, thereby making a profit.

110
Q

What are dividends?

A

Earnings passed on to stockholders.

111
Q

Are companies required to pay dividends?

A

No.

112
Q

Who determines if a dividend will be paid?

A

A company’s BOD.

113
Q

What are the three important dates to remember in the dividend context?

A
  1. Declaration date
  2. Record date
  3. Ex-dividend date
  4. Payable date
114
Q

What is the Declaration date?

A

The day the BOD publicly declares the dividend.

115
Q

What is the record date?

A

The day a stockholder must be “on the books.” An investor must be a settled owner of the stock on the record date in order to receive a dividend. Remember that a stock has a two business day settlement time frame.

116
Q

What is the ex-dividend date?

A

The first day the stock trades without the dividend. Meaning, if you bought the stock on the ex-date, you would not receive the dividend.

117
Q

When is the ex-dividend date for a cash settlement transaction?

A

The business day after the record date.

118
Q

What is the payable date?

A

When the dividend payment is made to the stockholders.

119
Q

Order of dividend dates:

A

DERP

Declaration Date
Ex-Dividend Date
Record Date
Payable Date

120
Q

Ex-Dividend Date for stock splits

A

The day after the payable date.

121
Q

What is an ADR?

A

American Depository Receipts

122
Q

Key points for ADRs

A
  • US-registered receipts for foreign investments
  • Created by domestic financial firms with foreign branches
  • Trade in US dollars in US markets
  • Subject to currency exchange risk
  • No voting or preemptive rights
  • Foreign government tax withholding creates a US tax credit
123
Q

What does an investor or group of investors do when they want to obtain a significant portion of an issuer’s stock?

A

Extend a tender offer to current shareholders.

124
Q

What are tender offers?

A

Proposals to purchase stock from current investors, often at premium prices.

125
Q

Define “Long”

A

The purchase and subsequent ownership of a security.

126
Q

Define “Short”

A

The sale of borrowed securities.

127
Q

How many days must an investor be provided to make a decision when faced with a tender offer?

A

20 business days. If any aspect of the tender offer changes, the offer must be extended by another 10 business days.

128
Q

What does “suitability” refer to?

A

The risks and benefits of an investment; used to determine if an investment is “suitable” for an investor.

129
Q

Define “hedge”

A

protection from risk.

130
Q

Key points for common stock suitability

A

Comes with considerable market risk

Generally suitable for younger investors

Hedge against inflation

131
Q

What is a “systematic risk”?

A

When an event or circumstance negatively affects the overall market.

132
Q

What is a “market risk”?

A

A specific type of systematic risk that occurs when an investment falls in value due to a market or economic circumstance.

133
Q

Does diversification reduce systematic risk?

A

No.

134
Q

What is “inflation risk”?

A

Also known as purchasing power risk; general prices rise more than expected; common stock tends to outpace inflation over long-term periods.

135
Q

What are the two major types of systematic risks to be aware of?

A

Market risk and inflation risk.

136
Q

What is company size measured by?

A

Market capitalization.

137
Q

How do you find market capitalization?

A

Multiply the stock’s market price by the number of shares outstanding.

MC = shares outstanding x market price.

138
Q

Large-cap:

A

More than $10B

139
Q

Mid-cap:

A

$2B to $10B

140
Q

Small-cap:

A

$300M to $2B

141
Q

Micro-cap:

A

$50M to $300M

142
Q

Nan-cap:

A

Less than $50M

143
Q

What is “business risk”?

A

Products or services in low demand due to competition or mismanagement.

144
Q

What is “financial risk”?

A

High debt levels negatively affect company performance.

145
Q

What is “regulatory risk”?

A

Potential or current government regulation negatively affects an investment.

146
Q

What is a “liquidity risk”?

A

Also known as marketability risk; inability to sell a security without dropping price dramatically.

147
Q

What is a non-systematic risk?

A

Affects specific investment or sector; can be reduced by diversification.

148
Q

What is “net worth”?

A

All the things you own (assets) minus your debts (liabilities).

Net worth = assets - liabilities

149
Q

What does the “current ratio” involve?

A

Current assets and current liabilities, both of which are short term.

150
Q

Why use the “current ratio”?

A

By focusing on short term finances, investors can use the current ratio to determine short term cash levels and ability to pay short term obligations.

151
Q

Define “current asset”

A

Assets able to be converted into cash within one year.

152
Q

Examples of current assets:

A

cash, accounts receivable (money owed to the company), and inventory.

153
Q

Define “current liability”

A

Liabilities owed now or will be within one year.

154
Q

Examples of current liabilities:

A

taxes, accounts payable (money owed by the company), and payroll expenses.

155
Q

Formula for determining the Current Ratio:

A

CR = current assets/current liabilities

*More than 1 = good; less than 1 = bad.

156
Q

What is “Net Working Capital”?

A

Determines liquid cash and marketable assets on hand.

157
Q

Formula for determining Net Working Capital:

A

NWC = current assets - current liabilities

*positive = good

158
Q

Quick Assets formula

A

QA = current assets - inventory

*focus is on cash and marketable assets (other than inventory); This is like looking into the wallet of a company.

159
Q

Quick Ratio formula

A

QR = (current assets - inventory) / current liabilities

*the higher the ratio, the more liquid the company’s finances are. If the ratio is over 1, the company has enough short term assets without including inventory to pay off short term liabilities. If lower than 1, the company may sell some of their inventory to pay short term obligations.

160
Q

What is the QR also referred to as?

A

The acid test ratio.

161
Q

What are Price to Earnings (PE) ratios used for?

A

To determine if a company is overvalued or undervalued.

162
Q

What is the PE Ratio formula?

A

PE ratio = market price/earnings per share

*the higher the PE ratio, the more likely that an investment is overvalued.

163
Q

What is the typical range of PE Ratios?

A

15-25

164
Q

Growth companies typically have _____ PE ratios.

A

Higher.

165
Q

Value companies typically have _____ PE ratios.

A

Lower.

166
Q

What does the “Debt Service Coverage Ratio” determine?

A

Whether a company’s revenues can cover their obligations.

167
Q

What is the Debt Service Coverage Ratio formula?

A

DSCR = net operating income / debt service requirements

168
Q

Net operating income =

A

gross income minus expenses and taxes

169
Q

Debt service requirements =

A

the amount of money a company must pay on outstanding loans.

170
Q

It’s best to have a DSCR comfortably above ___, as this demonstrates more revenues received than payouts made.

A

1.

SIE - Achievable (2 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions