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Finance > Exam 3 > Flashcards

Exam 3 Flashcards

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1
Q

Income statement steps

A 
Net Sales
COGS
Gross Profit
Ops. Exp.
EBIT
Interest Exp.
EBT
Income Tax
Net Income
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2
Q

Alternate name for EBIT

A

Operating profit/earning before income tax

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3
Q

Alternate name for net income

A

profit / earnings

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4
Q

Dividend payout ratio formula + interpret

A

dividends / net income
implies how much money is retained
high dividends low reinvest - old/large
low dividends high reinvest - new/small

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5
Q

Alt names for reinvested profits

A

retained earnings

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6
Q

Alt names for fundamental value V

A

intrinsic value / theoretical

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7
Q

what to compare V to

A

Relative Value

Absolute Value

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8
Q

Relative Value

A

fundamental value is determined by comparing it to similar assets (real estate)

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9
Q

Absolute Value

A

fundamental value is based on its own characteristics

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10
Q

Undervalued

A

market price is less than its fundamental value, buy, bullish

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11
Q

Overvalued

A

market price is higher than its fundamental value, sell, bearish

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12
Q

Fairly Valued

A

market price is equal to fundamental value

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13
Q

Bullish

A

prices are undervalued and will return more than expected, prices going up

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14
Q

Bearish

A

prices are overvalued and will return less than expected, prices going down

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15
Q

nominal risk free rate

A

T-bill rate, treasury rate, with inflation, on a risk free asset

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16
Q

real risk free rate

A

interest rate on a risk free asset without inflation, not used on treasuries

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17
Q

Preferred stocks 2 preferences

A

Liquidation

Dividend

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18
Q

Liquidation preference

A

payment preference over common shareholders from sell off of easily sellable assets if business goes under

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19
Q

Dividend preference

A

preferred stockholders get dividends before common stockholders

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20
Q

Order of payment in corporate liquidation

A

Secured lenders
unsecured lenders (bonds)
pref. stockholders
common stockholders

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21
Q

Dividend

A

distribution of earnings to shareholders

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22
Q

convertible preferred

A

may be exchanged for common at option of the holder

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23
Q

stated dividend

A

a stated dollar amount

percentage based on the stocks par value

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24
Q

is pref stock riskier to issue than bonds

A

no, because dividends are not legally obligated like they are on bonds, payments can be skipped
no, bonds mature and have to be paid back

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25
Q

is pref stock risker to invest in than bonds

A

yes, because it has a lower priority on liquidation, bonds are unsecured credit

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26
Q

why a corp intends to pay divs

A

cant pay common stocks until preferred are
may allow pref holders voting rights if they dont get them
gives a bad reputation to the market if they dont

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27
Q

does preferred stocks dividend ever increase?

A

no

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28
Q

does common stock dividend ever change?

A

yes, if the company becomes more profitable and pays out more

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29
Q

is a corp required to pay dividends

A

no

30
Q

who decides if stocks are paid

A

board of directors

31
Q

which shares dont get dividends and why

A

treasury, they are held by the company and not investors

32
Q

3 types of dividends

A

Cash
Stock
Property

33
Q

Dividend Yield Formula

A

annual dividend $ / current market price

measures income only

34
Q

Transfer Agent

A

maintains who receives dividends

35
Q

Corporate Charter / Articles of Incorp.

A

Registered with the secretary of state, establish the existence of a corp in the US outlining objectives

36
Q

Authorized Stock

A

max shares a corp is allowed to issue, stated in articles of incorp

37
Q

Issued Stock

A

The amount of shares registered and either held in treasury or sold

38
Q

Outstanding Stock

A

only shares that have been sold

39
Q

Treasury Stock

A

Stock not sold or sold stock bought back

40
Q

Pre-emptive Right

A

Clause to buy new shares first to maintain percentage owned

41
Q

Corporation

A

a legally incorporated business entity, owners are shareholders

42
Q

Incorporation

A

the process of becoming a business entity

43
Q

Company

A

a business whose owners are members of the business, not legal entity

44
Q

formula for number of shares outstanding

A

issued shares - treasury shares

45
Q

how are books affected by declaration date

A

the day the board of directors decides to pay the dividend, reduce retained earnings increase dividends payable

46
Q

how are books affected by the record date

A

the day you need to own the stock by to get the dividend, is not recorded at all

47
Q

market cap formula

A

current market price * shares outstanding

48
Q

under performance

A

investment did not do as well as what it is being compared to

49
Q

out performance

A

investment did better than what it is being compared to

50
Q

benchmark

A

the standard to judge performance

51
Q

index

A

a measure designed to measure a particular market or sub set of a market

52
Q

S&P 500

A

measures performance of 500 large us stocks

53
Q

Russell 2000

A

measures performance of 2000 small US stocks

54
Q

MSCI EAFE (ee-fuh)

A

measures performance of stocks in europe, asia, far east

55
Q

BRICS

A 
5 emerging markets
Brazil
Russia
India
China
South Africa
56
Q

Index Fund

A

Invests in the securities of a specific index

57
Q

Market Risk Premium formula

A

expected return - nominal risk free rate

58
Q

CAPM

A

Capital Asset Pricing Model

59
Q

required rate of return formula (rs)

A

nominal risk free rate + (beta * market risk premium)

60
Q

what are equities

A

common stocks

61
Q

what is the equities market

A

common stock market only

62
Q

equilibrium

A

when expected return = required return, they become interchangable

63
Q

does market risk premium change over time

A

yes

64
Q

what does market risk premium measure

A

degree of risk aversion in the market

65
Q

what do investors compare intrinsic value to

A

market value

66
Q

how to determine theoretical value

A

add value of future cashflows

67
Q

dividend discount model

present value of all future dividends

A

P0 = D1/rs-g
P0 = V at time 0
D1 = dividend at end of year 1
(dollar amount + growth rate ^ # terms)
rs = required rate of return on the stock (expected return)
g = annual growth rate

68
Q

how to modify dividend discount model for x year

A

make D one bigger than P and terms = # of P

69
Q

how is market risk affected when there is higher percived risk

A

goes up

70
Q

how is market risk affected when there is lower percived risk

A

goes down

71
Q

current yield stock formula

A

interest $ / current price

72
Q

current dividend bond formula

A

coupon rate / current market value

Finance (7 decks)

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