FINAL EXAM Flashcards
includes the assessment of how the global economy affects
Fundamental analysis
the study of past market data of prices and volume to predict future price movements
Technical analysis,
considers the company’s earnings, management, economic outlook, competition, market condition, and other factors in the determination of a firm’s intrinsic value.
Fundamental Analysis
focuses directly on a company’s fundamentals,
Bottom-up Approach
it is the
combination of traditional economic and business concepts that
determine the value of the investment. The examination of these
variables is called the
Valuation Process
analyst or investors look at
how economic factors, both global and local, and how the
overall market can affect the value of the stock prices.
Top Down Approach
macroeconomic indicators:
GNP/GDP growth rates;
foreign exchange rates (FOREX);
Tbill rates (91-day),
and inflation rate.
A company that
follows the rise and fall of the GNP is sensitive to business
cycles, while those which are less or are not affected are called
Defensive companies
The main
objective of the fundamental analysis is to arrive at the
Intrinsic Value
The concept of intrinsic value distinguishes it being based on
assets
earnings
prospects
management
If intrinsic value is less than market price, the firm is
Overvalued
Valuation Methods
Net Asset Value Method
Capitalized Earning Method
Enterprise Multiple
Discounted Cash Flow Model
This method uses the company’s balance sheet as basis for
valuation.
Net Asset Value Method
adopts the viewpoint of a
potential investor who considers anticipated earnings as the
fundamental source of common equity value.
Capitalized Earning Method
An earnings based approach
Capitalized Earning Method
This approach assumes that the company will be worth some
multiple of its future earnings in the continuing period
Capitalized Earning Method
NAV Meaning
Net Asset value
CEM Meaning
Capitalized Earning Method
P/E ratio maening
Price- Earnings ratio
which is the
average price-earnings of stock of representative companies in
the sector where the company belongs to.
Price-Earnings Ratio
EPS meaning
Earnings Per Share
There are two critical factors in obtaining the value of a
company’s common stock through the capitalized earnings
approach:
the company’s earnings power and the appropriate P/E ratio.
To obtain the value of a company’s stocks on the basis of
earnings, an analysis of its past earnings performance should
be performed.
Historical Earnings
EV Meaning
Enterprise Value
EM Meaning
Enterprise Multiple
EBITDA Meaning
Earnings Before Interest, Taxes, Depreciation and Amortization
is the sum of the values of debt and
equity, net of cash.
Enterprise value
is a firm value multiple that measures the
actual economic value of a company at any given moment.
Enterprise Value
number of shares outstanding times
current share price while debt and cash are included in the books
which the acquirer assumes.
Market Capitalization
is considered as a firm measure similar to Free Cash Flow
EBITDA
use the cash flow statements
as basis for valuation.
Discounted Cash Flow Model
DCF Meaning
Discounted Cash Flow
Application of the DCF method
Excess Cash Flow
Terminal Value
Discount Rate
are based on the company’s net operating
cash flows for the forecast/projection period.
Excess Cash Flows
is the value of an investment at the end of a period, taking
into account the discount rate and the method used in computing
it.
Terminal Value
The two methods used in determining the company’s terminal Values are
Residual Asset Method
Perpetuity of Earnings Method
assumes that
the company’s residual assets
Residual Asset Method
is the rate of expected return that the market requires for investments that are comparable in terms of risk and
other characteristics.
Discount Rate
ROE Meaning
Return on Equity
WACC Meaning
Weighted Average Cost of Capital
is composed of the weighted costs of the various components of financing a company’s capital structure which are debt and equity.
WACC
The rate of return on treasury bills issued by the
government
Risk Free Rate
is the rate given to preferred
companies by banks
Prime Lending Rate
Is a method of securities analysis that makes use of historical price patterns to determine an optimal entry and exit
Technical Analysis
Technical analysis is driven by three underlying major premises
Market Action Discounts everything
Prices move in trends
History Repeats itself
it is the major premise of technical analysis.
Market action Discounts everything
prices over a period of time move in a particular direction until it is reversed.
Prices move in trends
as prices move in trends, recognizable patterns unfold along the way. Over the long run, these are repeated.
History Repeats Itself
These computer-generated maps driven by sophisticated algorithms are dynamic and are updated real time whenever there are movements in the securities it track.
Surface Maps
One particular advantage that technical analysis seems to
have over fundamental analysis is its
Universality
which are based on the prices, are used in conjunction with the charts to fine-tune the investment decision.
Oscillators
is constructed by connecting with a line the security’s daily closing prices over a particular period
Line CHart
It is the simplest form of a price chart
Line chart
also known as the American bamboo chart,
Bar Chart
is a general direction in which prices, or the market, are moving.
Trend
is represented by higher highs and lows
Uptrend
Is represented by lower highs and low
Downtrend
As prices are collection of trends, these are broken down into
three classifications, namely;
Major term
intermediate term
short term
is one that lasts for at least six
months and may continue for years
Major Trend
is one that lasts for a few weeks to several months
Intermediate Trend
is one that lasts for a few minutes to a few days.
Short Trend
is a price level wherein
there are more sellers than buyers
Resistance
is a price level wherein there are more buyers than sellers
Support
is one in which the trend line’s angle of rise or fall is gradual or up to about 45 degrees from the horizontal.
Sustainable Trend
are those that signal or identify a change in the direction of the trend.
Reversal Pattern
are those that identify minor countertrends or corrections within an unfolding trend.
Consolidation Patterns
The basic reversal patterns are:
V or spike, reversal days,
exhaustion gap, island reversal, double or triple tops/bottoms,
head-and-shoulders, and the saucer or rounding top/bottom.
is a one-day reversal pattern.
V or Spike
Selected Technical Indicators
Moving Averages
Bollinger Bands
Oscillators
Volume
Volume Oscillators
is a trend following tool. It is the average of a set of closing prices
Moving Averages
Three types of moving averages are used:
Simple, weighted and exponential Moving Average
is the arithmetic mean of
the data set.
Simple Moving Average
assigns weight values
to the data set.
Weighted Moving Average
is a more complex form of the weighted average designed to further correct the weighing problem for a data set.
Exponintial Average
are mathematical or statistical measures of the velocity of price movements.
Oscillators
The objectives of the use of oscillators are:
a) to identify divergence with the price; and b) overextended readings.
occurs when the market price and the oscillator’s trend head in opposite directions.
Divergence
give hints as to the continuity and/or reversal of a trend, and hints of price support and resistance.
Turnover Dynamics
