Final-Term Flashcards
Value Investors
If you pick a stock based on the value of the underlying company that issues it
Growth investors
Seek companies that offer strong earnings-growth
The total market valuation of a company’s stock
Referred to its market cap/ market capitalization
Market cap
Share price (market value) X Total # of shares outstanding
Market valuation
Its not always a good indicator of a good investment.
Book Value (accounting Value)
Looks at a company from a balance sheet perspective
- assets - liabilities = net worth/ stockholders equity
Intrinsic value
The market price of a company’s assets minus sum of a company’s liabilities
- Directly tied to its ability to make money
The market-to-book
Price-to-book (PBR)
Measure of how highly valued the firm is.
- Stock price / BPS
Book value per share (BPS)
Divide the company’s book value by number of shares it has outstanding
Overvalued
The closer the stock’s market capitalization is to the book value, the safer the investment.
2 common barometers of value are expressed in ratios
- Price to sales ratio (PSR)
- Price to earnings ratio (PER)
Net worth/ net equity
Assets - Liabilities
Comparative analysis
Compare a company’s balance sheet at a recent point in time to the past
Income statement
Find out about what a company’s profit is
Net Profit (net earnings, Net income)
Sales - expenses
Sales
The money that a company receives as customers buy its good and/or services
Top line analysis
Analyzing a business by looking at its sales
Accounts receivable
Refers to money that is owned to the company for goods that customers have purchased on credit.
Financial Ratio
A helpful numerical tool that you can use to find out the relationshop between 2 or more figures found in company’s financial data
Price to earnings ratio (P/E)
Very important in analyzing a potential stock investment.
- Also known as the earnings multiple
- multiple
Danger of with high P/E?
The company doesn’t achieve the hoped-for results, the stock price can fall
TTM
Trailing P/E, Trailing Twelve Months
- Deals with existing data
- The most recent 12 months of earnings
Forward P/E
Projections or expectations of earnings
- The upcoming 12 months period
- Looks into the near future
Low P/E Ratio
Aren’t necessarily a sign of bargain
- But for many other reasons that seem positively, low P/E Ratio is a good sign.
High P/E Ratio
Aren’t necessarily bad
PSR
Price to Sales Ratio is a company’s stock price divided by it sales
- Total market value / total sales for the last 12 months
- Sales number is rarely expressed as per -share figure
MegaTrend
A major development that has huge implications for much of society for a long time to come
Growth stock
Company not only is growing, but also performing well with some consistency
Fundamental
Financial condition and related data
ROE
Return on Equity
- Dividing the earning by equity
- The higher the percentage, the better
2 additional barometer of success
- Company’s growth earnings
- Growth of Equity
Insider buying
The purchase of shares in a corporation by a director, officer or executive within the company
- Not a crime when buying is based on public information
Insider trading
It can happen, when corporate officers, executives, or board members know new products, merger negotiations, or other reasons that could cause prices to move higher.
- Corporate insiders making illegal stock purchases based on non-public information
Income stocks
Higher than average dividends
- Takes dual role that can not only appreciate, but provide regular income
- Tends to be among the least volatile stocks
○ Might view them as defensive stocks.
Dividend
Money paid out to the owner of the stocks
- Payouts to owners
- Annual number
Interest
Payment to creditors
- Bond holders
- Bank account holders
Yield
The percentage rate of return paid on a stock in the form of dividends.
Dividend yield
Dividend income/ stock investment
Payout ratio
Dividend (per share) / earnings (per share)
- To figure out what percentage of a company’s earnings is being paid out in the form of dividends
Junk bonds
Bs/ Cs indicate poor grade, considered very risky, non-investment grade
Mutual fund
Inexpensive way to gain access to professional management
Information
Plays a central role in the structure of financial markets and financial institutions
Information Cost
Make the financial markets the worst functioning of all market
Market of Lemons
Examines the qualilty of goods traded in a market can degrade in the presence of information asymmetry, leaving only the ‘lemons’ behind.
Public Companies
Those that issue stocks and bonds that are traded in financial markets- are required to disclose large amounts of information
Collateral
It is something of value pledged by a borrower to the lender in the event of the borrower’s default
Net worth
Under many circumstances, net worth serves the same purpose as collateral
- If a firm defaults on load, lenders can make claim against firm’s net worth
Down payment
The homeowner has a substantial stake in the house with a large down payment
A principal-agent problem
The seperation of your ownership from their control, which can be more than a little costly to stockholders
