Financial 2 Flashcards
risk-adverse investor
willing to take risk but believes he will be reasonably compensated for the risk
security market line
graphic representation of expected return of a particular security
technical analysis
past data to predict future movements in securities
weak form of effective hypothesis
past info would not be used to predict future performance
fundamental analysis
use FS and ratios to find undervalued securites
operating cash flow
must add back noncash espenses (depr) at the END of calculation
ROI =
net income/ investment cost of assets used
RI =
operating income - imputed cost (reflect what something should or would cost) not real
capital asset pricing model uses
beta coefficient, the market risk premium and the risk-free rate
Payback period =
net cash invested / annual cash inflow
Payback reciprocal =
1 / payback period
hedging approach
finanace long term with long term and short term with shortterm
strong form of the hypothesis
all available info – cant find undervalued securities and cant beat the market
semi-strong form of hypothesis
all readily available info – unlikely to find undervalued securities
times-interest-earned ratio =
(Net income before tax + Int exepnse) / interest expense
