Fundamental and Technical Analysis

Question 1

Fundamental Analysis

Answer 1

Focuses on the profitability of a company

Question 2

2 main reports are used to do fundamental analysis

Answer 2

Balance Sheet

Income Statement

Question 3

Balance Sheet

Answer 3

Assets - Liabilities = Net Worth

Current Assets - an asset that is cash or can be turned into cash in 12 months

Fixed Assets - an asset that cannot be converted into cash as easily

Other Assets - Intangible assets. They have value but your not sure how to price them.
Examples:
-Patents
-Trademarks
-Contracts
-Formulas (ie: Coca-Cola’s secret recipe)
-Goodwill (Brand Reputation)

Current Liabilities - Anything that you must pay in 12 months or less ie : wages debt rent etc

Long Term Liabilities - Anything you must pay but aren't required to pay back in 12 months
	Equity/Net Worth
	Preferred Stock at Par
	Common Stock at Par
	Additional paid in surplus
	Treasury stock
	Retained Earnings

(Company securities are on the liabilities side because those things now pay dividends and things like it. Then the cash the company receives from their IPO of that stock is on the assets side of the equation and they kind of balance eachother out)

Question 4

Changes In Balance Sheets

Answer 4

Purchase Equipment - Current assets Decrease / Long Term Assets Increase

Depreciation - Value of Long Term Assets Fall (also decreases Tax Liability because they get tax write off for depreciation)

Declaring a Dividend - Current Liabilities Increase

Paying a Dividend - Current Assets and Current Liabilities Decrease

Question 5

Balance Sheet Analysis

Answer 5

Net Worth

Working Capital

Current Ratio

Quick Ratio

Cash Asset Ratio

Question 6

Income Statement

Answer 6

shows you how much the corporation made or lost

Question 7

Financial Ratios

Answer 7

Earnings per Share
	Earnings Per Share Fully Diluted	
	Price Earnings Ratio	
	Dividend Payout Ratio	
	Debt Service Ratio

Question 8

Earnings per Share

Answer 8

Earnings of corporation / # of outstanding common shares

Question 9

Earnings Per Share Fully Diluted

Answer 9

Earnings of corporation / # of outstanding common Shares assuming all convertible stocks had been converted into common shares

Question 10

Price Earnings Ratio

Answer 10

Price of Stock / Earnings Per Share

Question 11

Dividend Payout Ratio

Answer 11

Annual Dividend per share / Earnings Per Share

Question 12

Debt Service Ratio

Answer 12

Earnings before interest and taxes / Annual Interest and Principle Payments

Question 13

Liquidity Ratio

Answer 13

how able is the corporation able to meet its debts as they come due

Question 14

Valuation Ratio

Answer 14

how cheap/ expensive is the corporation compared to its earnings per share

Question 15

Accelerated Depreciation

Answer 15

A company will depreciate most of the value in the first few years
Its has larger deductions followed by smaller deductions over the remaining years

Question 16

Growth Industries

Answer 16

Industries that are growing More Rapidly than the economy as a whole tend to pay fewer dividends as they reinvest in their companies to stimulate more growth

Question 17

Cyclical Industries

Answer 17

Industries that rise and fall with the business cycle ie: steel auto

Question 18

Defensive Industries

Answer 18

Industries that tend to remain stable as the business cycle fluctuates

Question 19

Top-Down Analysis

Answer 19

Looks at the economy as a whole then industries that would do best then the company

Question 20

Bottom-Up Analysis

Answer 20

Company First Then Industry Then Economy

Question 21

Technical Analysis

Answer 21

Uses past price trends to predict future movement only concerned with the trading analysis of the companies securities

Question 22

Technical Analysis Chart Patterns

Answer 22

Support
Resistance
Head and Shoulders
Inverse Head and Shoulders
Double Bottom

Question 23

Support

Answer 23

As a stock price falls and the low price attracts buyers

Question 24

Resistance

Answer 24

Stock Price Rises so Companies Issue More Stock Raising Supply therefore making it harder to increase stock price further

Question 25

Ascending (Bullish)

Answer 25

Price is Trending Up

Question 26

Down (Bear)

Answer 26

Price is Trending Down

Question 27

Head and Shoulders

Answer 27

A stock has three “humps” with the middle one being biggest (2 shoulders and a head). It is very bearish and indicates a huge decline coming

Question 28

Inverse Head and Shoulders

Answer 28

A flipped head and shoulders which indicates it being very bullish

Question 29

Double Bottom

Answer 29

Like an Inverse Head and Shoulders

Question 30

Efficient Market Theory

Answer 30

belief that markets are efficient

all known information about a market stock is already reflected in the investments price.

means no further analysis will help you achieve better results

the hypothesis works better when there is more information known

weak
= further analysis will help
= price and volume information known

Semi strong
= Further Analysis might help a bit
= Price and volume financials of the company is known

Strong
= Further Analysis won’t Help
= Price and volume, Financials of company and public and private information is known

Question 31

Net Worth

Answer 31

= Assets - Liabilities

Question 32

Working Capital

Answer 32

= Current Assets - Current Liabilities

Question 33

Current Ratio

Answer 33

= Current Assets / Current Liabilities (higher number = the higher the liquidity the company is)

Question 34

Quick Ratio

Answer 34

= Quick Assets (Current assets - Inventory) / Current Liabilities (higher number = the higher the liquidity the company is)

Question 35

Cash Asset Ratio

Answer 35

= Cash and Equivalents / Current Liabilities (higher number = the higher the liquidity the company is)