Industries and Companies Flashcards
Cyclical industries
Highly sensitive to business cycles and inflation trends.
Most produce durable goods, such as heavy machinery and raw materials. During recessions, the demand for such products declines as manufacturers postpone investments in new capital goods and consumers postpone purchases of the goods.
Examples are steel, autos, heavy equipment, capital goods (washers, dryers, etc.) industrial metals.
Noncyclical industries
Defensive industries
Least affected by normal business cycles. Generally produce nondurable consumer goods (consumables), such as food, pharmaceuticals, and tobacco. During recessions and bear markets, stocks generally decline less than in other industries, but during expansions and bull markets, defensive stocks may advance less. Tend to involve less risk and consequently lower returns. Examples: Food, utilities (highest dividend payout ratio), clothing, drugs, tobacco, liquor
Countercyclical
Tend to turn down as the economy heats up and rise when the economy turns down. They are producers of a product that people buy when they are scared and looking for safety.
Examples, gold mining and refinement, though any precious metals
Growth or special situation
Growth industry: seems disconnected from the business cycle, doing well regardless of the economy. May apply to an individual stock as well as to a specific industry.
Special situation is normally applied to a specific company, but it could apply to an industry as a whole. Anything from a hostile takeover to a cultural shift that moves the consumer away from the product.
Balance sheet
Provides a snapshot of a company’s financial position at a specific time. It identifies the value of the company’s assets and its liabilities. The difference is the corporation’s equity or net worth.
Components of a balance sheet
Current assets -cash and assets easily converted to cash Fixed assets -real estate, furniture, equipment Other assets / intangibles / goodwill Current liabilities (within 12 months) -accrued wages, accrued taxes, accounts payable, interest payments Long-term liabilities -notes and bonds, principal Net Worth (Shareholder's Equity) -Preferred stock -Common stock -Capital in excess of par -Retained earnings
Working capital
The mount of money a company can spend or lose and remain operational
current assets minus current liabilities equals working capital
Current ratio
Figure to use when comparing the liquidity of a company
Current assets : current liabilities = current ratio (expressed as a ratio)
Acid ratio
or Quick ratio
Test of a company’s liquidity if everything goes really bad
(current assets-inventory) : current liabilities=asset ratio (expressed as a ratio)
Debt ratio
Debut-to-equity ratio
Most common measure of long term solvency; measure of how much of a corporation’s net worth is derived from long-term debt
long-term debt / (long-term debt + net worth)= debt ratio (expressed as a percentage)
Income statement
Profit and loss or P&E
Summarizes a corporation’s revenues and expenses for a fiscal period. Reflects the business activity in cash flow over a specific time period.
Earnings per share
(EPS)
EPS=earnings/outstanding shares
Price/earnings ratio
PE ratio
=CMV/EPS
Net worth
=assets - liabilities
