Industry and Company Analysis Flashcards
Defensive Companies
React less to changes in the business cycle than cyclicals
Ex: Utilities, tobacco, alcohol, cosmetics, and food companies
Cyclical Companies
Performance is tied to the business cycle.
Ex: Basic industries (rubber, steel, etc), construction, and durable goods manufacturers
Interest-Rate-Sensitive Companies
React to changes in interest rates as they are highly levered
Ex: Utilities
Stages of the Stock Market Cycle and beneficiary sectors
1) Early to middle bull market: Credit-related industries, construction, durable consumer goods, transportation
2) Middle to late bull market: Capital goods, Some financials
3) Late bear market: Nondurable consumer goods, utilities, some enegy companies
Industry Life Cycle
1) Birth and Early Development
2) Rapid Growth
3) Mature Growth
4) Steady/Decline
Methods for maintaining growth
1) Steady penetration of rapidly growing markets
2) Accelerating penetration of markets with stable growth rates
3) Accelerating penetration of rapidly growing markets
What are the two major factors that influence the pattern of industry profits?
Unit Costs & Pricing Strategies
Unit Costs
Cost for producing one unit of good or service
Learning Curve
Graph that depicts the progression of unit costs as output increases. This curve innitialy declines but flattend out as the business approches diseconomies of scale
Unit Pricing
Price chared for one unit of a good or service
Umbrella Priceing Strategy
Market leaders set their prices just above the unit costs of the industry’s highest cost producers providing attractive rates of return for low-cost producers and modest returns for other competitors. This strategy allows market leaders to maintain their market share and grow profits as the market grows.
Learning Curve Pricing Strategy
Low-cost producers use their cost advantages to regularly outprice the competition. This allows them to increase market penetration and creates bariers to entry for the industry.
As demand for a particular good increases, the demand for a complimentary good should _______.
Increase
Industries with __________ suppliers are more subject to price increases.
Limited
6 Basic Competitive Models
Pure Competition, Monopolistic Competition, Oligopoly, Duopoly, Monopoly, Monopsony
Pure Competition
Many producers of a commodity
Monopolistic Competition
Many producers with small market share
Oligopoly
Several large producers controlling 70-80% of the market share.
Ex: Automobiles, oil, and steel companies
Duopoly
Two producers
Monopoly
Single producer
Monopsony
A single buyer in the market
Most firms fall into the segment of _____________.
Monopolistic Competition
Oligopolies typically form from barriers to entry created by….
Economies of Scale and/or Scope
What is an example of a natural monopoly?
Water Utilities (typically granted by the government in exchange for strict regulation)
The more __________ __________ an industry is, the greater its sensitivity to interest rates.
Capital Intensive
Linear regression analysis is best used when relationships tend to trend _________ or ___________ one another
Together; Opposite
Operating Leverage
The measuremnt of the degree to which a firm or project relies on fixed rather than variable costs.
Financial Leverage
The degree to which an investor or business is utilizing borrowed money.
The most common methods for inventory valuation are
FIFO and LIFO
In a period of rising prices, ______ would result in a greater profit and tax expenses than ______ because a lower cost basis is used.
FIFO; LIFO
___________ __________ represents the net ammount of a company’s liquid resources.
Working Capital
Tangible Book Value
Total Assets - Intangibles - Total Liabilities
The ususal par value for a preffered stock is _____
$100
Form 8K
Form filed only when a significant or unusual material event occurs, such as a takeover or merger proposal.
Proxy Statements
Filed when a corporation intends to solicit proxies from shareholders regarding issues (executive compensation and owenership percentage) to be voted on at a shareholder meeting.
Form 13D
Filed by any person that acquires more than 5% of the equity issuer.
EDGAR System stands for…
Electroninc Data Gathering Analysis, and Retrieval System
