Lecture 1

Question 1

Price is what you get value is what you pay…. when is price overvalued or under valued

Answer 1

If the market price is above the intrinsic value we say the equity is overvalued.

Question 2

What is fundamental analysis

Answer 2

Fundamental analysis is the analysis of information that focuses on valuation

Question 3

Explain the following investment styles

Intuitive investing

Passive investing

momentum investing

fundamental investing

Answer 3

Intuitive investing: Relies on intuition and hunches no analysis

Passive investing: Accepts market price as value no analysis. This is the efficient market approach

Momentum investing: those stocks that have gone up momentum continue going up more

Fundamental investing: Examine information about firms and reaching conclusion about the underlying value. It challenges market prices these could be either active or defensive investing.

Question 4

What is the formula for the value of the firm

What is easiest to value

Answer 4

Value of firm or enterprise value = Value of equity + value of debt

Value of debt is relatively easy task to value

Question 5

What are typical items in the assets (7 points)

Answer 5

Cash and cash equivalent
Short term investments and marketable securities 
Receivables 
inventories 
Long term tangible assets 
recorded intangible assets 
Other intangible assets 

long term tangible assets, recorded intangible assets and good will (can impairment down to fair value but cannot revalue up)

( Other intangible assets such as R & D not recorded in the balance sheets)

Question 6

What are the typical liabilities in the balance sheet

Answer 6

Short-term payable
Borrowing
Accrued and estimated liabilities
Commitments and contingencies

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