quiz 2 - equities

Question 1

stock(equity)

Answer 1

a security that represents ownership of a fraction of the issuing corporation

Question 2

real estate home equity =

Answer 2

value - the amount owed

Question 3

owners equity =

Answer 3

assets - liabilities

Question 4

who are the last people to be paid in the event of liquidation?

Answer 4

equity(stock) holders

Question 5

large cap

Answer 5

market cap > $10 billion

Question 6

mid cap

Answer 6

market cap between $2 billion and $10 billion

Question 7

small cap

Answer 7

market cap between $300 million and $2 billion

Question 8

micro cap

Answer 8

market cap between $50 million and $300 million

Question 9

value stock

Answer 9

• a company that appears to trade at a lower price relative to its fundamentals
• pays dividends

Question 10

income stock

Answer 10

a company that pays regular, often steadily increasing, dividends

Question 11

growth stock

Answer 11

a company that is anticipated to grow at a rate significantly above the average growth for the market

Question 12

fundamental analysis

Answer 12

• measures a security’s intrinsic value by examining related economic and financial factors
• tries to predict future performance using financial statements
• predominantly for long-term investing
• depends on financial statements, brokerage analysis, and news reports

Question 13

technical analysis

Answer 13

• understands patterns in a company’s share price
• assumes historical patterns in share price would repeat in future
• predominantly for short-term trading
• depends only on stock’s price charts and market volumes

Question 14

what are Porter’s 5 forces

Answer 14

• Threat of new entrants
• bargaining power of buyers
• the threat of substitute products
• bargaining power of suppliers
• rivalry among existing competitors

Question 15

equity analysis questions

Answer 15

• What do they do? How do they make money?
• Are they selling a product or service?
• What is the competitive environment like?
• What are the catalysts? What are the risks?
• Is the business growing or contracting?
• Is the growth cyclical or secular?
• Are Sales and Earnings growing?
• Are margins expanding or contacting?
• Are they generating an adequate return on invested capital?
• What is the current value of the business (valuation)

Question 16

stock’s value

Answer 16

• separate from market price
• considers financial statements, market analysis, and fundamental factors

Question 17

stock’s price

Answer 17

• represents what price the stock trades at
• impacted by short-term market fluctuations
• fundamental factors plays a role in the long term

Question 18

P/E ratio and purpose

Answer 18

price/earnings per share
- compares a company’s stock price relative to its earnings

Question 19

P/B ratio and purpose

Answer 19

price/book value per share
- compares a company’s stock price relative to its tangible net asset value

Question 20

debt to equity ratio

Answer 20

total liabilities / total shareholders’ equity
- shows company leverage or the extent that a company is financing operations through debt

Question 21

financial statement analysis

Answer 21

using a company’s financial reports to evaluate health and performance
- statement of cash flows
- balance sheet
- income statement

Question 22

statement of cash flows

Answer 22

• aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources
• all cash outflows that pay for business activities and investments during a given period.

Question 23

balance sheet

Answer 23

reports a company’s assets, liabilities, and shareholder equity at a specific point in time

Question 24

income statement

Answer 24

primarily focuses on the company’s revenue and expenses during a particular period

Question 25

Share buyback effects

Answer 25

• decrease in shares outstanding
• increases shareholders ownership
• lowers(improves) P/E ratio

Question 26

dividends

Answer 26

a portion of a company’s profits paid to shareholders

Question 27

dividend yield =

Answer 27

annual dividend / current stock price

Question 28

Book Value per Share =

Answer 28

= (Shareholders’ Equity – Preferred Equity) / Total Outstanding Common Shares