Rando Deck Flashcards
Harmonic Mean Formula
Number of Observations/ Sum of Reciprocals of Observations
Molodovsky Effect
The observation that P/E ratios tend to be high on depressed EPS at the bottom of a business cycle and tend to be low on unusually high EPS at the top of a business cycle.
Therefor of particular relevance to cyclical stock evaluation.
-Ergo, buying opps could potentially be best with HIGHER P/Es, counter-intuitively.
Adjusted CFO
CFO + [interest * (1 - t)]
Closely Held Company
company’s shares are held (and often traded very thinly, if at all) by a small group of interested shareholders (quite often the founders/family).
Growth Rate in Potential GDP Formula (2)
long-term growth rate of labor force + long-term growth rate in labor productivity= potential GDP
OR
long-term growth rate of technology + α (long-term growth rate in capital) + (1 - α) (long-term growth rate in labor)
Friedman Doctrine says
firm only needs to abide by the rule of law.
Spurious Correlation
is a relationship between two variables that appear to have interdependence or association with each other but actually do not. Spurious correlation is often caused by a third factor that is not apparent at the time of examination.
Bird in Hand Dividend Theory
Bird in hand is a theory that postulates investors prefer dividends from a stock to potential capital gains because of the inherent uncertainty of the latter.
Residual Dividend Policy
A residual dividend is a dividend policy company management uses to fund capital expenditures with available earnings before paying dividends to shareholders, and this policy creates more volatility in the dollar amount of dividends paid to investors each year. The first priority is to use earnings to cash flow capital expenditures, and dividends are paid with any remaining earnings generated by the firm.
FCFE Coverage Ratio
FCFE/ Dividends + Sharerepurchases
On-the-Run Issues
On-the-run Treasuries are the most recently issued U.S. Treasury bonds or notes of a particular maturity. “On-the-run” Treasuries are the opposite of “off-the-run” Treasuries, which refer to Treasury securities that have been issued before the most recent issue and are still outstanding. Media mentions about Treasury yields and prices generally reference “on-the-run” Treasuries.
When building confidence interval around Y, must use _____ due to _____
standard error of forecast due to join uncertainty from intercept and slope estimates
K is equal to
number of independent variables
RSS is what
EXPLAINED variance
SSE is what
UNEXPLAINED variance
SST is what
TOTAL variance (rss and sse)
SEE- Standard error of estimate measures
accuracy of predicted values from regression equation
Lower SEE implies
greater model accuracy
SEE is standard deviation of
error term.
R^2 is called
coefficient of determination
R^2 measures
percentage of total variation in dependent “Y” variable explained by independent “x” variable. Ranges between 0 and 1.
Limits of Regression
- relationships change over time
- public knowledge of relationships eliminate usefulness
- assumption violations
Free cash flow
cash flow available for distribution after subtracting cash spent working capital, investments, etc.
Free Cash Flow to Firm
cash avail to both shareholders and bondholders after taxes, capital inv, WC inv
-Pre-levered cash flow
Free Cash Flow to Equity
- cash flow avail after paying off bondholders
- post levered cash flow
NonCash Charges
apply to both FCFE and FCFF
-adjustments for noncash decrease and increases in NI based on accrual accounting
FCFF Formula
NI + NCC + int(1-t) - WC inv - FC inv
FCFE Formula
NI + NCC - WC inv - FC inv + net borrowing
FCFE via FCFF
FCFF - Int(1-t) + net borrowing
FCFF long form mnemonic
N - net income \+I - int (1-t) -C (WC) -E (capex) -----\/ NCC ---- \+T DTL \+I Impairment -P (Premium)Discount -G (gain) \+L loss \+A amort \+D depreciation
FCFE long form mnemoic
N - net income -E (capex) -W (WC) \+B Net Borrowing -----\/ NCC ---- \+T DTL \+I Impairment -P (Premium)Discount -G (gain) \+L loss \+A amort \+D depreciation
