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Series 79 > Section 1: Collection Analysis and Evaluation of Data 1,4,5,6,7 > Flashcards

Section 1: Collection Analysis and Evaluation of Data 1,4,5,6,7 Flashcards

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Series 79 Top-Off Exam flashcards
1
Q

Synonym for Off Exchange market

A

Over the counter market

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2
Q

What does being delisted from an exchange mean to a security

A

it will be delisted from an exchange and passes to the OTC market

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3
Q

What type of marketplace is Nasdaq

A

Negotiated or dealer market place. Dealers and buyers stand ready to buy and sell securities and earn profit through price differentials

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4
Q

What economic factors are influenced by Financial markets

A

Amount of capital raised, Transfer of risk and International Trade

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5
Q

What piece of legislation regulates subsequent trading of securitys and what is the goal of such?

A

Securities Exchange Act of 1934. Its goal is to prevent fraud within the secondary market and it does so by scrutinously evaluating all its participants

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6
Q

Who is the primary regulator of US financial markets

A

The SEC

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7
Q

Document that must be handed to investors prior to the sale of securities and in which all relevant information is disclosed

A

Prospectus

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8
Q

The SEC in charge of approving a sale of security and verifying the information provided is ok. True or False

A

False, it is only in charge of ensuring that there is sufficient information for investors to make their own decisions.

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9
Q

Who are the primary players in the Foreign Exchange market

A

Importers and Exporters, Banks, Speculators, Tourists and Governments ( most predominant player)

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10
Q

Market in which direct trading of large blocks of shares occur between institutions and/or Large retailers

A

Fourth market

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11
Q

How does continuity influence Financial market performance?

A

Ensures price stability in case that no relevant information is disclosed

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12
Q

How does marketability influence FM performance and how does it differentiate from liquidity ?

A

Ensures rapid conversion of assets into cash. Liquidity refers to having enough buyers and sellers to sell securities rapidly

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13
Q

What do Commodity Markets trade and where?

A

they trade Raw materials and agricultural products such as food, metals and electricity. They trade on a commodities exchange through standardized futures and options

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14
Q

What is the primary goal of insurance markets?

A

To ensure transfer of risk in exchange for a premium

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15
Q

US T Bills, Commercial paper, Repos, Negociated CDs are examples of

A

Money market products

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16
Q

Which market is decentralized, Over the counter and works 24 hours except on weekends?

A

FX or FOREX market

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17
Q

What differentiates NYSE from Nasdaq primarily

A
  • NYSE has more stringent requirements
  • Nyse works in an auction marketplace where trades are submitted through the phone or by email and market makers connect buyers and sellers whereas Nasdaq works in a negotiated marketplace
  • Nyse attracts the more stable and prominent companies with a history of stable returns and growth or blue chip stocks whereas Nasdaq attracts the more techy companies who might be more volatile and risky
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18
Q

What does a stock market index serve for

A

It evaluates the performance of a specific sector or industry group in the economy. It is also used as a comparative benchmark

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19
Q

What is the DJIA, how many stocks it holds and what groups does it exclude from the index

A

the dow jones industrial average. it holds 30 bluechip stocks and it excludes transportation and utility

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20
Q

Tracks performance of all NYSE enlisted stocks

A

Nyse composite index

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21
Q

It is normally used by portfolio managers as a comparative benchmark and tracks performance of leading firms in their specific groups

A

SP 500 composite stock price

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22
Q

Tracks performance of small cap stocks

A

Russel 2000 index

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23
Q

Broadest index in the US stock market

A

Willshire 500 Total market index

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24
Q

If a US resident makes a profit in a foreign investment, is that profit counted in the GDP or the GNP

A

GNP

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25
Q

Accounsts for the market value of all goods produced whitin the borders of the country

A

GDP

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26
Q

how does consumer spending affect economy

A

positive sentiment promotes investment and spending which is good for the economic growth of a country. the opposite is true as well. It directly affects manufacturing levels and available services

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27
Q

when the us dollar weakens it promotes imports or exports

A

exports

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28
Q

What do companies with significant exports prefer , a weaker or strongerhome currency

A

weaker.

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29
Q

Cost of capital and price of credit

A

Interest rates

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30
Q

CPI calculates

A

change in the general level of prices of good and services at the retail level

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31
Q

Higher inflation is better for what business sector

A

Real estate. It promotes asset prices and cashflow growth because rents oincrease as inflation increases

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32
Q

Is cash attractive when inflation is high ?

A

no

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33
Q

Is inflation good for stock valuation

A

no. while it might favor asset value it erodes cashflow which is what shareholders care about the most

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34
Q

Which items increase debit of balance trade

A

imports and domestic foreign investment and expenditures

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35
Q

Which items increase credit of balance trade

A

exports and foreign domestic investment and expenditures.

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36
Q

is a deficit in balance trade always negative?

A

no. I a strong economy a country will prefer imports because in reduces price levels and it manages inflation (

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37
Q

How is a depression in an economic cycle determined

A

reduction in gdp of more than 10% or 6 consecutive quarters of negative GDP.

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38
Q

when economic activity bottoms out and begins to expand again

A

Trough

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39
Q

Refers to government spending and tax policy

A

fiscal economic policy

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40
Q

when a government increases spending without increasing taxation

A

expansionary policy

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41
Q

monetary policy tools

A

OMO, discount rate, reserve requirements and moral suasion

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42
Q

is the discount rate higher or lower than fed funds rate

A

higher

43
Q

Influences but not frces economic activity

A

Moral suasion

44
Q

Which of the following are leading, lagging or coincident indicators

  • bond yield
  • GDP
  • unemployment rate
  • loans outstanding
  • capacity ulitization index
  • stock market
  • industrial production index
  • building permit
  • labor cost per unit
  • changes in business inventories
  • corporate profit
A
  • Le
  • Co
  • La
  • La
  • La
  • Le
  • La
  • Le
  • La
  • Le
  • La
45
Q

Risk of loosing all of the money invested

A

capital risk

46
Q

name 4 sources where to create an comparable universe

A
  • companies financials
  • proxy statement
  • Fairness opinion
  • senior management
47
Q

What are the key characteristics when determining comparable companies?

A
  • Business (sector, products and services, geography, distribution channels, customers)
  • Financial profile ( credit, growth prospects, coverage, leverage, SIZE)
48
Q

What is a PREM14A

A

preliminary merger 14A

49
Q

What is a DEFMA14A

A

definite merger 14A

50
Q

What are First call and IBES ( institutional brokers estimate system)

A

provide consensus analyst estimates

51
Q

Regulation FD disclosure

A

required file in case that nonpublic information is disclosed to certain persons.

52
Q

Where can I find data regarding the most up to date shares outstanding?

A

Proxy statement.

53
Q

What method should one use to account for options in the money when it comes to shares outstanding?

A

Treasury stock method. Calculate the proceeds from exercising options and calculate how much outstanding shares can be purchased with this amount. substract from options exercise. Or divide the option exercise price by the current market price. multiply (- this %) by the amount of shares issued from option exercise

54
Q

What is the if converted method ?

A

Method used to determine the amount of shares outstanding after a convertible bond is converted. Must calculate the proceeds from exercising their option, how many shares could be repurchased with this amount and determine the total diluted shares. Interest expense is reduced in this case.

55
Q

What is a net share settlement?

A

the value of in the money options is paid in cash instead of stock. The spread between the stock* strike price and the current market price * stock will be covered with the addition of new shares divided by the current market price

56
Q

Capital structure changes will affect enterprise value. True or false

A

False.

57
Q

What other way can enterprise value be calculated that is not the typical sum of parts?

A

Perpetuity formula

Cash flow to invested capital or EBITDA * (1+growth rate)/ (discount rate - growth rate)

58
Q

EBITDA is a gaap financial measure. true or false

A

false

59
Q

WHat is a more useful measure EBIT or EBITDA?

A

both are useful. EBITDa is more widely used as a proxy for operating cash flow. EBIT is good to compare companies on their capital structures. However, differences in capital spending and tax regime may affect the comparison and may not be as good as it possibly can be

60
Q

What must be taken into account when using net income margin as comparable?

A

it is affected by the capital structure. hence, companies with more debt will probably have a smaller net income margin

61
Q

—- measures the return generated by ALL capital (debt and equity) provided to a company

A

Return on invested capital = EBIT or EBITDA/ Net Debt + equity

62
Q

what is the implied dividend yield?

A

the annualized dividend return ( quarter dividend *4)/ Price of stock

63
Q

What does a debt to EBITDA ratio imply

A

the number of years it will take the company to pay down its debt

64
Q

Is debt to EBITDA a leverage or coverage ratio?

A

Leverage

65
Q

LTM data is obtained by…

A

Using last fiscal year + new stub for company - old stub

66
Q

How does calendarization work?

A

In order to compare apple s to apples all financial statements must take into account the same time frame. When one doesn’t match with the others you must forecaste future earnings and added to the information you already have. For example a company whose fiscal year ends in april must use this formula

(month # * FYA)/12 + (12- month#)* NextFY/12

67
Q

Where can I find what items the company considers to be non recurring?

A

On the Management discussion and analysis (MD&A)

68
Q

A special dividend can be considered a non recurring item?

A

No

69
Q

If post tax non recurring information is given what should one do?

A

divide the expense by 1-Tax rate and add back to operating income

70
Q

P/E drawbacks

A

may be affected by market volatility
may not be applicable for some companies without earnings or with volatility in their future
They are dependent on capital structure because they are post tax and that might hinder a perfect valuation of companies

71
Q

EV/ EBITDA vs EV/ EBIT

A

the first will always be lower than the second

72
Q

When would EV/ Sales be a good multiple?

A

when its a small growing company with many sales and potencial but that is not yet profitable

73
Q

after calculating Enterprise value, how can one obtain equity value?

A

substracting net debt

74
Q

What measure must one use to obtain equity linked multiples

A

EV/ P?E or net income

75
Q

For an precedent transaction valuation, name a few considerations that one must keep in mind with this sort of analysis

A

market conditions
deal dynamics (hostile,friendly, motivations)
strategic vs financial sponsor
currency ( cash or stock –> stock tends to yield lower valuations)

76
Q

WHat form must an acquire file in a tender offer?

A

Schedule TO

77
Q

What is the form Schedule 14D-9?

A

Response of BoD of a target company who receives a tender offer to the target’s shareholders

78
Q

When it comes to the issuance of public tradable securities related to an M&A transaction what forms must be filed and what names are they known for

A

registration statement or form S-4 and Prospectus or Form 424b

79
Q

What form must be file in a going private transaction if it is initiated by certain individuals or affiliates?

A

Form 13E-3

80
Q

When should a company file an 8-k in a M&A transaction?

A

when the target comprises more than 10% of the acquirers value.

81
Q

When would a private company need to file information with the SEC?

A

if public tradable securities are issued to fund the transaction

82
Q

What are the Pros and Cons of an all cash deal

A 
Safer than stock 
Normally results in higher valuation 
but 
Does not have stock upside 
Its taxable
83
Q

Who suffers risks in an fixed exchange ratio deal

A

Both acquirer and target. A set deal means that the target will receive a set number of shares. If the price of their stock increases they loose. If the acquirers stock price increases they are benefited

84
Q

What does a float exchange rate mean?

A

The target will receive a fixed price for its shares. The exchange ratio will vary and the risk will be incurred by the acquirer because if the price of the target falls this will not affect what they receive.

85
Q

When is a floating exchange rate used?

A

When the acquirer is significantly larger than the target. If the value of the target varies it wont affect the acquirer as much while if the value of the acquirer varies the value of the target would change

86
Q

When a cash and stock combination is employed, how is the equity value determined?

A

price offered = Cash paid per stock + Floating or fixed exchange ratio * acquirer’s price)
Equity value= price * fully dilluetd shares

87
Q

What day is best to use to determine real premium paid?

A

The day before the acquisition is announced

88
Q

How to calculate FCF

A

EBIAT +D&A -CAPEx -/+ Increase in NWC

89
Q

Why unlevered?

A

So it accounts for all cash available and it is not dependent on capital structure

90
Q

how is D&A estimated for purposes of DCF?

A

through percentage of sales method

91
Q

Where can one find information on CAPEX activities?

A

MD&A

92
Q

Where should one look When determining key driving factors?

A

MD&A

equity research reports etc

93
Q

What is DSO

A

Days sales outstanding or the number of days a company needs to collect cash on sales. it is collected by: AR/ Sales *365

94
Q

What is DIO?

A

Days inventory outstanding. Number of days that inventory needs to be sold. Calculated by : Inventory/ COGS * 365 or COGS/ Inventory which calculates how many times inventory needs to be replenished by year

95
Q

number of days it takes the company to pay outstanding purchases of goods and services

A

Days payable outstanding. (AP/Sales *365)

96
Q

How is cost of debt estimated for WACC purposes?

A

Weight-averaging the current yield of a company’s outstanding securities or using an estimate from a credit rating agency

97
Q

What must someone do if they would like to use public companies betas to estimate a private company beta?

A

unlever the company beta by

Beta/ ((1 -tax)*(D/E))

98
Q

why is midconvention year used and how is it used?

A

It is used to better account for cashflow timing. CF are normally received through out the year and not at the end. The way to apply this is by using 0.5 intervals instead of 1 for years in the discount factor.

99
Q

How can one resolve the circular reference of the implied share price formulat in excel?

A

activate the iteration function

100
Q

What other way can a discount rate be applied

A
  • Casflow perpetuities
  • Dividend discount model
  • economic value added
  • Pension plan obligations
101
Q

Name the two formulas used for the Dividend discount model?

A
  • expected dividends/ ( DR-GR)

- Past dividend *(1+DR)/ (DR-GR)

102
Q

What is EVA?

A

economic value added. It is calculated by substracting from a year’s EBIAT the capital invested times the discount rate

103
Q

How can discount rates be applied to calculate Pension plan obligations

A

DR can help estimate the present value of future obligations. If you know you will need to pay x amount of obligations in the future and you expect to earn x% in return for investing a certain amount of assets now, then you know what certain amount of assets you must invest in order to get this value in the future.

Series 79 (4 decks)

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