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Wharton > Series 79 > Flashcards

Series 79 Flashcards

1
Q

Current Yield

A

Annual Interest / Market Price

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2
Q

Conversion Ratio

A

Par Value / Conversion Price

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3
Q

Parity price of a bond

A

MV (Stock) * Conversion Ratio

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4
Q

Parity price of a stock

A

MV (Bond) / Conversion Ratio

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5
Q

Equity Value

A

Enterprise value - debt + cash OR Total Shares Outstanding * Stock Price

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6
Q

Enterprise Value

A

Equity value + debt + preferred stock + NCI - cash

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7
Q

Gross margin

A

Gross profit / sales

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8
Q

Operating Margin

A

EBIT / sales

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9
Q

EBITDA margin

A

EBITDA / sales

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10
Q

Net Profit margin

A

Net income / sales

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11
Q

Price to Earnings (P/E)

A

Price / EPS OR Equity Value / Net Income

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12
Q

Price to Earnings Growth (PEG Ratio)

A

(P/E) / Annual Growth rate

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13
Q

Price to Book value (P/B)

A

Equity Value / Book value of Equity

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14
Q

Price to tangible book value

A

Equity value / (Book value of equity - goodwill)

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15
Q

Dividend Yield

A

Annual dividend / stock price

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16
Q

Dividend payout ratio

A

Annual dividen / Reported EPS

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17
Q

Earnings yield

A

EPS / Stock Price OR 1 / (P/E)

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18
Q

Interest Coverage Ratio

A

Adj. EBITDA / Interest expense

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19
Q

Debt to EBITDA

A

Total Debt / Adj. EBITDA

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20
Q

Net Debt to EBITDA

A

Net Debt / Adj. EBITDA

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21
Q

Invested Capital

A

Average Equity + Average Net Debt

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22
Q

Return on Assets

A

Net Income / Average Assets

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23
Q

Return on Equity

A

Net Income / Average shareholders’ equity

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24
Q

Return on invested capital

A

Adj. EBIT / Invested Capital OR

EBIAT / Invested capital

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25
Q

Return on Capital

A

Net Income / Invested Capital

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26
Q

Accounts Receivable Turnover

A

Sales / Average Accounts receivable

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27
Q

Days Sales outstanding (DSO)

A

(Accounts Receivable / Sales) * 365

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28
Q

Inventory Turnover

A

COGS / Inventory

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29
Q

Days Inventory Held (DIH)

A

(Inventory / COGS) * 365

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30
Q

Accounts payable turnover

A

COGS / Average accounts payable

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31
Q

Days payable turnover (DPO)

A

(Average accounts payable / COGS) * 365

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32
Q

Current Ratio

A

Current Assets / Current Liabilities

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33
Q

Quick Ratio

A

(Current Assets - Inventory) / Current Liabilities

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34
Q

Implied EV

A

Sales * (EV/Sales)
EBITDA * (EV/Sales)
EBIT * (EV/EBIT)

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35
Q

Implied Equity Value

A

Net Income * P/E multiple

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36
Q

Exchange Ratio

A

(offer price per share - cash per share) / Stock price of acquirer Co.

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37
Q

Securities Act of 1933

A
  • Regulates the new issue market

- Requires registration of securities before they are sold to the public

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38
Q

Securities Exchange Act of 1934

A
  • Regulates secondary marketplace
  • created SEC
  • Requires registration of broker-dealers with SEC
  • Requires financial reports
  • Prohibits fraud (any manipulative or deceptive act, no exemptions from anti-fraud provisions, no such thing as accidental fraud)
  • Defines corporate insiders (corporate affiliates - officer, director, or 10% shareholder of a ocmpany’s stock)
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39
Q

Trust Indenture Act of 1939

A
  • Corporate bonds to be issued with a Trust Indenture (set of covenants with obligations to the issuer and rights of the bondholder)
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40
Q

Cross default clause

A

Protects an investor if the issuer defaults on any other tranche of its capital structure

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41
Q

Penalties for Insider trader under ‘34 Act

A

civil - Treble damages (3x profits made or losses avoided)

criminal - $5 mm and 20 years in prison

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42
Q

Insider Trading and Securities Fraud Enforcement Act of 1988

A

Misappropriation of Information - Someone uses non-public information to trade on someone other than employer
- Duty of Trust - violation when a person should have known the were using non-public information

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43
Q

Insider trading

A
  • Married couple, wife an investment banker - husband violated duty of trust by reading info and trading
  • employee of broker dealer accused of insider trading - broker-dealer can avoid liability by showing adequate supervisory procedures and employee wilfull violated these procedures (firing doesn’t avoid liability)
44
Q

Regulation FD

A
  • Ensure fair disclosure of sensitive info to all investors!
  • Disclosure of insider information requires disclosure to the public (intentional - requires simultaneous public disclosure; unintentional - requires public disclosure within 24 hours) CEO discloses to analysts - then needs to disclose via 8K press release
45
Q

Financial Industry Regulatory Authority (FINRA)

A

Statutory disqualification - cannon be associated with a member firm w/o exemption waiver from FINRA (Rep arrested for shoplifting (misdemeanor) - notify compliance, then let things run their course)

46
Q

Series 24

A

IB or sales and trading supervision

47
Q

Series 9 / 10

A

General securities sales supervisor - Branch Office Manager

48
Q

FINRA continuing education

A

Regulatory element - must be completed within 120 days of 2nd Anniversary as a registered rep and then every 3 years thereafter (if laps rep is said to be CE inactive - can’t function or be paid a rep)
Annual - proctored by firm

49
Q

Selling Away / Private securities transactions

A

Sells securites outside the juridiction of their firm

 - Requires notification to the firm and requires supervision from the firm
 - if for compensation, requires permission from the firm
50
Q

Outside employment

A
  • requires firm to be notifeid of full details of activity (don’t need permission) (owing and managing a piece of real estate - just notification, not permission) Can’t help raise equity for a friend on the side without permission
51
Q

Brokerage account

A
  • brokerage account at another firm. Opening firm must notify employer, and must also offer duplicate trade and account statments, must be done before initial trade in the account
52
Q

Sharing in customer accounts

A

requires permission from firm, permission from customer, gains and losses must be proportional to each’s contribution (Rep loans money to a client - allowed ifi client is a bank, client is family member)

53
Q

Gift limitation

A

$100 per client per year (not a gift if you attend)

54
Q

Compaints

A

Written complaints must be forwarded to a principal or supervisor. Customer must receive a written response in the form of a brochure.

55
Q

Anti-Money laundering (Currency Transaction report)

A

Required for any cash deposits of >$10,000 in any single day

56
Q

Suspicious Activity Report (SAR)

A

required for any suspicious acitivity ($9500 on 3 consecutive days)
- Rep is prohibited form telling a client when the form has been filed

57
Q

AML Compliance

A

AML program is not subject to SEC approval

  • must be reviewed annually by someone else at the firm
  • Compliance person must be registered principal of the firm
58
Q

Patriot Act Rule

A
  • identity must be identified promptly after an account is opened
59
Q

Office of Foreign assets control

A

List of countries and people with whom US doesn’t do business - must report within 10 days

60
Q

FINRA rules violations

A

Censure (warning), fine, suspension, retake a test, revoke registration (can’t imprison)

61
Q

Arbitration

A

Always results in monetary award (never jail)

  • Intra-industry arbitration will be not public (people that work in the industry
  • Involving a customer - arbitrators will be public- customer can’t be forced to go to arbitration unless they sign an arb agreement
  • Simplified arbitartion - $50k or less, single arbitrator will issue decision within 30 days (no appeal)
62
Q

Mediation

A

mediator chose by parties or by FINRA as a way to avoid arbitration. If settment is reached, memo of understanding, parties must sign and it’s binding

63
Q

Declaration Date

A

company announces a dividne will be paid

64
Q

Record date

A

Date at the end of trading, individual must be a shareholder to recive the dividend

65
Q

Payable date

A

date the dividends are paid

66
Q

Ex-dividend date

A

T+3; 3rd business day following trade date

67
Q

DERP

A

Declartion, Ex-dividend, Record, Payable

68
Q

Voting rights of Common

A

Statutory - one vote per share for each seat on the company’s board
Cumulative - Aggregate all of thei votes and choose their own allocation

69
Q

Preemptive rights

A

Offer stock to exisiting shareholders before offering to public (not common in US)

70
Q

ADRs

A

Facilitate the domestic trading of foreign securities (banks purchase and hold)
Sponsored - registered with SEC by the issuer and only sponsored can be listed on the exchange
Unsponsored - bank will register the shares, trade over the counter (OTC)

71
Q

GDRs

A

Almost same as ADRs, but listed overseas

CAnadian companies do not list ADRS - common stock!

72
Q

Warrants

A

pruchase company stock at a specific price; usually issued w another security (bond, preferred stock), used as a sweetener, once issued they are detachable

73
Q

Bonds

A

Normal yield curve, Inverted yield curve (recessionary environment), humped yield curve

74
Q

Rates

A

short-term rates affected by the FED, long-term rate affected by the market
Bond rates and bond prices have an inverse relationship - firm has 8% bond and 7% bonds are issued - then 8% bond is trading at a premium

75
Q

Bonds

A

At par = Nominal Yield, Current Yield, and Yield to maturity are all the same
At a discount = (bottom to top) NY, then CY, then YTM, then YTC
At a premium = YTC, YTM, CY, NY

76
Q

Zero bonds

A

Trade at a deep discount and they mature at par

77
Q

Muni / Corp bonds

A

Assume 30/360 and T+3 settlement

78
Q

Treasury Bonds

A

Actual days / 365 day year - T+1 settlement

79
Q

Bond Risk

A

Interest rate risk (duration - measures change in price as interest rates change & Convexity - change in duration as interst rates change), call risk (risk of bond being called), reinvestment risk (as interest rates fall bonds run the risk of being recalled), credit risk

80
Q

Bond ratings

A

AA to A+ is to notches down (AA+, AA-, A+); Ba1 and BB+ are the highest non-investment grade.

81
Q

Debentures

A

backed by good faither and creid tof the issuer; Senior, Senior subordinated, junior, junior subordinated

82
Q

Convertible Bonds

A

8% convertible corporate bond with a $40 conversion price (par value / conversion price) - assume $1000 par value so $1000/$40 = 25:1; market price where investor is indifferent between 2 options so parity price of bond with a conversion ratio of 25:1 = $1000; Similarly $36 * 25 = $900

83
Q

Treasury Bills

A

4 weeks, 13 weeks, 26 weeks, 52 weeks;
zeros, no coupon - Bid is always listed first, then the ask. Bond Equivalent Yield on a treasury will be higher than it’s discounted yield*

84
Q

Treasury Notes

A

2 yrs, 3 yrs, 5 yrs, 7 yrs, 10 yrs (every other way identical to T bills)

85
Q

Treasury Bonds

A

30 year maturity (***a plus denotes another point to the price (changes from 32 to 64))

86
Q

Government Agencies vs. Government Sponsored Enterprises (GSEs)

A

GSEs not backed by full faith and credit of US govt. Implied guarantee

87
Q

Securities Trading

A

OTC marketplace - negotiation between two parties - over the phone or electronically, trading away from an exchange; Bonds trade almost exclusively OTC

88
Q

Nasdaq Stock Market

A

Listing requirements - $4 bid, 3 market makers
- Continued listing requirements: $1 bid, 2 market makers / 400 shareholders;
no public float requirement, no daily trading activity requirements, no required seasoning period*
Bid, Ask, Size (bid and ask) in round lots of 100; All nasdaq quotes by rule are firm quotes

89
Q

OTC Pink

A

Non-exchange equity quotation facilities (don’t trade…only look)
ONly for unlisted or Delisted stocks (only equities)
No eligibility critera - stock has to have a pulse as longas unlisted or delisted, must have one market maker - unpriced indication - subject quotes (not firm quotes)

90
Q

OTC Bulletin Board

A

Must make financial information information available to buyers, must have a market maker, any price quote must be firm

91
Q

Suitability Requirements

A

Appropriateness of a recommendation -
Reasonable basis suitability
quantitative suitability
customer specific suitability
- individual investors - requires an examinattion of their investment profile
- institutional investors - exampe from specific customer suitability as lonas a s investor can evaluate risk of hte transaction

92
Q

Foreign Currency

A

Interest rates increase, strengthening a currency - investors will shift assets into that currency
Inflation - moderate inflation will strengthena currency
Political risk - political instability will weaken a currency
Foreign exporters - Want a strong dollar
US importers - want a strong dollar
Foreign importers and US exporters want a weak dollar

93
Q

US Dollar based assets

A

Eurodollars - US collars on deposti outside the U.S.
Eurodollar bonds - US dollar bonds outside the US (neither of these are SEC registered)
Yankee bonds - USD bonds in the U.S., but issued by a foreign entity.

94
Q

Economics

A

CPI high for 4 consecutive quarters - prices up, rates up, bond yeild up, bond prices going down
Producer price index - *an increase in PPI will adversely affect manufacturers

95
Q

Recession

A

2 consecutive quarters of negative GDP growth; Recession proof stocks - utilities, food retailers, beer, cigarettes, cosmetics.

96
Q

Economic indicators

A

Leading (6 months in future), lagging (evaluation of 6 months in the past), Coincident (snapshot - examples include inddustrial production index, monthly non-farm payrolls)

97
Q

Interest rates

A

lowest to highest - Fed funds rate (overnight lending rate between banks, most volatile, changes daily, set by the market not the FED), Discount rate (lending rate form FED to a bank, set by Fed), Broker’s Call Rate - from bank to broker-dealer, Prime Rate - from bank to customer (best lending rate)

98
Q

Securities act of 1933

A

Regulates new issue market -

- Registration is required for non-exempt securities in non-exempt transactions

99
Q

C Corp

A

Unlimited number of shareholders, does not pass thorugh gains and losses (pays taxes)

100
Q

S Corp

A

pass through gains and losses, entity pays no tax, 100 shareholders max, No institutional investors, will never be listed, investors must hold security for greater than 1 year in order to get favorable tax rate

101
Q

Exempt Securities

A

US govt, Govt agencies, municipalities, short-term corp debt (commercial paper), securities issued by commercial banks,

102
Q

REITS

A

75% of income from real estate or 75% of assets invested in RE and 90% of gain must be passed through to shareholders

103
Q

MLPs

A

limited partnerships - public, listed on an exchange UNLIKE an s corp

104
Q

Registration Statements

A

S-1 for IPO, S-3 for follow on, S-4 for M&A activity, S-8 for securities issued to employee benefit plans, S-11 for REITS

105
Q

S-1

A

issuers business, use of proceeds, legal procceddings, capitalization table DONT need financial projections Affiliates - list of all corporate insiders, addresses, salaries, 5-year business histories; 2 years of BS, 3 years for CFS and IS. Refiling requirement if they become outdated - 130 days for large issuers (seasoned issuer or larger) other issuers become outdated after 135 days

Wharton (8 decks)

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