SIE Part 2, Units 7-15

Question 1

primary market

Answer 1

where securities are sold to the investing public in what are known as issuer transactions
an issuer (corporation or a government) selling a security to raise capital

Question 2

secondary market

Answer 2

where securities trade between investors

Question 3

Securities Act of 1933

Answer 3

primary purpose is to require full and fair disclosure in connection with the sale of securities to the public
the act requires that a new issue, unless specifically exempted from the act, be registered with the SEC before public sale. All investors must receive a detailed disclosure document known as a prospectus before purchase.
regulates underwriting and distribution of primary issues
provides criminal penalties for fraud in the issuance of new securities

Question 4

Initial public offering (IPO)

Answer 4

the first time an issuer distributes securities to the public
Rules and Regulations:
members make a bona fide public offering price (POP)
members do not withhold securities in a public offering for their own benefit
industry insiders, such as member and their associated persons, do not take advantage of their insider status to gain access to new issues for their own benefit at the expense of public customers

Question 5

Restricted persons

Answer 5

those not allowed to purchase shares at POP include
member firms
employees of member firms
finders and fiduciaries acting on behalf of the managing underwriter
portfolio managers
any person owning 10% or more of a member firm
any immediate family member of any person listed above (does not include aunts, uncles and grandparents UNLESS they live with the restricted person)

Question 6

Additional Public Offering (APO) / follow-on offering

Answer 6

an offering of securities following a company’s initial public offering (IPO). May be primary or secondary.
characteristics: primary offerings - proceeds go to the issuer and they come after the IPO

Question 7

Underwriters

Answer 7

groups of broker-dealers (BDs) or investment bankers that work with an issuer to bring its securities to the market and sell them to the investing public

Question 8

best efforts underwriting

Answer 8

calls for the underwriters (syndicate) to buy securities from the issuer acting simply as an agent, not as the principal.
underwriters are not committed to purchase the shares themselves and are therefore not at risk

Question 9

All-or-none (AON) underwriting

Answer 9

the issuing corporation has determined that it wants an agreement outlining that the underwriter must either sell all the shares or cancel the underwriting.

Question 10

Mini-max underwriting

Answer 10

sets a floor or minimum (the least amount the issuer needs to raise to move forward with the underwriting), as well as a ceiling or maximum on the dollar amount of securities the issuer is willing to sell

Question 11

Firm commitment underwriting

Answer 11

the underwriter buys shares from the issuer and resells the securities to the public at a higher price - the POP - and earns this price differential (spread) for its efforts.
the underwriters are at risk for any shares they cannot sell to the public

Question 12

syndicate

Answer 12

a group of investment bankers (BDs & banks) formed to distribute a security on behalf of the issuer. Each syndicate member is responsible for the sale and distribution of a portion of the issue.

Question 13

institutional investor

Answer 13

an entity that pools money to purchase securities and other investment assets
Some institutional investors are called qualified institutional buyers (QIB) - invest a minimum of $100 million in securities on a discretionary basis

Question 14

accredited investor

Answer 14

a subset of investors made up of all institutional investors and certain retail investors
Retail investors who are considered accredited investors are:
insiders of the security’s issuer (officers, board members, major stockholders) or meet certain financial criteria (an income of at least $200,000 or more the past two years & expected to meet that criteria in the current year or have a net worth of $1,000,000 or more)
this designation is ONLY used in primary market transactions

Question 15

registration statement

Answer 15

before nonexempt securities can be offered to the public, they require registration under Securities Act of 1933
must disclose pertinent information concerning the issuer and the offering

Question 16

cooling-off period

Answer 16

a waiting period between a registration statement’s filing date with the SEC and the registration’s effective date
lasts a minimum of 20 days
during this period, no one can solicit sales of the securities

Question 17

tombstone advertisement

Answer 17

an announcement and description of the securities to be offered
only form of advertising that is permitted during the cooling-off period
limited to the following information:
name of the issuer, type of security being offered, # of shares to be sold, Public offering price (POP) or a range, names of the underwriting members (when placed by the underwriters instead of the issuer)`

Question 18

preliminary prospectus / red herring

Answer 18

can be used as a prospecting tool, allowing issuers and underwriters to gauge investor interest and gather indications of interest

Question 19

indications of interest

Answer 19

not a commitment to buy because sales are prohibited until after the registration becomes effective
it is nonbinding to either party

Question 20

shelf offering

Answer 20

through a shelf offering registration, an issuer who is already a publicly traded company can register new securities without selling any of the shares until a later or some of the shares initially, and waiting to sell the remaining portion of the shares
good for 2 years (can sell shares without reregistering)
An issuer that meets the criteria of a well-known seasoned issuer (WKSI) may extend the shelf offering to 3 years
For securities offered via a shelf registration, a supplemental prospectus must be filed with the SEC before each sale

Question 21

green shoe option (over-allotment option)

Answer 21

allows the underwriters to increase the number of shares offered up to an additional 15% if there is sufficient demand

Question 22

nonexempt securities

Answer 22

securities that are required to be registered in order to be sold to the public (not exempt from registration)

Question 23

exempt issuers

Answer 23

certain securities are exempt from the registration and prospectus requirements of the Securities Act of 1933 because the issuer is the federal government, an agency of the federal government, a municipal government or because another government regulatory agency has jurisdiction over the issuer
includes: US government securities, municipal securities, commercial paper, banker’s acceptances, fixed life insurance policies, fixed annuity contracts (not variable annuities or variable life policies), national and state bank securities, building and loan and savings and loan securities, charitable, religious, educational and nonprofit association securities, and banks

Question 24

rule 147: the intrastate offering rule

Answer 24

offerings that take place entirely in one state are exempt from registration when the issuer has its principal office (headquarters) in the state and purchasers are residents of the state
must meet one of the following criteria:
it receives at least 80% of its income in the state, at least 80% of the issuers assets are located within the state, at least 80% of the offering proceeds are used within the state, or a majority of the company’s employees must work in the state.
If there is a BD working as underwriter, the BD must be based in the state

Question 25

other terms for private placement stock

Answer 25

restricted unregistered letter stock legend stock

Question 26

regulation A+

Answer 26

provides 2 offering tiers for small- and medium-sized companies that will allow them to raise capital in amounts substantially more than $5 million previously allowed under regulation A. tier 1: offerings of up to $20 million (no investment limits) tier 2: offerings up to $50 million (investors must be "qualified investors")

Question 27

Regulation D: exempt transactions (private placements)

Answer 27

the SEC does not require registration of an offering under Regulation D so long as there are no more than 35 nonaccredited investors. no limit on the # of accredited investors The SEC requires that all companies raising capital in a nonpublic offering that qualify under the Regulation D exemption file the information on Form D electronically.

Question 28

omitting prospectus (Rule 482 prospectus)

Answer 28

the official name for an advertisement for a mutual fund. | not sufficient for soliciting a sale

Question 29

offering circular

Answer 29

the common term for the disclosure document for other type of exempt securities (private placements, regulation A+, etc) also known as notice of sale similar to a prospectus but often not as detailed in its disclosures

Question 30

timelines for final prospectus in the secondary market

Answer 30

For IPOs of NMS securities - 25 days For APOs of of NMS securities - zero days (no requirement) For IPOs of non-NMS securities - 90 days For APOs of non-NMS securities - 40 days

Question 31

Securities Exchange Act of 1934

Answer 31

regulates the trading of securities in the secondary market

Question 32

market centers

Answer 32

the locations, both physical and electronic, where buyers and sellers may gather and place trades

Question 33

exchange market

Answer 33

all of the exchanges on which listed securities are traded | also known as the auction market

Question 34

listed security

Answer 34

any securities listed for trading on an exchange

Question 35

over-the-counter market (OTC)

Answer 35

a negotiated market in which broker-dealers deal directly with one another rather than through an auction on an exchange

Question 36

the third market (Nasdaq intermarket)

Answer 36

a trading market in which exchange-listed securities are traded in the OTC market

Question 37

The fourth market (ECNs)

Answer 37

a market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers. ECNs are open 24 hours a day and act solely as agents

Question 38

The dark pools

Answer 38

sometimes called dark pools of liquidity or simply dark liquidity is trading volume that occurs or liquidity that is not openly available to the public these are generally large volume transactions

Question 39

institutional investors

Answer 39

a large investor such as a mutual fund, a pension fund, a bank, an insurance company, or some other financial service organization

Question 40

retail investor

Answer 40

the normal people who are investing their own money to accomplish their own objectives

Question 41

day trader

Answer 41

a type of retail investor that trades rapidly in and out of positions

Question 42

fiduciary

Answer 42

a person that manages assets (usually financial) for another person, a beneficiary they have the legal and moral obligation to perform their duties in the best interest of the beneficiary, placing the beneficiary's interest before their own may or may not be a professional, depending on the role and the type of account they oversee Investment adviser is ALWAYS a fiduciary

Question 43

custodian

Answer 43

on this exam, custodian refers to a custodian on a minor's account under the Uniform Transfer to Minors Act (UTMA) or the Uniform Gift to Minors Act (UGMA) May also refer to a firm that holds assets in a qualified retirement account, such as an IRA

Question 44

trustee

Answer 44

a fiduciary that oversees a trust | could be a living trust, pension trust, etc

Question 45

guardians and executors

Answer 45

normally court-appointed custodians over a minor, an incapacitated adult, or an estate (executor in that case)

Question 46

investment advisers

Answer 46

anyone who gives investment advice as a regular part of their business for compensation must register as an IA under the Investment Advisers Act of 1940 BDs who provide advice for a fee are subject to registration under this act When acting as an IA, the IA represents the customer; if the same firm is also a BD, it can also place the trade but is acting in its BD capacity when executing the trade

Question 47

facilitators

Answer 47

help customers in performing transactions in the secondary market

Question 48

broker-dealers

Answer 48

FINRA member firms | perform securities transactions for their own accounts or for their customers

Question 49

carrying firm (clearing firm)

Answer 49

``` carries customer accounts and accepts funds and securities from customer. have the capability to do trade executions, clear and settle transactions, take custody of customer funds and securities, and handle all back-office tasks, such as sending trade confirmations and statements must segregate (hold separately) customer funds and securities held in their custody from the firm's capital and securities ```

Question 50

a fully disclosed (introducing) firm

Answer 50

a firm that introduces its customers to a clearing firm the clearing firm acts as the back-office for introducing firms (they hold the funds, securities, send the trade confirms, etc) net capital requirements are lower for introducing firms may take orders from customers and pass those orders to a fully disclosed firm for execution does have the ability to execute the trade, but the settlement of the trade falls to the carrying firm

Question 51

prime account

Answer 51

type of account that allows a customer, usually an institution, to select one member firm (the prime broker) to provide custody and other services, while other firms (called executing brokers) handle all trades placed by the customer key advantage is that it provides a client with the ability to trade with multiple brokerage house while maintaining a centralized master account with all of the client's cash and securities

Question 52

transfer agents

Answer 52

a trust or a bank engaged by a company to maintain records of investors responsible for ensuring that its securities are issued in the correct owner's name; canceling old and issuing new certificates; maintaining records of ownership; and handling problems relating to lost, stolen, or destroyed certificates

Question 53

registrar

Answer 53

licensed by the states and provide audit and oversight services for the transfer agents ALWAYS a separate firm than the issuer or a transfer agent

Question 54

clearing agency

Answer 54

an intermediary between the buy and the sell sides of a transaction receives and delivers payments and securities on behalf of both parties

Question 55

The Depository Trust & Clearing Corporation (DTCC)

Answer 55

world's largest securities depository provides custody services for virtually all securities except those subject to transfer or ownership restrictions (restricted securities) member of the Federal Reserve System - not a retail bank automated clearing and settlement services in book entry format to banks and BDs for stock and bond trades employs a continuous net settlement (CNS) system

Question 56

Designated market maker

Answer 56

the member that acts as the dealer on the floor for a specific security sometimes called a specialist maintains the inventory of the security and guarantees liquidity responsible for maintaining a "fair and orderly" market

Question 57

floor broker

Answer 57

represent the firm and their firm's clients on the floor

Question 58

Two-dollar broker

Answer 58

these members place trades for the floor brokers and receive a fee for performing the service

Question 59

Floor traders

Answer 59

members that buy and sell on the floor for their firm's accounts (not outside customers) help maintain liquidity on the exchange also called registered floor traders, FTs or RFTs

Question 60

bid

Answer 60

the price that a seller would receive for his security | always lower than the ask

Question 61

ask

Answer 61

the price a buyer would have to pay to buy that security

Question 62

quote

Answer 62

a bid & an ask | sometimes called an offer

Question 63

size of a quote

Answer 63

represents the number of shares available on a given side of the market in 100s

Question 64

The over-the-counter market (OTC)

Answer 64

trades unlisted socks, as well as most bonds, including municipals and treasury debt that trades in the secondary market occurs between market makers in a decentralized electronic market quotes in the OTC market represent the highest bid and lowest ask

Question 65

spread

Answer 65

difference between the bid and the ask price | represents the market maker's income

Question 66

The Securities and Exchange Commission (SEC)

Answer 66

the securities industry's primary regulatory body created by the Securities Exchange Act of 1934 BDs must apply and receive registration from the SEC SEC regulates all exchanges and trading markets also has regulatory authority over licensing of securities representatives

Question 67

the Securities Exchange Act of 1934

Answer 67

created the SEC regulation of insider transactions, short sales and proxies regulation of client accounts a customer protection rule a capital rule and financial responsibility for BDs reporting requirements for issuers (ie annual reports)

Question 68

Financial Crimes Enforcement Network (FinCEN)

Answer 68

mission is to safeguard the financial system from illicit use, to combat money laundering, and to promote national security through the collection, analysis, and dissemination of financial intelligence most financial services companies are required to report suspicious or unusual activity to FinCEN

Question 69

Internal Revenue Service (IRS)

Answer 69

primary tax enforcement agency of the federal government | investigate potential tax evasion

Question 70

Office of the Comptroller of the Currency (Comptroller of the Currency)

Answer 70

supervises nearly 1,400 national banks, federal savings associations, and federal branches and agencies of foreign banks operating in the United States ensure that national banks and federal savings associations operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations

Question 71

The Federal Reserve Board (FRB)

Answer 71

determines monetary policy and takes actions to implement its policies conduct the nation's monetary policy to promote maximum employment promote a stable price environment, keeping inflation under control

Question 72

The Federal Reserve Act of 1913

Answer 72

established the Federal Reserve System as the central bank of the United States to provide the nation with safer, more flexible, and more stable monetary and financial system

Question 73

The Securities Investors Protection Corporation (SIPC)

Answer 73

nonprofit membership organization SIPC members pay assessments into a general insurance fund that is used to meet customer claims in the event of a BD bankruptcy All BDs registered with the SEC must be SIPC members except banks that deal exclusively in municipal securities; firms that deal exclusively in US gov't securities, and firms that deal exclusively in redeemable investment company securities

Question 74

SIPC coverage

Answer 74

no more than $500,000 per separate account, not per separate customer. Of that $500,000, SIPC covers no more than $250,000 in cash Cash and margin accounts for the same customer are combined for purposes of determining SIPC coverage. only the equity portion in a margin account is covered

Question 75

The Federal Deposit of Insurance Corporation (FDIC)

Answer 75

an independent agency of the U.S. federal government that preserves public confidence in the banking system by insuring deposits

Question 76

FDIC coverage

Answer 76

up to $250,000 for each deposit ownership category in each insured bank covers the traditional types of bank deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit (CDs), and self-directed IRA accounts.

Question 77

Uniform Securities Act (1956)

Answer 77

template for state securities laws The federal government requests that the states adopt the template in order to create uniform securities laws at the state level each state must have a state securities administrator - can be elected or appointed

Question 78

North American Securities Administrators Association (NASAA)

Answer 78

represents state and provincial securities regulators in the United States, Canada, and Mexico. no specific regulatory authority produces guidelines that the state administrators use in the enforcement of state regulations

Question 79

Financial Industry Regulatory Authority (FINRA)

Answer 79

regulates all matters related to investment banking (securities underwriting), trading in the over-the-counter (OTC) market, trading in exchange-listed securities, and the conduct of FINRA member firms and associated persons

Question 80

Conduct Rules

Answer 80

establish the relationship between firms and their customers cover areas such as fair dealing with customers, compensation-related issues, standards for communications, and various sales practice violations

Question 81

Code of Procedure (COP)

Answer 81

covers enforcement of FINRA rules and details the punishment of members who violate the Conduct Rules.

Question 82

Punishments for violating FINRA or Conduct Rules

Answer 82

suspend, expel, or bar from membership impose fines censure any other action deemed appropriate

Question 83

Department of Enforcement (DOE)

Answer 83

investigate suspected violations | DOE will hold a hearing to determine the outcome of any violation

Question 84

Uniform Practice Code (UPC)

Answer 84

cover technical aspects of trading and payment for securities transactions

Question 85

Code of Arbitration (COA)

Answer 85

a FINRA-run dispute resolution process to settle monetary disputes provides a faster and cheaper resolution COA decisions are final and binding

Question 86

The Municipal Securities Rulemaking Board (MSRB)

Answer 86

the primary industry (SRO) regulator for underwriting and trading of state and municipal securities MSRB writes the rule, but has no enforcement powers enforced primarily by FINRA *creates rules for municipal securities, not just debt. 529 plans and ABLE accounts are covered by the MSRB

Question 87

Gross domestic product (GDP)

Answer 87

a nation's annual economic output - all the goods and services produced within the nation includes personal consumption, government spending, gross private investment, foreign investment, and net exports released quarterly by the Commerce Department

Question 88

Consumer Price Index (CPI)

Answer 88

measures the rate of increase in a broad range of consumer prices, such as food, housing, transportation, medical care, clothing, electricity, entertainment, and services computed each month

Question 89

Gross National Product (GNP)

Answer 89

based on the activity of the citizens and entities of the nation, wherever it may occur released quarterly by the Commerce Department

Question 90

Leading economic factors

Answer 90

those indicators that tend to change direction ahead of the overall economy Examples: money supply, building permits (housing starts), ave weekly claims for unemployment, average work week in manufacturing, new orders for consumer goods, machine tool orders, changes in inventories of durable goods, changes in sensitive materials prices, stock prices, and changes in business & consumer borrowing

Question 91

coincident economic factors

Answer 91

indicators that change direction along with the economy as a whole examples: # of hours worked (as a proxy for personal income), employment levels, nonagricultural employment, personal income, industrial production, manufacturing and GDP

Question 92

lagging economic indicators

Answer 92

indicators that change AFTER the economy has begun a new trend but serve as confirmation of the new trend examples: corporate profits, average duration of unemployment, labor cost per unit of output (manufacturing), ratio of inventories to sales, commercial & industrial loans outstanding, and ratio of consumer installment credit to personal income

Question 93

inflation

Answer 93

general increase in prices | mild inflation can encourage economic growth

Question 94

deflation

Answer 94

general decline in prices | occurs during severe recessions when unemployment is on the rise

Question 95

stagnation

Answer 95

refers to prolonged periods of slow or little economic growth accompanied by high unemployment

Question 96

hyperinflation

Answer 96

the pace of inflation is extremely high and accelerating | very rare occurrence

Question 97

stagflation

Answer 97

term used to describe the unusual combination of inflation (a rise in prices) and high unemployment

Question 98

business cycle

Answer 98

expansion. peak, contraction, trough

Question 99

expansion characteristics

Answer 99

``` increased consumer demand for goods and services increases in industrial production rising stock prices rising property values increasing GDP ```

Question 100

peak or prosperity characteristics

Answer 100

very low unemployment a slowdown in inflation a slowing of GSP steady consume demand

Question 101

contraction characteristics

Answer 101

``` rising numbers of bankruptcies and bond defaults higher consumer debt falling stock prices rising inventories decreasing GDP ```

Question 102

recession

Answer 102

when the economy enters an extended period of contraction that continues for six months or longer

Question 103

depression

Answer 103

when a contraction continues for 18 months or longer

Question 104

M1

Answer 104

the measure of the most readily available money to spend: cash (actual cash & coins) and money in demand deposit accounts (DDAs), such as checking accounts

Question 105

M2

Answer 105

consists of M1 (cash & DDAs) plus "consumer savings deposits" - things such as savings accounts, retail (non-negotiable) CDs, money market funds, and overnight repurchase agreements

Question 106

M3

Answer 106

consists of M2 plus "large time deposits" - those assets that are a bit harder to move into a DDA and be spent. Examples: negotiable (jumbo) CDs and multiday repurchase agreements

Question 107

Regulation T

Answer 107

the amount the Fed set as the minimum an investor must deposit when using credit (margin) to buy a security the current initial deposit is 50% of the purchase price

Question 108

the discount rate

Answer 108

the interest rate charged by the 12 Federal Reserve Banks for short-term loans made to member banks raising the interest rate tends to lift interest rates throughout the economy; lowering the rate causes interest rates to drop only rate set by a unit of the federal government.

Question 109

the reserve requirement

Answer 109

the amount a bank must maintain on deposit with the Federal Reserve Lowering this number frees up cash at the banks to fund loan activity, expanding the economy Raising this number decreases the amount available for loans

Question 110

federal funds rate

Answer 110

the rate that the commercial money center banks charge each other for overnight loans of $1 million or more it is considered the barometer of the direction of short-term interest rates considered the most volatile rate in the economy

Question 111

prime rate

Answer 111

is the interest rate that large U.S. money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans Banks lower their prime rates when the Fed eases the money supply and they raise rates when the Fed contracts the money supply

Question 112

broker call loan rate

Answer 112

the interest rate that banks charge BDs on money they borrow to lend to margin account customers. also known as the call loan rate or call money rate usually a percentage point or so above other short-term rates

Question 113

monetary policy

Answer 113

what the FRB engages in when it attempts to influence the money supply

Question 114

fiscal policy

Answer 114

refers to the government's budget decisions and tax policy as enacted by our president and congress not considered the most efficient means to solve a short-term economic problems depends on the use of taxation and federal spending to increase or decrease the money supply

Question 115

Keynesian (demand-side) theory

Answer 115

believe that the demand for goods ultimately controls employment and prices. Insufficient demand for goods causes unemployment; too much demand causes inflation believe a government's fiscal policies determine the country's economic health To increase private-sector demand for goods, the gov't reduces taxes, which increases people's disposable income

Question 116

supply-side economics

Answer 116

the belief that the government should allow market forces to determine prices of all goods. the federal government should reduce government spending and taxes

Question 117

exchange rate

Answer 117

the value of one currency against another

Question 118

What happens to exports & imports when the value of the dollar increases?

Answer 118

Exports decrease; imports increase

Question 119

What happens to exports & imports when the value of the dollar decreases?

Answer 119

exports increase; imports decrease

Question 120

balance of payments

Answer 120

the flow of money between the United States and other countries surplus = more money flowing in the US than out deficit = more money flowing out of the US than in

Question 121

balance of trade

Answer 121

largest component of the balance of payments concerns the imports and exports of merchandise debit items: imports, US investments abroad, US bank loans abroad, and US foreign aid credit items: exports and foreign spending in the US

Question 122

cyclical industries

Answer 122

highly sensitive to business cycles and inflation trends examples: steel, autos, heavy equipment and capital goods (washers & dryers, etc) do well in expansion; poorly in contractions

Question 123

noncyclical (defensive) industries

Answer 123

least affected by the business cycles Investments in defensive industries tend to involve less risk and lower returns examples: food, utilities, clothing, drugs, tobacco, liquor if the company makes a product that is used once and consumed in the process, it is probably defensive

Question 124

countercyclical industries

Answer 124

tend to turn down as the economy heats up and to rise when the economy turns down example: precious metals do better when the economy is weak and lose value when the economy strengthens

Question 125

growth industry

Answer 125

one that seems to be disconnected from the business cycle, doing well regardless of the economy company or industry

Question 126

special situation

Answer 126

normally applied to a specific company, but it could apply to an industry as a whole may not be a positive condition some specific circumstance is affecting them

Question 127

balance sheet

Answer 127

provides a snapshot of a company's financial position at a specific time identifies the value of a company's assets (what it owns) and its liabilities (what it owes) Basic balance sheet equation: assets - liabilities = net worth (or equity)

Question 128

current assets

Answer 128

cash and assets that may be easily converted to cash | examples: securities, accounts receivable, and the company's inventory

Question 129

fixed assets

Answer 129

assets that are difficult to liquidate | examples: real estate, furniture, equipment

Question 130

other assets/ intangibles / goodwill

Answer 130

represents things that are difficult to value | examples: trademarks, copyrights, reputation, and intellectual property

Question 131

current liabilities

Answer 131

liabilities that are due now or in the near future (within 12 months) examples: accrued wages, accrued taxes, accounts payable, or interest payments

Question 132

long-term liabilities

Answer 132

debt that will not be paid off in the near future | examples: notes, bonds

Question 133

working capital

Answer 133

the amount of money that a company can spend (or lose) and remain operational formula: current assets - current liabilities = working capital (expressed as a dollar amount)

Question 134

current ratio

Answer 134

used to compare the liquidity of a company | current assets: current liabilities = current ratio (expressed as a ratio!)

Question 135

acid ratio / quick ratio

Answer 135

the test of a company's liquidity if everything really goes bad (current assets - inventory): current liabilities = acid ratio (expressed as a ratio)

Question 136

debt ratio (debt-to-equity ratio)

Answer 136

measure of long-term solvency - how much of a corporation's net worth is derived from long-term debt long-term debt / (long-term debt + net worth) = debt ratio (expressed as a percentage)

Question 137

income statement (profit and loss, P&L)

Answer 137

summarizes a company's revenues and expenses for a fiscal period -usually quarterly, year-to-date or the full year Fundamental analysts use the income statement to judge the efficiency of a company's operation and its profitability calculations from the income statement: EPS & PE ratio

Question 138

earnings per share

Answer 138

calculated by dividing the earnings available to the common shareholder by the number of outstanding shares

Question 139

Price/earnings ration (PE ratio)

Answer 139

a measure of the amount of earnings a company makes compared with its current market value formula: CMV/EPS = PE ratio (expressed as a number)