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Series 79 Chapter 1 > Solomon Ch 1 Deck 0 > Flashcards

Solomon Ch 1 Deck 0 Flashcards

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Series 79 Top-Off Exam flashcards
1
Q

Treasury Stock Method

A
  1. Determine ITM options2. Total Shares if ITM options exercised3. Use proceeds from exercise to buy back shares4. Subtract new treasury shares from total number of shares (including ITM shares)
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2
Q

Accretive or Dilutive

A

Comparing combined EPS to buyers EPS1. Add pre-tax synergies into combined EBIT2. Find combined share count from buyout3. Take out taxes4. Take out interest expense (if leveraged, include interest from debt for acquisition)4. Divide combined net income by combined share countcompare to buyer’s EPS (“accretive by .30/share”)

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3
Q

Recession

A

2 Quarters of contraction

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4
Q

Depression

A

6 quarters of contraction

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5
Q

Order of interest rates

A

Fed Funds rate - rates bank charge banks (overnight)Discount Rate - fed charges banksBroker Call Rate - Brokers charge customers for purchase of securitiesPrime rate - banks charge best institutional customers

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6
Q

Open Market Operations

A

Fed buys treasuries from banksCash increases reservesFederal funds rate charged b2b for overnight falls

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7
Q

Effect of expansionary monetary policy on exchange rates, imports, LT interest rates

A

dollar falls, exports rise

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8
Q

Fiscal Policy

A

Uses taxes and government spending to affect Aggregate DemandNo effect listed for interest rates, foreign exchange, exports (unlike monetary policy)

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9
Q

Statutory Voting

A

Preferred Stock Voting rights, 1 vote per share for each board position

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10
Q

Cumulative Voting

A

Votes = #shares x number of board positionscan be voted in any number on any seatGives small shareholders more power

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11
Q

Voting Trust

A

Name trustee, assign voting rightsif more than 5% must register 13-D as a beneficial owner

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12
Q

Cumulative Preferred Stock

A

unpaid dividends accrue until paid in full

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13
Q

Affect of interest rates on preferred shares

A

Dividends make them sensitive to interest rates like bonds

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14
Q

Parity value of Preferred stock

A

Value of common stock times conversion ratio

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15
Q

Rights

A

Subscription rightsShort term (weeks)Maintain proportional ownership

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16
Q

Warrants

A

Long term securitiesSweetener for preferred stock

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17
Q

ADR

A

American Depositary ReceiptsMust be registered with SECAssume sponsored ADR on examValue based on underlying share price on foreign market

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18
Q

Trust Indenture Act of 1939

A

Must use indenture for bond if $5M over 1 year or more

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19
Q

Final payment on bond

A

par value plus final coupon payment (last semiannual payment)

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20
Q

Debenture

A

Unsecured corporate bond

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21
Q

Income bonds

A

Conditioned on issuer having sufficient income to payoften issued in bankruptcy or restructuring=adjustment bonds

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22
Q

Inverted yield curve

A

When investors are convinced that rates are at peak and are going to falllocking in higher interest ratesdemand for LT upPrice for LT upYield for LT down

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23
Q

S&P and Fitch Ratings

A

Levels of notchesAAAAA+AAAA-A+A A-BBB+BBBBBB-

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24
Q

Moody’s Ratings

A

AaaAa1Aa2Aa3A1A2A3Baa1Baa2Baa3

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25
Q

Riskless Rate of Return

A

T-Bill (or T-note)

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26
Q

T-Bills

A

Riskless rate of returnPay face value at maturityno couponquoted by % discount off FVBid for 4.5% discount T-Bill $955Higher quoted bit=better for buyerless than 1 year (4wk, 13 wk, 26 wk, 52 wk)

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27
Q

T Notes

A

1-20 yearsSemiannual interestquoted in 32nds of a bond point85.16 850 +16/32=1/2 bond point = $5855

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28
Q

T-Bonds

A

30 YearsCallable in last 5 yearsSemiannual InterestQuoted in 32nds

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29
Q

Secured Bonds

A

Backed by collateralagreement to sell collaterallower risk therefore lower yield

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30
Q

Bond Points

A

=$10Selling at 8989% of $1000$890

31
Q

Basis points

A

Measure of yield100 basis points for 1%2% = 200 basis points

32
Q

Prepayment risk

A

People refinance, mortgage comes due, get principal back, must reinvest at lower price

33
Q

CMO prepayment risk

A

Earlier tranches more subject to prepayment risk

34
Q

CMO interest and taxation

A

Subject to federal state and local taxPays monthly interestGreater risk than treasuriesthere is a secondary market

35
Q

Growth investors

A

higher price to earnings (not as high as aggressive), anticipating future EPS raiseRisk of steep plunge

36
Q

Aggressive growth investors

A

very high P/E ratiosRisk of steeper plunge than growth

37
Q

GARP investors

A

Growth and reasonable price. Low price and earnings growth potential

38
Q

REITS

A

90% taxable income75% assets invested in RE75% Gross income from REInvestment company act of 1940

39
Q

Balance Sheet Contents

A

ASSETSCurrentLong TermLIABILITIESCurrentLong TermSHAREHOLDERS EQUITY

40
Q

Current Assets Balance Sheet

A

Cash and Cash EquivalentsAccounts ReceivableInventory

41
Q

Long-term assets balance sheet

A

Prepaid expenses GoodwillPatents

42
Q

Goodwill

A

Amount Paid for Company - asset value

43
Q

Current liabilities balance sheet

A

Accounts payable Other current liabilities

44
Q

Long-term liabilities balance sheet

A

Long-term debt

45
Q

Shareholders equity balance sheet

A

Paid in capital Retained earningsTotal shareholders equity

46
Q

Goodwill

A

Fair Market Value - Asset Value

47
Q

Income statement contents

A

RevenueCost of goods soldGross profitOperating expensesEBITDADepreciation and AmortizationOperating income (EBIT)InterestTaxesNet income (earnings)

48
Q

Operating Expenses Income Statement

A

Selling, General and Administrative (SG&A)Research and Development

49
Q

COGS

A

Cost of Good SoldCOGS = Value beginning inventory + purchases-value ending inventory

50
Q

Straight-line depreciation

A

Cost- salvage cost/ years used

51
Q

Cash flow statement contents

A

Operating activitiesInvestment activitiesFinancing activities Change in cash plus cash equivalents

52
Q

Operating activities cash flow statement

A

Net income Depreciation/ amortizationDeferred taxChanges in working Capital

53
Q

Changes in working capital cash flow statement

A

Increase in accounts payable (Source) Increase in accounts receivable (use)Increase in inventory value (use) I’ll

54
Q

Investing activities cash flow statement

A

New PPE (CAPEX) - useAcquisitions - use

55
Q

Financing activities cash flow statement

A

Dividends paid (use) Purchase of stock (use)Increase in short-term borrowing (source)Total cash flow from financing activities

56
Q

Working capital

A

LiquidityCurrent Assets-Current Liabilities

57
Q

Net debt

A

liquidityNet Debt = Short-term debt + Long-term debt - c Iash and cash equivalents

58
Q

Current ratio

A

LiquidityCurrent assets/current liabilities

59
Q

Quick ratio

A

Liquidity Acid Test(Current assets - inventory)/ current liabilities

60
Q

debt to equity

A

LiquidityIdentifies companies that are highly leveraged and high riskDebt/ shareholders equityFor debt use long-term debtOrTotal liabilities minus Accounts Payable

61
Q

Debt to capitalization

A

LiquidityPortion that debt (or liabilities) represents of total capitalization (SH equity and debt together)Debt to capitalization = Total liabilities/(total liabilities + Shareholders equity)debt to Capitalization = long-term debt/(long-term debt plus shareholders equity)Debt to capitalization = interest-bearing debt/(interest-bearing debt + shareholders equity)

62
Q

Debt to EBITDA

A

Total debt/ EBITDALiquidity

63
Q

CCC

A

Cash conversion cycleDays inventory outstanding + days sales outstanding + days payables outstandingLiquidity

64
Q

Inventory turnover ratio

A

COGS/ average inventoryLiquidity

65
Q

Days inventory outstanding

A

365/ inventory turnover ratioLiquidity

66
Q

Receivables turnover ratio

A

Net credit sales/ average accounts receivableLiquidity

67
Q

Days sales outstanding

A

365/ receivables turnover ratioLiquidity

68
Q

Payables turnover ratio

A

COGS/ average accounts payableLiquidity

69
Q

FCFE

A

Free cash flow to equityFCFE = net income + non-cash expenses (depreciation and amortization) - CAPEX - increase in working capital + increase in net borrowingFCFE = FCFF - interest expense x (1- tax rate) + increase in net borrowingFCFE = cash from operations - CAPEX + increase in net borrowingLiquidity

70
Q

FCFF

A

Free cash flow to the firmnote before interest (?)FCFF = EBIT(1-Tax Rate) + non-cash expenses(depreciation and amortization) -CAPEX-increase in working capitalFCFF = net income + non-cash expenses(depreciation and amortization) + interest expense(1-tax rate)- CAPEX-increase in working capitalLiquidity

71
Q

FCFY

A

Free cash flow yieldFCFY = FCFE/ market capitalizationFCFY = FCFF/ enterprise valueLiquidity

72
Q

EBITDA is independent of

A

Interest, taxes, depreciation, amortizationprofitability

73
Q

Accounting for treasury stock purchase

A

Cash reducesShareholders equity reducesprofitability

Series 79 Chapter 1 (9 decks)

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