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

Solomon Ch 1 Deck 0 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
Riskless Rate of Return
T-Bill (or T-note)
26
T-Bills
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)
27
T Notes
1-20 yearsSemiannual interestquoted in 32nds of a bond point85.16 850 +16/32=1/2 bond point = $5855
28
T-Bonds
30 YearsCallable in last 5 yearsSemiannual InterestQuoted in 32nds
29
Secured Bonds
Backed by collateralagreement to sell collaterallower risk therefore lower yield
30
Bond Points
=$10Selling at 8989% of $1000$890
31
Basis points
Measure of yield100 basis points for 1%2% = 200 basis points
32
Prepayment risk
People refinance, mortgage comes due, get principal back, must reinvest at lower price
33
CMO prepayment risk
Earlier tranches more subject to prepayment risk
34
CMO interest and taxation
Subject to federal state and local taxPays monthly interestGreater risk than treasuriesthere is a secondary market
35
Growth investors
higher price to earnings (not as high as aggressive), anticipating future EPS raiseRisk of steep plunge
36
Aggressive growth investors
very high P/E ratiosRisk of steeper plunge than growth
37
GARP investors
Growth and reasonable price. Low price and earnings growth potential
38
REITS
90% taxable income75% assets invested in RE75% Gross income from REInvestment company act of 1940
39
Balance Sheet Contents
ASSETSCurrentLong TermLIABILITIESCurrentLong TermSHAREHOLDERS EQUITY
40
Current Assets Balance Sheet
Cash and Cash EquivalentsAccounts ReceivableInventory
41
Long-term assets balance sheet
Prepaid expenses GoodwillPatents
42
Goodwill
Amount Paid for Company - asset value
43
Current liabilities balance sheet
Accounts payable Other current liabilities
44
Long-term liabilities balance sheet
Long-term debt
45
Shareholders equity balance sheet
Paid in capital Retained earningsTotal shareholders equity
46
Goodwill
Fair Market Value - Asset Value
47
Income statement contents
RevenueCost of goods soldGross profitOperating expensesEBITDADepreciation and AmortizationOperating income (EBIT)InterestTaxesNet income (earnings)
48
Operating Expenses Income Statement
Selling, General and Administrative (SG&A)Research and Development
49
COGS
Cost of Good SoldCOGS = Value beginning inventory + purchases-value ending inventory
50
Straight-line depreciation
Cost- salvage cost/ years used
51
Cash flow statement contents
Operating activitiesInvestment activitiesFinancing activities Change in cash plus cash equivalents
52
Operating activities cash flow statement
Net income Depreciation/ amortizationDeferred taxChanges in working Capital
53
Changes in working capital cash flow statement
Increase in accounts payable (Source) Increase in accounts receivable (use)Increase in inventory value (use) I'll
54
Investing activities cash flow statement
New PPE (CAPEX) - useAcquisitions - use
55
Financing activities cash flow statement
Dividends paid (use) Purchase of stock (use)Increase in short-term borrowing (source)Total cash flow from financing activities
56
Working capital
LiquidityCurrent Assets-Current Liabilities
57
Net debt
liquidityNet Debt = Short-term debt + Long-term debt - c Iash and cash equivalents
58
Current ratio
LiquidityCurrent assets/current liabilities
59
Quick ratio
Liquidity Acid Test(Current assets - inventory)/ current liabilities
60
debt to equity
LiquidityIdentifies companies that are highly leveraged and high riskDebt/ shareholders equityFor debt use long-term debtOrTotal liabilities minus Accounts Payable
61
Debt to capitalization
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
Debt to EBITDA
Total debt/ EBITDALiquidity
63
CCC
Cash conversion cycleDays inventory outstanding + days sales outstanding + days payables outstandingLiquidity
64
Inventory turnover ratio
COGS/ average inventoryLiquidity
65
Days inventory outstanding
365/ inventory turnover ratioLiquidity
66
Receivables turnover ratio
Net credit sales/ average accounts receivableLiquidity
67
Days sales outstanding
365/ receivables turnover ratioLiquidity
68
Payables turnover ratio
COGS/ average accounts payableLiquidity
69
FCFE
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
FCFF
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
FCFY
Free cash flow yieldFCFY = FCFE/ market capitalizationFCFY = FCFF/ enterprise valueLiquidity
72
EBITDA is independent of
Interest, taxes, depreciation, amortizationprofitability
73
Accounting for treasury stock purchase
Cash reducesShareholders equity reducesprofitability

Series 79 Chapter 1 (9 decks)

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