Topic 5 addt to cards Flashcards
Price to Earnings ratio
Price of share/Basic Earnings per share.
Basic Earnings per share= Net income- preferred dividends / Weighted average number of Outstanding Common Shares.
Expansionary Fiscal Policy.
Taxes: decrease
Spending: Increase transfers payments ( unemployment benefits) and increase spending in roads/ bridges,
Contractionary fiscal policy.
Taxes: Increase rates.
Spending: decrease transfer payments (unemployment benefits) and decrease spending on roads and bridges.
ECONOMIC SCHOOLS OF THOUGHT-CAUSES OF CYCLE FLUCTUATION AND PREFERRED POLICIES.
1) KEYNESIAN -INADEQUATE DEMAND -TO AFFECT DEMAND THROUGH FISCAL POLICIES.
2) MONETARIST -UNSTABLE MONEY SUPPLY - STABILIZE MONEY SUPPLY THROUGH MONETARY POLICIES
3) NEW KEYNESIAN- A COMBINATION OF THE ABOVE THEORIES- USE BOTH FISCAL AND MONETARY POLICIES.
PHASES OF BUSINESS CYCLES.
EXPANSION, PEAK, CONTRACTION OR RECESSION, AND TROUGH.
EARLY EXPANSION
EARLY EXPANSION FOLLOWS TROUGH. IT IS CHARACTERIZED BY ESTABLE TO MODERATE GROSS DOMESTIC PRODUCT AND MODERATE TO DECREASING INFLATION
LATE EXPANSION.
PHASE CHARACTERIZED BY AN ACCELERATION OF BOTH GROWTH AND INFLATION.
PEAKS
PEAKS OCCUR AFTER EXPANSIONS HAVE BEEN GOING ON FOR SOME TIME. THERE IS OFTEN A LACK OF AVAILABLE LABOR AND CAPITAL TO FUEL FURTHER GROWTH. FOR THAT REASON STARTS A DECELERATION OF GROWTH. AT THE SAME TIME A COMPETITION IN THE LABOR MARKETS AND THE LACK OF EXCESS CAPACITY PUSHES WAGES AND PRICES UP, WHICH CREATES ACCELERATED INFLATION.
CONTRACTION OR RECESSION.
CONTRACTION IS DEFINED BY 2 QUARTERS OF NEGATIVE GROSS DOMESTIC PRODUCT GROWTH DUE TO DECREASED DEMAND. HERE WE SEE DECLINING ECONOMIC OUTPUT, INCREASING UNEMPLOYMENT, AND FALLING RATES OF INFLATION, AND ALTHOUGH THE INFLATION DECLINES, IT LAGS THE DECLINE OF GROSS DOMESTIC PRODUCT.
RESIDUAL INCOME
AMOUNT OF OPERATING INCOME THAT IS LEFT AFTER DEDUCTING THE COST OF CAPITAL (IMPUTED INTEREST) RELATED TO THE ASSETS THAT GENERATE THAT INCOME. IN OTHER WORDS, IS THE AMOUNT OF PROFIT THAT EXCEEDS THE REQUIRED RATE OF RETURN (RRR). IT IS USED TO RANK DEPARTMENTS IN THE DECISION OF DELETING OR EXPANDING.
RESIDUAL INCOME FORMULA:
OPERATING INCOME- REQUIRED RATE OF RETURN * OPERATING ASSETS.
MARKET CAPITALIZATION
TOTAL VALUE OF AN ENTITY ‘S SHARE OF COMMON STOCKS.
MARKET CAPITALIZATION =TOTAL OUTSTANDING SHARE * MARKET VALUE
IT DOES NOT INCLUDE DEBT.
the total return of an investment.
Includes cash distribution (interest, dividends and rents) and change ( growth).
Standard deviation. (alpha)
Measures volatility.
Beta and standard deviation
Beta measures Volatility in price deviation regarding the market.
Standard deviation is a measurement of the spread in the fund share price over time.; it describes only the fund in question, not how to compares to the index or to other funds.
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