Unit 15 - Industries and Companies

Question 1

This is the study of industries and companies to identify the best places to invest. It is the process of examining the economy to identify industries that will do well in the near future.

Answer 1

Fundamental analysis

Question 2

Fundamental analysis is also called

Answer 2

Top-down analysis

Question 3

This industry is highly sensitive to business cycles and inflation trends. It produces durable goods, such as heavy machinery, and raw materials, such as steel and automobiles. During recessions, the demand for such products declines as manufacturers postpone investments in new capital good and consumers postpone purchases of these good.

Answer 3

Cyclical Industries

Question 4

What are some examples of cyclical industries?

Answer 4

1. Steel
2. Autos
3. Heavy equipment
4. Capital good (washers and dryers)

Question 5

This type of industry is least affected by normal business cycles. They produce nondurable consumer goods (sometimes called consumables), such as food, pharmaceuticals and tobacco. It remains fairly steady throughout the business cycle. During recessions and bear markets, stock in these industries generally decline less than stock in other industries, but during expansions and bull markets, these industries may advance less. They tend to involve less risk and consequently, lower investment returns.

Answer 5

Defensive Industries

Question 6

What are some examples of defensive industries?

Answer 6

1. Food
2. Utilities
3. Clothing
4. Drugs
5. Tobacco
6. Liquor

Question 7

If the company makes a product that is used once and consumer in the process, it is probably

Answer 7

Defensive

Question 8

This type of industry tends to turn down as the economy heats up and to rise when the economy turns down. They are producers of a product that people buy when they are scared and looking for safety. People tend to flock to gold when the economy is weak and move away from gold as the economy improves and investors move into investments with better return potential.

Answer 8

Countercyclical

Question 9

What are two examples of countercyclical industries?

Answer 9

1. Gold mining

2. Refinement

Question 10

This industry is one that seems to be disconnected from the business cycle, doing well regardless of the economy. This may apply to an individual stock, as well as to a specific industry.

Answer 10

Growth industry

Question 11

This is normally applied to a specific economy, but it could apply to an industry as a whole. It can be anything from a hostile takeover to a cultural shift that moves the consumer away from the product. It may not be a positive condition.

Answer 11

Special situation

Question 12

Smartphones and apps are considered a

Answer 12

Growth industry

Question 13

Phone booths and street maps are considered a

Answer 13

Special situation

Question 14

These tend to do well in expansions and poorly in contractions.

Answer 14

Cyclical Industries

Question 15

These tend to be less impacted by the business cycle, maintaining sales throughout the cycle. They do not drop as much as cyclical industries do in poor economies and they do not grow as fast.

Answer 15

Defensive Industries

Question 16

These industries do better when the economy is weak and lose value when the economy strengthens.

Answer 16

Countercyclical Industries

Question 17

These industries do not care about the economy.

Answer 17

Growth Industries

Question 18

These are situational; some specific circumstance is affecting them.

Answer 18

Special Situations

Question 19

This provides fundamental analysts the data they need to understand the financial strengths and weaknesses of a company.

Answer 19

A corporations financial reports

Question 20

When are financial reports released?

Answer 20

Quarterly and annual basis

Question 21

This provides a snapshot of a company’s financial position at a specific time. It identifies the value of the company’s assets (what it owns) and its liabilities (what it owes).

Answer 21

Balance sheet

Question 22

The difference between the value of a company’s assets and its liabilities is the corporations

Answer 22

Equity or net worth

Question 23

This cannot tell analysts whether a company is improving or deteriorating. It does not measure the profitability of a business.

Answer 23

Balance sheets

Question 24

What is the balance sheet equation?

Answer 24

Assets - liabilities = net worth

or

assets = liabilities + net worth

Question 25

These are cash and assets that may be easily converted to cash.

Answer 25

Current Assets

Question 26

These are assets that are difficult to liquidate

Answer 26

Fixed Assets

Question 27

These assets are also called intangibles or goodwill. It represents things that are difficult to value.

Answer 27

Other Assets

Question 28

These are liabilities that are due now or in the near future (within 12 months)

Answer 28

Current Liabilities

Question 29

This is debt that will not be paid off in the near future. It will normally be notes and bonds. .

Answer 29

Long term liability

Question 30

What does the net worth section on a balance sheet contain?

Answer 30

1. Preferred stock
2. Common stock
3. Capital in excess of par
4. Retained earnings

Question 31

This figure is the amount of money that a company can spend (or lose) and remain operational.

Answer 31

Working Capital

Question 32

What is the formula for working capital?

Answer 32

current assets - current liabilities = working capital (expressed to dollar amount)

Question 33

This figure is a better figure to use when comparing the liquidity of a company.

Answer 33

Current ratio

Question 34

What is the formula for current ratio?

Answer 34

current assets : current liabilities = current ratio (2:1, 1.25:1) Expressed as a ratio

Question 35

Also called as quick ratio, this ration is the test of a company’s liquidity if everything really goes bad.

Answer 35

Acid ratio

Question 36

What is the formula for acid ratio?

Answer 36

(current assets - inventory): current liabilities = acid ratio

(Expressed as a ratio. 0.7 : 1, 1.1:1)

Question 37

What is the most common measure of long term solvency?

Answer 37

Debt ratio

Question 38

This is a measure of how much of a corporations net worth is derived from long term debt.

Answer 38

Long term solvency

Question 39

A corporation with a debt ratio that is higher than the industry average is said to be

Answer 39

Highly leveraged

Question 40

This summarizes a corporations revenues and expenses for a fiscal period. - usually quarterly, year to date, or the full year. It compares revenue with costs and expenses during the period. It reflects the business activity in cash flow over a specific time period. Analysts use this to judge the efficiency of a company’s operation and its profitability.

Answer 40

Income statement (also called profit and loss or P&L)

Question 41

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

Answer 41

Earning per share (EPS)

Question 42

This is a measure of the amount of earnings a company makes compared with its current market value.

Answer 42

PE ratio

Question 43

What is the formuta for PE ratio?

Answer 43

CMV / EPS = PE ratio