4.c Flashcards
(12 cards)
What is Fundamental Analysis?
A fundamental analyst studies a company’s specific business prospects, looking at its financial statements, management quality, and market position within the context of its industry and the overall economy.
What does a fundamental analyst study to determine a stock’s value?
They are trying to determine what to buy (e.g., is Company A a good value?).
What are the four phases of the business cycle, in the correct order?
- Trough (the bottom)
- Expansion (the recovery or growth phase)
- Peak (the top)
- Contraction (the slowdown or recession phase)
What is a defensive industry? Give one example.
An industry that is least affected by the business cycle. People need their products regardless of the economy.
Examples: Food, Pharmaceuticals, Tobacco, Utilities
What is a cyclical industry? Give one example.
An industry that is highly sensitive to the business cycle. They do well when the economy is growing and poorly when it is contracting.
Examples: Steel, Automobiles, Heavy equipment (e.g., tractors, airplanes), Durable goods (e.g., washers, dryers)
What is a countercyclical industry? What is the most common example?
An industry that tends to move opposite to the business cycle. They do well when the economy is doing poorly.
Example: Precious metals (gold, silver, etc.)
What is a growth industry? What is a common dividend characteristic of growth stocks?
An industry that is growing faster than the economy as a whole, usually due to new technology or products.
Growth stocks typically pay little or no dividends because they reinvest their earnings to finance their expansion.
What does a company’s balance sheet show?
It provides a snapshot of a company’s financial position at a specific point in time. It shows what the company owns (Assets), what it owes (Liabilities), and what its net worth is.
What is the fundamental balance sheet equation?
Assets = Liabilities + Owners’ Equity
(or) Assets - Liabilities = Owners’ Equity (Net Worth)
What are assets on the balance sheet, and how are they listed?
Assets are what a company owns. They are listed in order of liquidity (how easily they can be converted to cash).
Current Assets: Cash, accounts receivable, inventory. Fixed Assets: Property, plant, and equipment. Intangible Assets: Goodwill, trademarks, brand names.
What are liabilities on the balance sheet? What are the two types?
Liabilities are what a company owes (its debts).
Current Liabilities: Debts due within the next 12 months. Long-Term Liabilities: Debts not due in the near future (e.g., bonds issued by the company).
What is a company’s net worth?
Net worth (or Owners’ Equity / Shareholders’ Equity) represents what the company is worth.
It is calculated as Assets - Liabilities.
