Ch 14 Accounting And Economics

Question 1

Corporate balance sheet

Answer 1

Total assets = total liabilities + shareholders equities

Shareholders equity includes:
Stock
Retained earnings
Paid in capital or capital surplus

Question 2

Quick ratio

Answer 2

Current assets - inventory
/
Current liabilities

Helps right size companies with a lot of money in inventory no one wants or products that have a long time to sale

Question 3

EPS

Answer 3

Net income - preferred dividends
/
Common shares outstanding

Question 4

Defensive vs cyclical class of stock

Answer 4

Defensice l
Defend against recession
Basically recession proof like utilities, pharmaceuticals, food, alcohol

Cyclical
More sensitive to economic cycle (eg hotels, airlines)

Question 5

Inflation leads to…

Answer 5

Higher interest rates and therefore lower bond proces

Question 6

Economic indicators

Answer 6

Leading: building permits, S&P 500 index, interest rate spreads, unemployment claims

Coincident: industrial production index, payroll for non agricultural, personal income less transfer payments

Lagging: changes in CPI, avg prime rates, avg unemployment duration

Question 7

Call money rate

Answer 7

Charged by commercial banks on collateralized loans to BDs

Question 8

Keynesian vs monetarist policy

Answer 8

Key: government invention (races, spending) is best too to avoid recession aka fiscal policy; implemented by president and congress

Money: money supply is the best way; federal reserve

Question 9

Federal reserve tools

Answer 9

In order of tools used most often to least often:

Reg T: how much BD can led clients to buy stock

Discount rate

Reserve requirement

Federal open market committee (FOMC): buy or sell securities

Question 10

Relationship between US and foreign currencies

Answer 10

Inverse

Question 11

How do rising interest rats impact the US dollar?

Answer 11

Strengthens the dollar in relation to other currencies

Question 12

Balance of trade

Answer 12

Exports - imports

How does importing and exporting get impacted by changes in the dollar?

When dollar falls, exports rise and imports fall

This is because it becomes cheaper to buy US goods

Question 13

Market cap stock categories

Answer 13

Large $10B
Mid $2-10B
Small $300M-$2B
Micro $50-300M

Question 14

Working capital

Answer 14

Current asserted - current liabilities

Question 15

Debt to equity ratio

Answer 15

Bonds + preferred stock
/
Commons stock at par + capital surplus + RE

Question 16

Stagflation

Answer 16

Prolonged period of high inflation and high unemployment

Question 17

Real interest rate

Answer 17

Interest rate - inflation rate