Chapter 12 Flashcards
(28 cards)
What is a Fundamental Analysis?
The analysis of what affects a company’s value
What is Top-Down Analysis?
An analysis that starts by looking at the overall economy, then the company’s industry, and finally the company itself
When can you earn abnormal returns from macroeconomic analysis?
only if you’re better at analyzing the economy than most other investors
If the currency of your country is _________, this should stimulate ______, and discourage ______
depreciating , exports , imports
An increase in the value of the euro against the dollar can cause the German automaker BMW to either lose ______ _____ or reduce its _______ ______ on its __ _____
market share , profit margin , US sales
The decline in the value of the dollar relative to the euro will have an impact on the purchase of US goods in Europe: …
goods will decrease in cost, and Europe will import more
Stock prices are _______-______ measures of a _____ value
forward-looking , firm’s
What is a Demand Shock?
An event that changes how much people want to buy
What is Supply Shock?
An event that affects how much the economy can produce or how much it costs to produce things.
What is an example of a Demand Shock?
increase in government spending
reductions in consumer spending
What is an example of Supply Shock?
a change in the price of imported oil
If interest rates increase, business investment expenditures are likely to _______ and consumer durable expenditures are likely to _______
decrease , decrease
Supply-side economics tends to focus on …
increase productive capacity
The goal of supply-side policies is to create an environment where workers and owners of capital have…
the maximum incentive and ability to product and develop goods
Whenever people fear that the economy will soon go into a recession, they might change their asset allocation by…
selling growth stocks and buying long-term bonds
unanticipated increases in ________ ______ are associated with stock market declines
interest rates
Financial leverage, operating leverage, and type of product affects a firm’s sensitivity to its ….
earnings to the business cycle
If economic conditions show slow growth and expected to be like that for the foreseeable future, you would want to invest in…
industries with below-average sensitivity to economic conditions
What industries would be good performers during the contraction stage of the business cycle?
pharmaceuticals, food, and other necessities
The average duration of unemployment is a _______ economic indicator
lagging
what are examples of Leading economic indicators?
- Yield curve spread (T-bond vs. federal funds rate)
- Stock price index
- Orders for non-defense capital goods
What are 3 signs an industry is in the maturity stage?
- Most households already use the product
- Hard to grow more
- Heavy price competition and price wars
What are signs an industry is in the consolidation stage?
- Companies find new niche markets through reputation, quality, or service
- Mergers are happening, with more expected
- The industry is becoming more concentrated
What types of products are less affected by economic cycles?
- Necessities and products people buy no matter their income
- Example of a highly cyclical industry: automobiles
