Economic Factors, Ratios, & Risk Flashcards
(128 cards)
1
Q
What are the 4 Economic Cycles?
A
Expansion (Bullish)
Peak
Contraction (Bearish)
Trough
2
Q
What’s Expansion?
A
When Economic Growth is ▲
3
Q
What’s a Peak?
A
When Economic Growth has reached its max point
4
Q
What’s Contraction?
A
When Economic Growth is ▼
5
Q
What’s a Trough?
A
When Economic Growth has reached its lowest point
6
Q
What’s a Recession?
A
2 Consecutive Quarters of ▼ Economic Growth
7
Q
What’s Stagnation?
A
Annual Economic Growth of less than 2-3% GDP
8
Q
What’s a Depression?
A
A Recession that lasts 2+ years or a ▼ in GDP of 10%+
9
Q
What’s a Recovery?
A
A cascading incline in Economic Growth
10
Q
What’s Fiscal Policy?
A
The responsibility of the U.S. Executive & Legislative Branches to manage Gov. Spending & Taxes
11
Q
What’s Monetary Policy?
A
The responsibility of a Country’s Central Bank to control the overall $$$ Supply & I/R
12
Q
What’s a Contractionary Fiscal Policy?
A
A Policy that ▲ Taxes & ▼ Gov. Spending
13
Q
What’s an Expansionary Fiscal Policy?
A
A Policy that ▼ Taxes & ▲ Gov. Spending
14
Q
What’s a Contractionary Monetary Policy
A
A Policy that ▲ I/R & ▼ the overall $$$ Supply
15
Q
What’s an Expansionary Monetary Policy
A
A Policy that ▼ I/R & ▲ the overall $$$ Supply
16
Q
What happens when Taxes ▲ & Gov. Spending ▼?
A
▼ Economic Activity & Income
▼ Gov. Deficit
▼ Inflation
▲ Unemployment
17
Q
What happens when Taxes ▼ & Gov. Spending ▲?
A
▲ Economic Activity & Income
▲ Gov. Deficit
▲ Inflation
▼ Unemployment
18
Q
What’s Currency Valuation?
A
The process of determining Exchange Rates between Currencies
19
Q
What’s the Foreign Exchange Marketplace (FOREX)
A
The Marketplace in which Currencies are Traded
20
Q
What’s Sovereign Debt?
A
Gov. Debt, Public Debt, & National Debt issued by a Gov.
21
Q
What’s Inflation?
A
The Rate at which Prices for Goods & Services ▲ & Purchasing Power ▼
22
Q
What’s HyperInflation?
A
A period of Inflation of 50% or more per Month
23
Q
What’s Stagflation?
A
Continuing Inflation w/ no Economic Growth
24
Q
What’s Deflation?
A
The Rate at which the Nominal Costs of Capital, Labor, Goods & Services ▼ & Purchasing Power ▲
25
What's a Credit Spread?
The Basis Point difference in Yield between 2 Debt Securities of the same Maturity, but different Credit Quality
26
What's an Interest Rate (I/R)?
The amount a Lender charges a Borrower and is a % of the Principal
27
What's a Yield Curve?
The Slope of a Yield or I/R of a Bond
28
What's an Investment Yield?
The Rate of Distributed or Realized Returns on an Investment, expressed as a % of the Cost of Investment
29
What's a Normal Yield Curve?
When Long-Term I/R’s exceed Short-Term I/R's
30
What may a Normal Yield Curve signify?
Economic Expansion
31
What are the effects of a Normal Yield Curve?
▲ Exports
▼ Imports
▲ Stock/Bond Prices
▼ US Dollar Value
32
What's a Flat Yield Curve?
When Long-Term I/R’s are the same as Short-Term I/R’s
33
What's an Inverted Yield Curve?
When Long-Term I/R’s are lower than Short-Term I/R’s
34
What may an Inverted Yield Curve signify?
Economic Contraction
35
What are the effects of an Inverted Yield Curve?
▼ Exports
▲ Imports
▼ Stock/Bond Prices
▲ US Dollar Value
36
What's Disintermediation?
A large-scale Investor movement into Long-Term Debt Securities
37
What's Gross Domestic Product (GDP)?
The Total Market Value of all Finished Goods & Services produced within a Country in a set time period
38
What causes an ▲ in a Currency Exchange Rate?
▲ I/R
39
What's Non-Farm Payroll?
The # of Workers (per month) in the U.S. excl. Farming, Private Household, Non-Profit, and Active Military Employees & Proprietors
40
What's the GDP Equation?
| Gross Domestic Product
C + I + G + NX
Consumer Spending (C)
Firm Investment (I)
Gov. Spending (G)
Net Exports (NX)
41
What are the 4 most prominent Employment Indicators?
Duration of Unemployment
Non-Farm Payrolls (released monthly)
Unemployment Rate (released monthly)
Weekly Initial Unemployment Claims
42
What type of Business Cycle Indicator (BCI) is the CPI?
Lagging Indicator
43
What type of Business Cycle Indicator (BCI) is the Avg. Weekly Claims for Unemployment?
Leading Indicator
44
What's a Trade Deficit?
A ▼ in GDP when the value of Imports exceeds the value of Exports
45
What type of Business Cycle Indicator (BCI) is the Avg. Length of Unemployment?
Lagging Indicator
46
What's a Trade Surplus?
An ▲ in GDP when the value of Exports exceeds the value of Imports
47
What's the Balance of Payments (BOP)?
| Economic Indicator
A record of all International Financial Transactions made by the Residents of a Country
48
What's a Price Index?
The tracking of the Prices of Goods & Services over Time
49
What's the Consumer Price Index (CPI)
The Weighted Avg. of Prices of a Basket of Goods & Services classified as Primary Consumer Needs reported Monthly since 1913
50
What's an Income Statement?
An overview of Revenues, Expenses, NI, & EPS
51
What's a Balance Sheet?
An overview of a Firm's Assets, Liabilities, and Shareholders' Equity as a snapshot in time
52
What's a Cash Flow Statement?
An overview of a Firm’s Financing, Investing, & Operating Activities
53
What's an Audited Financial Statement?
A Financial Statement that's reviewed by a Certified Public Accountant(s) (CPA) for accuracy
54
What's an UnAudited Financial Statement?
A Financial Statement that isn't reviewed by a Certified Public Accountant(s) (CPA) for accuracy, but is instead generated solely by the Firm
55
What are the 4 Types of Auditor Opinions?
Unmodified or Unqualified Opinion
Qualified Opinion
Adverse Opinion
Disclaimer of Opinion
56
What's an Unmodified or Unqualified Opinion?
An Auditor Opinion that confirms everything is accurate and the Firms bookkeeping is following Standard Accounting Practice
57
What's a Qualified Opinion?
An Auditor Opinion that confirms everything is accurate except for a specified list of items
58
What's an Adverse Opinion?
An Auditor Opinion that the Firms Financial Statements aren’t accurate and that the info can’t be relied upon to make decisions
59
What's a Disclaimer of Opinion?
An Auditor Opinion where the Auditor refuses to provide an opinion because they don’t have all of the info to confirm the accuracy of the Financial Statements
60
What are the 3 SEC Financial Reports required by a Firm?
Form 10K, 10Q, & 8K
61
What's SEC Form 10K?
A Firm’s Annual Financial Report
62
What's SEC Form 10Q?
A Firm’s Quarterly Financial Report
63
What's SEC Form 8K?
An SEC form that can be filed at anytime to inform Shareholders of “unscheduled material events that are important to Shareholders’
64
What's SEC Schedule 13D?
| Beneficial Ownership Report
A form that must be filed within 10 Days when a Person or Group acquires a 5%+ Stake of a Voting Class of a Firm’s Equity Shares
65
What's SEC Schedule 13F?
A Quarterly Report required to be filed within 45 Days by all Institutional Investment Managers w/ $100M+ AUM
66
What's the SEC EDGAR?
The SEC's Electronic Data Gathering, Analysis, & Retrieval System
67
What are the 2 Bookkeeping Types?
Accrual Accounting
Cash Basis Accounting
68
What's Accrual Accounting?
Recording Revenue & Expenses when Transactions occur but before Cash is collected or remitted
69
Who uses Accrual Accounting?
Large Firms since it smooths out Earnings over time & provides a Long-Term perspective
70
What's Cash Basis Accounting?
Recording Revenue & Expenses when Cash related to those Transactions are collected or remitted
71
Who uses Cash Basis Accounting?
Sole Proprieters & Small Businesses w/ avg. Annual Gross Receipts of $25M- within a prior 3 year period
72
What's the Time Value of Money (TVM)?
| Present Discounted Value
The concept that a sum of $$$ is worth more now than the same sum will be at a future date due to its earnings potential in the interim
73
What's the FRS?
Federal Reserve System
74
What's the Federal Open Market Committee (FOMC)?
The FRS Monetary Policymaking Body that manages the U.S. Money Supply
75
What's FOMC M1?
| Federal Open Market Committee
Cash + Demand Deposits
76
What's FOMC M2?
| Federal Open Market Committee
M1 + Savings Accounts + Non-Institutional Money Market Funds
77
What's FOMC M3?
| Federal Open Market Committee
M2 + Large Deposits + Repos + Institutional Money Market Funds
78
What type of Business Cycle Indicator (BCI) is FOMC M2?
| Federal Open Market Committee
Lagging Indicator
79
What's the Discount Rate (DR)?
1. The I/R the Federal Reserve Board in NY provides the FRS Member Banks
2. The I/R used in DCF analysis
80
What's the Fed Funds Rate?
The I/R the FRS Member Banks charge each other
81
What's the Money Market Rate?
The I/R Investors earn within Money Market Instruments
82
What's the Prime Rate?
The I/R that Commercial Banks loan to their best Clients
83
What's a Broker-Dealer (BD)?
Any Person or Group engaged in the Business of effecting Securities Transactions for the Accounts of Others or for Themselves
84
What's the Broker Call Loan Rate?
The I/R that Commercial Banks loan to BDs for Client Margin Purchases
85
What's a Margin Loan Rate?
The I/R BDs charge Customers for Credit
86
Order the Discount Rates from lowest to highest
FRB DR
Fed Funds Rate
Money Market Rate
Prime & Broker Call Loan Rates
Margin Loan Rate
87
Which Discount Rate is the most Volatile?
Fed Funds Rate
| It can change Overnight
88
What's a Discounted Cash Flow (DCF)?
| Intrinsic Value
The current value of a future stream of payments from a Firm, project, or Investment
89
What's the Internal Rate of Return (IRR)?
| Dollar Weighted RoR
The DR that makes the NPV of all CF’s 0 in a DCF analysis
90
What's the Net Present Value (NPV)?
The current value of a future stream of payments from a Firm, project, or investment minus the initial investment
91
What's a Statistical Mean?
The avg. of a dataset/range
92
What's a Statistical Median?
The middle # of a dataset/range
93
What's a Statistical Mode?
The # that occurs the highest # of times within a dataset/range
94
What's a Statistical Range?
A measure of Dispersion within a dataset
Greatest Value - Smallest Value
95
What's a Standard Deviation (Std)?
The Dispersion of a dataset relative to its Mean & is calculated as a SqRt of the Var
96
What's an ▲ Standard Deviation mean for a Stock?
That the Stock has a Wide Variation in its Historical Returns, thus ▲ Risk & ▼ Predictability
97
What's Beta?
The Volatility of a Security or Portfolio compared to the Systematic Risk of the Overall Market (Benchmark)
98
What's Alpha?
| Excess Return or Abnormal RoR
ROI - Beta
An Investment Strategies ability to beat the Market
99
What's the Sharpe Ratio?
The ROI compared w/ its Risk
100
What's the Sharpe Ratio Equation?
101
What's a Correlation?
The degree to which 2 variables move in relation to each other
102
What's a Liqudity Ratio?
A class of financial metrics used to assess a Debtor’s ability to pay Current Debt Obligations w/out raising External Capital
103
What's the Current or Working Capital Ratio?
A Liquidity Ratio that measures a Firm's ability to meet its Short-Term Obligations w/ all of its Assets
104
What's the Current Ratio Equation?
| Working Capital Ratio
CA / CL
105
What's the Quick Ratio?
| Acid-Test Ratio
A Liqudity Ratio that measures a Firm's ability to meet its Short-Term Obligations w/ its most Liquid Assets w/out selling its Inventory or Prepaid Assets
106
What's the Quick Ratio Equation?
Quick Assets / CL
107
What's the Quick Assets Equation?
TCA - I - PE
108
What's a Solvency Ratio?
A class of financial metrics used to assess a Debtor’s ability to pay its Long-Term Debt Obligations w/out raising external Capital
109
What's the Debt-Equity (D/E) Ratio
A Solvency Ratio that measures how much of a Firm's Debt could be liquidated using Equity
110
What's the D/E Equation?
| Debt-Equity Ratio
Debt / Equity
111
What's a Valuation Ratio?
A class of financial metrics used to assess if a Stock’s past or future performance is over/under-valued by Investors
112
What's Earnings per Share (EPS)?
A Valuation Ratio that signifies how profitable a Firm is
113
What's the EPS Equation?
| Earnings per Share
114
What's Diluted EPS?
| Earnings per Share
The quality of a Firm's EPS if all Convertible Securities were exercised
115
What's the Diluted EPS Equation?
| Earnings per Share
116
What's the Price-to-Earnings (P/E) Ratio?
A Valuation Ratio
A Price Multiple
An Earnings Multiple
117
What's the P/E Equation?
| Price-to-Earnings Ratio
118
What's the Price-to-Book (P/B) Ratio?
A Valuation Ratio that compares a Firm's Market Capitalization to its Book Value
119
What's the P/B Equation?
| Price-to-Book Ratio
120
What's the BVPS Equation?
| Book Value Per Share
121
What's Systematic Risk?
The Risk inherent to the entire market or market segment, reflecting the impact of Economic, Geopolitical, & Financial Factors
Volatility Risk
Market Risk
| Undiversifiable Risk
122
What are the 4 different types of Systematic Risk?
Geopolitical Risk
I/R Risk
Inflation Risk
Sector or Industry Risk
123
How do you mitigate Sytstematic Risk?
Asset Allocation Strategies
Diversification
Hedging
124
What are Unsystematic Risks?
The Risk inherent to a specific Firm or Industry Investment
| Nonsystematic Risk
Specific Risk
Diversifiable Risk
Residual Risk
125
What are the 5 different types of Unsystematic Risk?
Business Risk
Financial Risk
Legal & Regulatory Risk
Operational Risk
Strategic Risk
126
How do you mitigate Unsystematic Risk?
Diversification
127
What's Opportunity Cost?
The Cost of one Choice that must be forfeited for another
128
What’s the Liquidation Priority of a Firm?
Employee Wages
IRS Tax & Penalty Payments
Secured Bondholders
Unsecured Bondholders & General Creditors
Subordinated Debentures
Preferred Stockholders
Common Stockholders
