Equity Securities Flashcards Preview

CFA 1 > Equity Securities > Flashcards

Flashcards in Equity Securities Deck (19)
Loading flashcards...
1
Q

Statutory voting

A

Each share gets one vote in each election

2
Q

Cumulative voting

A

Shares can be allocated to one or more candidates

3
Q

Cumulative preferred shares

A

Must make up preferred dividends before common dividend can be issued

4
Q

Participating preferred shares

A

Extra dividend if profit exceeds certain level

5
Q

Depository Receipts (e.g. ADRs)

A

Ownership in foreign firm and traded in local markets/local currencies.

6
Q

Book value of equity

A

Assets - liabilities

7
Q

ROE

A

(net income - preferred dividends) / average book value of common equity

8
Q

Cyclicals

A

(1) high operating leverage
(2) Dependent on business cycle
(3) Expensive products, non necessities

9
Q

Defensives

A

(1) Least affected by business cycles

10
Q

Growth

A

Demand so large, not affected by business cycle

11
Q

Industry life cycle (5)

A

(1) Embryonic
(2) Growth
(3) Shakeout
(4) Mature
(5) Decline

12
Q

Dividend discount model formula

A

Sum[(dividend / (1+required return)^t]

i.e. discounted cash flows

13
Q

Free cash flow to equity (FCFE)

A

cash flow from operations - fixed investments + net borrowing

14
Q

Gordon growth model

A

Value = dividend / (required return - growth rate)

Assumes constant growth rate

15
Q

Estimating dividend growth

A

(1) historical growth rates
(2) median industry growth rate
(3) estimate sustainable growth rate

16
Q

Sustainable growth rate

A

ROE * retention rate

17
Q

Value of stock that is expected to pay dividends in the future

A

(1) Calculate value at point when dividends are going to start being paid
(2) Discount value back to today

18
Q

Multi-stage divined models

A

(1) Discount individual dividends back
(2) Then calculate gordon from x period on
(3) Discount gordon back and sum
Note: Gordon assumes first dividend is paid today

19
Q

Payout ratio

A

Dividend / earnings