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Flashcards in Rando Deck Deck (31):
1

Harmonic Mean Formula

Number of Observations/ Sum of Reciprocals of Observations

2

Molodovsky Effect

The observation that P/E ratios tend to be high on depressed EPS at the bottom of a business cycle and tend to be low on unusually high EPS at the top of a business cycle.

Therefor of particular relevance to cyclical stock evaluation.

-Ergo, buying opps could potentially be best with HIGHER P/Es, counter-intuitively.

3

Adjusted CFO

CFO + [interest * (1 - t)]

4

Closely Held Company

company’s shares are held (and often traded very thinly, if at all) by a small group of interested shareholders (quite often the founders/family).

5

Growth Rate in Potential GDP Formula (2)

long-term growth rate of labor force + long-term growth rate in labor productivity= potential GDP

OR

long-term growth rate of technology + α (long-term growth rate in capital) + (1 - α) (long-term growth rate in labor)

6

Friedman Doctrine says

firm only needs to abide by the rule of law.

7

Spurious Correlation

is a relationship between two variables that appear to have interdependence or association with each other but actually do not. Spurious correlation is often caused by a third factor that is not apparent at the time of examination.

8

Bird in Hand Dividend Theory

Bird in hand is a theory that postulates investors prefer dividends from a stock to potential capital gains because of the inherent uncertainty of the latter.

9

Residual Dividend Policy

A residual dividend is a dividend policy company management uses to fund capital expenditures with available earnings before paying dividends to shareholders, and this policy creates more volatility in the dollar amount of dividends paid to investors each year. The first priority is to use earnings to cash flow capital expenditures, and dividends are paid with any remaining earnings generated by the firm.

10

FCFE Coverage Ratio

FCFE/ Dividends + Sharerepurchases

11

On-the-Run Issues

On-the-run Treasuries are the most recently issued U.S. Treasury bonds or notes of a particular maturity. "On-the-run" Treasuries are the opposite of "off-the-run" Treasuries, which refer to Treasury securities that have been issued before the most recent issue and are still outstanding. Media mentions about Treasury yields and prices generally reference "on-the-run" Treasuries.

12

When building confidence interval around Y, must use _____ due to _____

standard error of forecast due to join uncertainty from intercept and slope estimates

13

K is equal to

number of independent variables

14

RSS is what

EXPLAINED variance

15

SSE is what

UNEXPLAINED variance

16

SST is what

TOTAL variance (rss and sse)

17

SEE- Standard error of estimate measures

accuracy of predicted values from regression equation

18

Lower SEE implies

greater model accuracy

19

SEE is standard deviation of

error term.

20

R^2 is called

coefficient of determination

21

R^2 measures

percentage of total variation in dependent "Y" variable explained by independent "x" variable. Ranges between 0 and 1.

22

Limits of Regression

-relationships change over time
-public knowledge of relationships eliminate usefulness
-assumption violations

23

Free cash flow

cash flow available for distribution after subtracting cash spent working capital, investments, etc.

24

Free Cash Flow to Firm

cash avail to both shareholders and bondholders after taxes, capital inv, WC inv
-Pre-levered cash flow

25

Free Cash Flow to Equity

-cash flow avail after paying off bondholders
-post levered cash flow

26

NonCash Charges

apply to both FCFE and FCFF
-adjustments for noncash decrease and increases in NI based on accrual accounting

27

FCFF Formula

NI + NCC + int(1-t) - WC inv - FC inv

28

FCFE Formula

NI + NCC - WC inv - FC inv + net borrowing

29

FCFE via FCFF

FCFF - Int(1-t) + net borrowing

30

FCFF long form mnemonic

N - net income
+I - int (1-t)
-C (WC)
-E (capex)
-----\/ NCC ----
+T DTL
+I Impairment
-P (Premium)Discount
-G (gain)
+L loss
+A amort
+D depreciation

31

FCFE long form mnemoic

N - net income
-E (capex)
-W (WC)
+B Net Borrowing
-----\/ NCC ----
+T DTL
+I Impairment
-P (Premium)Discount
-G (gain)
+L loss
+A amort
+D depreciation