Unit 13 Flashcards by Arielle Fernandez

When are gift taxes due?

At the time of individuals tax return (April 15) while estate taxes are due nine months after death

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How much is the annual gift tax exclusion?

$16,000 (2022)

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Either stepped up or down to it’s fair market value at the date of death

Cost basis of inherited property

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An accounting method used when an investor has made multiple purchases at different prices of the same security; the method averages the purchase prices to calculate an investors cost basis in shares being liquidated. The difference between the average cost basis and the selling price determines tax liability.

Average Cost Basis

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An accounting method that identifies the specific shares selected for liquidation in the event an investor wishes to liquidate shares.

Used to identify specific per share cost basis

Share identification

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What are 3 qualities the IRS looks at when determining if debt securities are substantially identical?

Maturity
Coupon
Issuer

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The sale of a bond and the simultaneous purchase of a different bond in a like account.

Used to control tax liability, extend maturity or update investment objectives.

Loss is not disallowed.

Tax Swapping

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Selling a security at a loss for tax purposes and within 30 days before or after, purchasing the same or a substantially identical security. IRS will disallow the claimed loss.

Total period= 61 days

Applied to only realized loss, not gains

Wash sale

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The profit made by a dealer when seeing a security to a customer. Dealers purchase at one price and sell to their clients at a higher price.

Difference between the lowest current offering price among dealers and the higher price a dealer charges a customer.

Mark-Up

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Provides the most up-to-the-minute information

Thomson Muni Market Monitor

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The percentage of the total dollar value of new issues sold versus the total dollar value of new issues offered for sale the prior week.

Placement or acceptance ratio indexes

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The total dollar volume of municipal offerings- not including short term notes- expected to reach the market in next 30 days

30 day visible supply

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Published every business day and serves as an authoritative source of information on primary market municipal bonds.

Publishes 30 day visible supply and the placement or acceptance ratio indexes

Compiles the 40 Bond Index, 20 Bond Index, 11 Bond Index and Revdex 25

The Bond Buyer

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Refers to the number of shares that have been sold short

High=bullish
Low=bearish

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In technical analysis, a theory that assumes small investors are nearly always wrong. Therefore if sales are up, signifying that small investors are selling, it is a good time to buy.

Odd lot theory

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According to DOW Theory, the primary trend in a bear market is

A series of lower highs and lower lows

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According to DOW Theory, the primary trend in a bull market is

A series of higher highs and higher lows

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A technical market theory that long term trends in the stock market may be confirmed by analyzing the movements of the Industrial Average and Transportation Average.

Dow Theory

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If market indexes are rising but the number of declining stocks relative to the number of advancing stocks is rising, the market is ready for correction.

Considered bearish

Overbought

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If market indexes are declining but the number of declining stocks relative to the number of advancing stocks is falling the market is likely to reverse itself.

Considered bullish

Oversold

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Indicates a bullish reversal

Stock price declines -> plateau -> 2nd decline -> rise -> decline again -> rise and continue to rise

Head and shoulders bottom

(Inverted)

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Indicates the beginning of a bearish trend in the stock

Stock price rise -> plateau -> 2nd rise -> fall -> rise again -> fall and continues to fall

Head and shoulders top

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On a technical analysts trading chart, a pattern that has three peaks

Indicates a market reversal

Head and shoulders

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Reversal of an uptrend

Inverted saucer

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Reversal of a downtrend

Saucer

Indicates that an upward or a downward trend line has halted and the stocks price is moving in the opposite direction

Reversal

Technical analysis term for a narrowing of the trading range for a commodity or security that may be interpreted as a mark indecisiveness Tread line is horizontal

Consolidation

What are 3 common patterns in stock price tread-lines?

1. Consolidations 2. Reversals 3. Support and resistance levels

A tool used by technical analysts to trace a security’s movement by connecting the reactions lows in an upward trend or the rally highs in a downward trend Upward=bullish Downward=bearish

Tread line

A technical analysis tool representing the total of the differences between advances and declines of security prices Considered the best indicator of market movement as a whole Aka: breadth-of-market theory

Advance/Decline Line

The number of issues closing up or down on a specific day Declines outnumber advances=bearish Advances outnumber declines=bullish

Market breadth

Rise through the resistance level

Bullish Breakout

Decline through the support level

Bearish Breakout

Top of trading range

Resistance level

Bottom of trading range

Support level

View changes in the trading volume of a stock to be an important predictor of future price movements

Technical Analysts

Attempts to predict the direction of prices on the basis of historic price and trading volume patterns when laid out graphically on charts

Technical Analysis

Concentrates on broad based economic trends; current business conditions within an industry; and the quality of a particular corporations business, finances and management

Fundamental Analysts

Portfolio managers concentrate an undervalued or out-of-favor securities whose price is low relative to the company’s earnings or book value and whose earnings prospects are believed to be unattractive by investors and securities analysts. Seek to buy undervalued securities before company reports positive earnings. Buy stock at low end of 52 week price range

Value Style

Portfolio managers focus on stocks of companies whose earnings are growing faster than most other stocks and are expected to continue to do so. Likely to buy stocks that are at the high end of the 52 week price range. Buying overvalued stocks

Growth Style

What is the EPS formula if a stocks market price and P/E ratio are known?

Current market price of common stock ➗ P/E ratio

What is the formula for P/E ratio?

Current market price of a common share ➗ EPS

A tool for comparing the prices of different common stocks by dividing the current market price of the stock by the earnings per share

Price to earnings ratio

Helps a fundamental analyst to evaluate a company’s performance without incorporating internet expenses or income tax rates Operating profitability in single measure of success

Earnings before interest and taxes (EBIT)

What are the 3 components of generating cash flow?

1. Operating activities 2. Inverting activities 3. Financing activities

Reports a businesses sources and uses of cash and the beginning and ending values for cash and cash equivalents each year

Statement of cash flow

What is the formula for dividend payout ratio?

Annual dividends per common share ➗ EPS

Measures the proportion of earnings paid to stockholders as dividends

Dividend payout ratio

What is the formula for CY?

Annual dividends per common share ➗ market value per common share

Assumes that all convertible securities, such as warrants and convertible bonds and preferred stock, have been converted into the common

EPS after dilution

What is the formula for EPS?

Earnings available to common ➗ # of shares outstanding

Measures the value of a company’s earnings for each common share

Earnings per share (EPS)

Identifies significant financial and management issues that may affect the company’s overall performance, such as accounting methods used, extraordinary items, pending litigation and management philosophy. Generally found on the bottom of financial statements and is several pages long

Footnotes

A measure of the net worth of each share of common stock. It is calculated by subtracting intangible assets and preferred stock from total net worth, then dividing the result by the number of shares of common outstanding. Aka: net tangible assets per share Similar to NAV

Book value per share

The ratio of total long term debt to total stockholders equity Used to measure leverage

Debt to equity ratio

A company’s ability to use long term debt to increase its return on equity. High ratio of long term debt to equity=highly leveraged. Stockholders benefit if the return on borrowed money exceeds the debt service costs

Financial leverage

A measure of a corporations liquidity, calculated by adding cash, cash equivalents and accounts and notes receivable, but not inventory, and dividing the result by total current liabilities. More stringent test of liquidity

Acid test ratio

What is the formula for current ratio?

Current assets ➗ current liabilities

A measure of a corporations liquidity - that is its ability to transfer assets into cash to meet current short term obligations. It is calculated by dividing total current assets by total current liabilities Higher ratio=more liquid

Current ratio

What is the formula for working capital?

Current assets - current liabilities

What are the 4 elements of capital structure?

1. Long term debt 2. Capital stock 3. Capital in excess of par 4. Retained earnings

Relative amounts of debt and equity that compose a company’s capitalization

Capital structure

Combined sun of a company’s long term debt and equity securities

Capitalization

The amount of a corporations net income that remains after all dividends have been laid to preferred and common stockholders. Aka: surplus

Retained earnings

The amount of money over par value that a company received for issuing the stock in a primary offering. Par value is an arbitrary amount selected when the company is formed

Capital in excess of par

What is the formula for net worth?

Total assets - total liabilities

Stockholders claim on a company’s asset after all its creditors have been paid. Equals total assets less total liabilities Aka: new worth

Shareholder equity

What does an income statement show?

1. What came in 2. What went out 3. How much is left (before taxes)

What are the three primary components of an income statement?

1. Revenue 2. COGS 3. Pretax income

Amount of taxable income Operating income less interest payment expenses

Pretax income

Determined by subtracting COGS and other operating costs (rent and utilities) from sales to arrive at net operating profit. Resulting figure is EBIT

Pretax margin

Costs of labor, material and production (including depreciation on assets employed in production) used to create finished goods. Subtracting this from revenues shows gross operating profit Normally reflects higher costs of more recently purchase inventory

Cost of goods sold (COGS)

Indicate the firms total sales during the period (the money that came in)

Revenues

A financial statement spanning a period showing the accounting profit or loss for the period Judges the efficiency and profitability of a company’s operation

Income statement

Financial obligations due for payment after 12 months Ex: bonds and mortgages

Long term liabilities

A corporations debt obligations due for payment within the next 12 months EX: accounts payable, accrued wages payable and current long term debt

Current liabilities

Represent all financial claims by creditors against the corporations assets

Total liabilities

A property owned that is not physical Ex: formula, copyright or goodwill Generally carry little value to other entities

Intangible assets

A tangible, physical property used in the course of a corporations everyday operations Ex: buildings, equipment, land Cost can be depreciated or deducted from taxable income

Fixed asset

Cash and other assets that may be converted into cash within the next 12 months Ex: cash and equivalents (T-Bills), accounts receivable, inventory and prepaid expenses

Current assets

A financial statement showing the assets, liabilities and shareholders equity at a particular moment. Does not indicate if business is improving or deteriorating Assets appear in order of liquidity

Balance sheet

What is the balance sheet calculation?

Assets- liabilities =equity Or Assets= liabilities + equity

Provide a fundamental analyst with the information needed to assess that corporations profitability, liquidity, financial strength and operating efficiency. Determines how financially viable a company is Companies issue quarterly and annual reports to SEC

Financial statements

The study of the business prospects of an individual company within the context of its industry and overall economy

Fundamental analysis

Extent to which an asset or portfolio return exceeds or falls short of it’s expected return +(positive) = buy recommendation which is desirable

Alpha

Measure of a security or portfolio volatility in relation to the overall market (systematic risk) Beta of 1= moves in line with market Beta > 1 = more volatile than market Beta <1 = less volatile than market Beta = 0 does not move in relation to market

Beta and beta coefficient

Made up of nonsystematic risk and systematic risk

Total risk

Used to calculate the return that an investment should achieve based on the risk that is taken Calculates a required return based on a risk multiplier called the beta coefficient

Capital asset pricing model (CAPM)

Employs a scientific approach to measuring risk, and by extension, to choosing investments. Involves calculating projected returns of various portfolio combinations to identify those that are likely to provide the best returns at different levels of risk Concept of minimizing risk by combining volatile and price stable investments in a single portfolio. Appeals to those with lower risk tolerance Wants securities to have negative correlation

Modern portfolio theory ( MPT)

Refers to short term portfolio adjustments that adjust the portfolio mix between asset classes in consideration of current market conditions An active strategy Ex: fee based accounts

Tactical asset allocation

Refers to the proportion of various types of investments composing a long term investment portfolio A passive strategy

Strategic asset allocation

Refers to the spreading of portfolio funds among different asset classes with different risk and return characteristics based on the investment policy statement Takes into consideration the investors desire for preservation of capital income, capital growth of a combination of both

Asset allocation

A risk management technique that mixes a wide variety of investments within a portfolio, thus minimizing the impact of any one security on overall portfolio performance

Diversification

Unit 13 Flashcards

(93 cards)