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**preview**shows half of the first page. to view the full**1 pages of the document.**Share Price

EPS:profits/Shares ×P/E ratio: Price/EPs

ROE: Profit/Equity Book Value: Equity/Shares:×

ROA:Profits/Assets Leverage:Assets/Equity×

Profitability: Profits/Sales Turnover: Sales/Assets×

Coverage: Profits/EBIT EBIT/Sales

×

Operating Efficiency

EBIT/Margin

Production Efficiency

Margin/Sale

×

Sales/Cash

Sales/Receivable

Sales/Inventory

Sales/Fixed

Assets

Eqty

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Sales

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EBIT

EBT

EBT

NI

Tax

Burden Interest

Burden EBIT

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Turnover Leverage

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Equity

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Bottom-up approach: firm-specific, work upwards Put Option: rgt to Sell

Top-down approach: analyze economy, then industry, then firm

CAPM: Rf = real RoR + inf…. k = Rf + Rp Fisher eq’n: 1+i = (1+r)(1+inf)

effct mkt take passive approach b/c no active strat beat it on risk-adjusted

value of analyst report depends on: amt of recent info, # of anlyts follwng stock,

degree of consensus, quality of analysts.

Defensive stocks unhurt by bus. cycle downside…TAA: tactical asset allocation

takes advantage of mkt timing skills (ST dev from LT asst mixes)

Technical Analysis: unconcerned w/ underlying econ vars affting firms/mkt

GDP = G+C + I + (X – M) = Gov’t Spnd + Consmr Spend + bus Invst + (Cdn Ex– Im)

Normal unemplymt frictional; structural unemp natural umemp rate; cyclical

Bus Cyc: expansion = durabls, peak=nat resurce+energy, contrctin=defensive ind,

trough=cap gds…”soft landing”=econ growth slows but not neg…leading ind:

stocks,money supp, wrk week, sales of consumer durables…extreme times, econ

lead mkt, otrwise,mkt lead

Coincident + lagging indicators…interest rate determinants: inf rate, xchg rate,

gov’t deficits, BoC, default risk of the borrower…

CERI =Cdn effect. xchg rte index is trade-weighted msre of xchg rte

P/E tends to b high whn inf and int rates are low

NAICS=NA Indust Classif Syst, SIC=Std Indus clas11divs, lgr digits, more spfc

Pionerng stg(most risk), expns stg (hi invmt funds, strt divs), stablztn (avd if desire

cap gains), dclng (new prds, low ror)

4 crucial factors asing ind: Historicals, compttin, gov’t, strctl chng

Cyclical ind=most affctd by recessn…

CICA and FASB create acctng stdrds in CA and USA

P0/E1 = (D1/E1)/(k-g)…k = firm’s bond yield + equity-bond risk premium

=ROA*TA/eqtyLeverage

=ROE

g = ROE * (1 – payout ratio)…(1-payout ratio) = retention ratio = b

Cum Wealth Ind CWIn=

TRn = (CWIn/CWIn-1) - 1

Int’l Rtrns: TR in domestic currency =

TR, RR, CWI only good for single time period…

For several periods use arithmetic or geometric means

Geo = diff b/w geo & arith:

Adjust for inf: TRia = [(1+TR)/(1+CPI)] – 1 OR CWIia = CWI/CIinf

CI = (1 + GM of inflation rate)^n

Sources of Risk: Int, Mkt, Inf, Busi, Finan, Liq, Xchg, Country

Std Dev “Equity Risk Prem” and “Bond Default Prem”

ERP=[(1+TR)/(1+RF)] – 1

Variance:

n-asset case:

2-asset case:

Covariance: i

Corr Coeff:

Single-Index Model: TRit = αi + βi TRMt + εit unique risk and market risk

MVP: Wa =

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2

Port theory asptns: single invt per, liqdty, inv pref only based on exp risk and return

Cap Alloc Line (CAL): slope: 2nd term

CAL w/ leverage: proportion to be borrowed at Rf is stated as negative; wRF + (1 –

wRF) = 1

E(Rp) = wRF(RF) + (1-wRF)*E(Rt) std devp = (1-wRF)*stddevt

Exp Utility Fcn: find the sub/pd

The greater the slope of indiff curve, the greater the risk aversion…the higher the

indiff curve, the better

Sep Theorem: tailoring portfolio to client inappropriate – all investors should hold

same portfolio of risky assets & move up and down the risk-return line through

borrowing/lending the decision of which portfolio of risky assets to hold is

separate from the financing decision (how to allocate funds b/w RF and risky assets)

Total Asset Turnover = Sales/Total Assets Lev=Assets/SE

Profit Margin = Net Income/Sales Gross Margin = gross profit/sales

Equity Multiplier = Total Asts/Total Equity ROA=NI/Assets

ROE = Turnover x Profit Margin x Equity Multiplier Quick ratio=quick assts/CL

inv TO ratio = total COGS/avg inventory ROS=EBIT/sales NAV=asts – liab

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