INVESTMENT
0.0 / 5
- Created by: amit chauhan
- Created on: 24-04-14 15:34
ROCE formula
EBIT/ CAPTIAL EMPLOYED (earnings before intrest and tax)
1 of 90
RETURN ON EQUITY
PROFIT AFTER TAX/ordinary shareholders funds
2 of 90
GROSS PROFIT
SALES - cost of goods
3 of 90
NET PROFIT
GROSS PROFIT - (Expenses intrest tax )
4 of 90
APT
RJ=Rf+bj1(r1-rf) + bj2 (r2-rf)
5 of 90
CAPM - captial asset pricing model
RJ= RF+BJ (rm-rf)
6 of 90
what is rm-rf
Risk premium
7 of 90
what is rj
rate of return
8 of 90
what is RM
market rate of return
9 of 90
What is BJ in the capm model
BETA - Systematic risk
10 of 90
what are the assumptions in the CAPM MODEL
no inflations, risk free rate, no transaction costs
11 of 90
what does capm show?
the return you can make on an investment
12 of 90
what does APT sand for
ARITRAGE PRICING THEORY
13 of 90
what is the EMH PARADOX
Market should be inefficient for it to be efficicent
14 of 90
what is the linear relationship in capm represented by
SML ( security market line)
15 of 90
what relationship does the SML SHOW?
the risk between systematic risq and the return rate
16 of 90
what is systematic risk measured by
BETA
17 of 90
what are the three forms of efficiency
Weak form, semi strong form and stong form
18 of 90
what is weak form efficiency
share prices are reflected from past price movements
19 of 90
what is semi strong form
where share prices are relected from past movements and public infomation
20 of 90
what is strong form?
share prices are based on public and private infomation held - open to everyone
21 of 90
what is the random walk theory
where by it demonstrates there is no pattern or correlation on share prices and that it is random
22 of 90
what is a test for semi strong form?
look at speed and accuracy of share price movements
23 of 90
Test for strong efficiency?
tested indirectly - i.e comparing returns of fund managers with market return
24 of 90
what did emperical evidence show regarding emh
that uk and us stock markets are semi strong efficient
25 of 90
what are the implications for ivestors of emh
that their is no bargains and research is pointless
26 of 90
implications of emh for companies
that they cant hide company value as share price demonstates this
27 of 90
what is systematic risk
things such as natural disasters that will cause a decline in the marekets
28 of 90
provide examples of a systematic risk
recessions , terrorist attacks , polictical , turmoil
29 of 90
What is beta?
a measure ov volatilty of systematic risk
30 of 90
A beta of 1 indicates what?
that the security will be less volatile
31 of 90
a high beta shows what...
that they may be a higher return rate - however risk may be high
32 of 90
what can affect a market
the number of investors, more infomation
33 of 90
what can affect share prices within a company
employing more people/redundancies, profits and losses , dividends being paid , company takeover, balance sheets, fradualent activity
34 of 90
what can affect a share price out of a company?
intrest rates, reducuing, raw materials cost increasing, inflation - higher prices , new products of a competitor
35 of 90
what is unsystematic risk
company hazard that can be inherent in an investment
36 of 90
examples of unsystmatic risk?
management change, a product recall
37 of 90
provide a real life example of a unsystematic risk
airline employees going on strike affecting airline stock prices
38 of 90
how can unsystematic risk be reduced
by diversifying portofolio
39 of 90
what are disadvantages of APT
takes more time, harder to apply, complicated calculations
40 of 90
benefits of apt
more customiasble, allows more than one systematic risk
41 of 90
disadvantages of capm
allows only one beta
42 of 90
advantages of capm
quicker and relates to share price
43 of 90
what are the limitations of ratios
not a science - additional research is important - can depend on assumptions
44 of 90
what is debtor days =
represents debts outstanding at the end of a financial period
45 of 90
define stock turnover =
how quickly goods move in and out
46 of 90
ACID test formula
liquid assets/current liabilites
47 of 90
current ratio formula
current assets/current liability
48 of 90
price cash flow ratio - useful measure of cash
shareprice/ebitda per share ebitda earning before intrest and tax deprciation ad amortalisation
49 of 90
price to sale ratio
share price/sales per sahre
50 of 90
DIVIDEND COVER
earnings per share/dividends per share
51 of 90
what does dividend cover ratio show?
measures the number of times the dividend could be paid from this years earnings, higher the dividend the safer
52 of 90
what does the dividend yield do?
measures cash return
53 of 90
dividend yeild formula?
dividend per share / market price per share
54 of 90
p.e ratio
mvps/eps = market value per share/earning per share
55 of 90
strategies - buy and hold - define
investor buys stocks and holds them for a long time period - regardless of price fluctations - investor is not intrested in short term movements -
56 of 90
in and out strategy
investors use this to take affect of short term fluctations - more used by day traders who are less intrested in long term growth- can be riskier relies on rapid change for profit growth
57 of 90
portofolio insurance
a method of hedging a portofolio of stocks against the arket risk by short selling stock figures
58 of 90
what people look for when investing in small companies
Growth opportunities, skillfull management teams, solid bance sheets, ability to generate cash flow
59 of 90
what shows the peformance of the uk's largest companies
FTSE 100
60 of 90
what is the drip feeding technique
drip feed money into investments everymonth helps remove risk
61 of 90
things to consider when investing in a company
focus on high quality companies that can sustain current dividends or raise them- such as market leaders with strong brand names
62 of 90
why diversify portofolio
a divirsified global portoflio can potetially limit portofolio volaltity
63 of 90
what is a rewarding stategy that can be implemented when buying shares
reinvesting income recieved
64 of 90
what is growth investing * Investment strategy*
growth investors look for companies that are growing and will grow quickly, they are not intrested in price earning ratio's as they expect the company to grow quickly which will reduce future p.e ratios
65 of 90
what are the characterisitics of a growth investor ?
ignore the fundamentals, paying more than a value investor would, hoping earning growth will justify their price - high risk
66 of 90
what is value investing *investment strategy*
where investors try to find companies that represent good value, i.e low p.e ratios may be low compared to similar countries
67 of 90
what is the theory behind value investing
that companies are currently out of favour so will have low prices but will arise
68 of 90
what are people called who typically implement value investing?
fundamentalists - as they are only intrested in the fundamentals of a company
69 of 90
states 5 different types of risk other than systematic and unsystamtic
country risk - exchange risk - intrest rate risk - political risk - market risk
70 of 90
what is Bear market
a drop of 20% in the market average of shares - happens during recessions
71 of 90
how can people profit from bear marketing
short selling
72 of 90
what are bull markets
when security prices rise faster than the average rate.
73 of 90
what is the most risky thing to with stock
hold it when has a postive correlation
74 of 90
risk is reduced when
not perfectly correlated
75 of 90
what is the filter rule
rules that are set to buy and sell investments - based on percentage change in previous prices -
76 of 90
define stop loss strategy
designed to limit investors loss in a security- used for short term selling -
77 of 90
when may a ideal time to use stop loss strategy be
on vacation or when away from monitoring prices
78 of 90
define market timing strategy
attempting to predict the future direction of the market - via economical data - can be dificult
79 of 90
define buy and hold strategy
buy stocks and hold them for long time periods regardless of fluctations - tends to be long term investment
80 of 90
active investing - define it
active investors purcahse investments continously whilst monitoring activity in order to exploit profitable conidtions - i.e looking at price movements - short term profits
81 of 90
passive investing -definition
investing in long term - similar to buy and hold - requires good research and patience and diversified porofolio
82 of 90
top down m- strategy -
looks at bigger picture in economoy (macroeconomics)- such as geography sector size - bigger picture looked at before detail -
83 of 90
why does top down compliment bottoms up
because it provides different persepective and provides diversification
84 of 90
bottoms up definition - strategy
focuses on detail rather than the big picture - assumes indivual companies can do well in an industry that is not peforming well
85 of 90
risk free assets
asset with a future retrun i.e treasurie bill - ecample in the u.s - risk free/low risk
86 of 90
why choose a risk free asset in your portofolio
reduces overall risk in a portofolio
87 of 90
when do risk free assets come in handy?
when demand is volatile and at a high risk with periods uncertainty
88 of 90
what are the risks that are assoicated with risk free assets ?
inflation risk - may offer no growth above the inflation rate
89 of 90
another risk?
income risk- income they provide may fall short
90 of 90
Other cards in this set
Card 2
Front
RETURN ON EQUITY
Back
PROFIT AFTER TAX/ordinary shareholders funds
Card 3
Front
GROSS PROFIT
Back
Card 4
Front
NET PROFIT
Back
Card 5
Front
APT
Back
Related discussions on The Student Room
- Unveiling the Realm of Investment Banking »
- Degree apprenticeships »
- Just Hit £30,000 Net Worth at 21 Years Old, AMA! »
- Help »
- How do i invest in stocks and btc »
- Where to go for investment advice? »
- History degree to become an investment banker? »
- Should I make a Stocks and Shares ISA now? »
- Is there any point investing if you can only afford a small amount »
- Compounding and projected value »
Similar Business Management resources:
0.0 / 5
0.0 / 5
0.0 / 5
0.0 / 5
0.0 / 5
0.0 / 5
4.0 / 5 based on 2 ratings
Comments
Report
Report
Report