09 - Security Analysis
The analysis of determinants of firm value (prospects for earnings and dividends).
The rate at which domestic currency can be converted into foreign currency.
Gross Domestic Product (GDP)
The market value of goods and services produced over a period of time.
The ratio of the number of people classified as unemployed to the total labour force.
The amount by which government spending exceeds government revenues.
An event that affects the demand for goods and services in the economy.
An event that influences production capacity and costs in the economy.
The use of government spending and taxation for the specific purpose of stabilising the economy.
Actions taken by the RBA to influence the money supply or interest rates.
Peak - transition point between expansion and contraction.
Trough - transition point between recession and recovery.
Industries with above average sensitivity to the state of the economy.
Industries with below average sensitivity to the state of the economy.
Leading Economic Factors
Economic series that tend to rise or fall in advance of the rest of the economy.
Global Industry Classification Standard (GICS Codes)
Classification of firms using numerical codes to identify sectors and industries they belong to.
An investment strategy that entails shifting the portfolio into industry sectors that are expected to outperform others based on macroeconomic forecasts.
Industry Life Cycle
Stages through which firms typically pass as they mature.
Start-up (Rapid and increasing growth)
Consolidation (Stable growth)
Maturity (Slowing growth)
Relative Decline (Minimal or negative growth)
A financial statement showing a firm's revenues and expenses during a specified period.
An accounting statement of a firm's financial position at a specified time.
Statement of Cash Flows
A financial statement showing a firm;s cash receipts and cash payments during a specified period.
Return on Equity (ROE)
The ratio of net profits to common equity.
Return on Assets (ROA)
Earnings before interest and taxes divided by total assets.
Decomposition of profitability measures into component ratios.
Profit Margin (Return on Sales)
The ratio of operating profits per dollar of sales.
(EBIT / sales)
Total Asset Turnover (ATO)
The annual sales generated by each dollar of assets.
(sales / assets)
Interest Coverage Ratio (Times Interest Earned)
EBIT / Interest Expense
Measure of debt to total capitalisation of a firm.
1 + (debt / equity)
Cost of goods sold / average inventory
Average Collection Period (Days Receivables)
Accounts receivables per dollar of daily sales.
(average accounts receivables / sales) x 365
Current assets / current liabilities
Quick (Acid Test) Ratio
(cash + marketable securities + receivables) / current liabilities
(cash + marketable securities) / current liabilities
Market-to-book Value Ratio
Market price of a share / book value per share
Price Earnings (P/E) Ratio
Market price / earnings
Earnings / Price
Economic Value Added (Residual Income)
A measure of the dollar value of a firm's return in excess of its opportunity cost.
International Financing Reporting Standards
A principles-based set of accounting rules adopted by around 100 countries (including European Union).
Fair Value (Mark-to-market) Accounting
Use of current market values rather than historic cost in the firm's financial statements.
Quality of Earnings
The realism and sustainability of reported earnings.
The real flow of cash that a firm could pay out without impairing its productive capacity.
Earnings of a firm as reported on its income statement.
09 - Security Analysis
221 - Analysis