fundamentals

fundamentals - F u n d a m e n ta l A n a ly s is a n d S...

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1 Fundamental Analysis and Stocks Economics 71a: Spring 2007 Mayo, Chapter 9 Lecture notes 3.3 Why Read or Care? Investment strategies Growth Use accounting numbers to estimate growth Value Compare accounting numbers to price Goals Accounting statements Financial ratios Ratios and valuation Accounting Statements Income statement Balance sheet Statement of retained earnings Statement of cash flows
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2 Income Statement Flow variables Revenues – Cost of goods sold Income Statement Example Sales revenues $50 Cost of goods sold $-25 Advertising/Admininstrative expenses $-2 Depreciation $-5 Interest payments $-1 Taxes $-3 Earnings 50-25-2-5-1-3 = $14 EBIT = Earnings before interest and taxes = 50-25-7 = $18 (operating income) Extraordinary Items: One Time Income and Expenses “Below the line” Should come after other items Part of total earnings Left out of EBIT “core earnings”, “operating earnings” Definitions are blurry on this Examples Lawsuit settlements One time asset sales (patents/real estate) Pension fund adjustments Changing accounting systems
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Income Statement Example Total revenues $50 Cost of goods sold $-25 Advertising + Admin. expenses $-2 Depreciation $-5 Interest payments $-1 Taxes $-3 **Earnings 50-25-2-5-1-3 = $14 (“core earnings”) EBIT = Earnings before interest and taxes = 50-25-7 = $18 (operating income) Lawsuit settlement = $-8 Earnings 50-25-2-5-1-3-8= $6 Balance Sheet Accounting Value of the Firm Assets (things firm owns) Liabilities (Loans) Stockholders equity (Assets - Liabilities) Also called Book value Net worth Assets Cash Accounts receivable Inventories
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This note was uploaded on 01/02/2012 for the course FINANCE 347 taught by Professor Bayou during the Fall '11 term at NYU.

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fundamentals - F u n d a m e n ta l A n a ly s is a n d S...

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