V. STOCKS

G. The Value of a Stock (Continued) c.If the company is out of favor with investors, has serious management problems, or is losing market share, price can fall quickly d.Moving Average – shows the overall trend in a stock’s price, smoothing day to day variations – the moving average rolls over time – takes into account different beginning and ending periods every day

G. The Value of a Stock (Continued)

e.Circuit Breakers – measures instituted by major exchanges to prevent rapidly compounding market losses i.If 10%, trading halted for 1 hour if before 2 P.M., 30 minutes between 2:00 and 2:30, no impact after 2:30 ii.If 20%, trading halted for 2 hours until 1 P.M., 1 hour between 1:00 and 2:00 P.M., market closes if 2:00 or after iii.If 30%, market closes for the day

H. Market Cycles PositiveNegative Money Supply:AmpleTight Taxes:Tax Cuts Tax Increases Interest Rates:LowHigh Unemployment Rate:LowHigh Geopolitical Factors:StableElections, Wars, Instability

I. Fundamental Analysis Defined as an evaluation of a company’s financial strength and prospects for future projects 1.Income Statement – shows corporate receipts and expenditures over a period of time a.Types of Income Statements i.Audited – created by an outside auditor or firm – required for SEC form 10-k (corporate annual report) ii.Pro forma – prepared by the corporation internally – required for SEC form 10-q (corporate quarterly report)

I. Fundamental Analysis (Continued) b.Components of the Income Statement i.Total Revenue = gross receipts, total received from operations ii.Cost of Revenue = cost of goods sold, direct costs for components of the product iii.Gross Profit = revenues less cost of revenues iv.Operating Expense = costs related to production of product or services v.Operating Income or Loss = profits generated by sales, net of cost of goods sold and operating expense vi.Earnings Before Interest, Taxes, Depreciation, and Amortization = income generated by operations before accounting adjustments (Also known as Net Income) vii.Operating Free Cash Flow = calculated by subtracting all cash expenses from all sources of operating revenue

I. Fundamental Analysis (Continued) 2.Balance Sheet a.A “snapshot” of corporate assets and liabilities at a particular time b.Components of the Balance Sheet i.Current Assets – items owned by a corporation that can be readily turned into cash ii.Current Liabilities – short term debt iii.Common Stock & Retained Earnings – accumulated profits allocated to shareholders iv.Treasury Stock – a negative number indicates a stock buy back – increases per share earnings and potentially stock price

I. Fundamental Analysis (Continued) 3.Statement of Cash Flows a.Measures cash generated or consumed by a corporation b.Components i.Cash flows provided by or used in operations – shows whether core operations are generating or consuming cash ii.Cash flows provided by or used in capital expenditures – shows whether a firm is investing in its business iii.Cash flows provided by or used in financing – can show a company’s ability to raise capital or whether capital is being used by financing activities (stock buy backs, paying off debt) iv.Change in cash and cash equivalents – total effect – whether the corporation is generating or consuming cash (firm’s liquidity)

I. Fundamental Analysis (Continued) 4.Other Definitions a.Market Capitalization – Total number of shares outstanding multiplied by price per share b.Net Income – EBITDA c.Dilution – Issue of additional shares by a corporation can drive share prices down

I. Fundamental Analysis (Continued) Source for Statements: EdgarEdgar Sample Statements: i Robot Form 10Qi Robot Form 10Q