Acct u1 class 1

Stock Price Influences

• Market Dynamics

  • Stock prices are influenced by buyer and seller actions.

  • Companies must release financial reports regularly (8K for quarterly updates, 10K for annual reports).

  • Strong financial performance generally drives stock prices up, while poor performance drives prices down.

• Perception

  • Perception can be a major driving force behind stock prices.

  • Example: Budweiser's share price plummeted not due to operational changes but due to public perception.

  • Indicates that stock prices can be affected as much by public sentiment as by financial performance.

Financial Statements Overview

• Income Statement

  • Contains revenues and expenses.

  • Provides a simplified view of a company's performance over a specific period.

• Statement of Shareholders' Equity

  • Reflects changes in share prices over time including dividends.

  • Shows how equity has changed for shareholders between periods.

• Cash Flow Statement

  • Focuses on cash inflows and outflows, differentiating it from the income statement.

  • Cash flow indicates liquidity based on actual cash transactions as opposed to accounting statements that may include non-cash items.

  • Critical for assessing how successfully a business manages cash.

Analysis Standards

• Intra-Company Analysis

  • Compares performance across various departments within the same company (e.g., comparing Macy's different departments).

• Competitor Analysis

  • Evaluates performance against direct market competitors (e.g., HEB vs. Kroger).

• Industry-Wide Analysis

  • Considers industry benchmarks and comparisons (e.g., sections similar to HEB looking at other stores like Walmart).

• Guidelines Analysis

  • Relies on the external legal framework (i.e., FDA for grocery stores) to ensure companies adhere to necessary regulations.

Financial Analysis Techniques

• Horizontal Analysis

  • Involves comparison of financial data across different time periods.

  • Useful for identifying trends and assessing performance over fiscal years.

  • Dollar Change Calculation: Subtraction of current year figure from previous year.

  • Percent Change Calculation: (Dollar Change / Base Amount) x 100.

• Vertical Analysis

  • Compares line items within the same year as a percentage of a base figure (e.g., total assets or total revenues).

  • Common size analysis: Expressing each line item as a percentage of total assets or total revenues to gauge relative size.

• Ratio Analysis

  • Liquidity Ratios: Measures the ability to meet short-term obligations.

    • Current Ratio: Current Assets / Current Liabilities.

    • Accounts Receivable Turnover: Sales / Average Accounts Receivable.

    • Inventory Turnover: Cost of Goods Sold / Average Inventory.

    • Total Asset Turnover: Sales / Total Assets.

  • Solvency Ratios: Assesses the ability to meet long-term obligations.

    • Debt Ratio: Total Liabilities / Total Assets.

    • Equity Ratio: Total Equity / Total Assets.

    • Debt-to-Equity Ratio: Total Liabilities / Total Equity.

    • Times Interest Earned: EBIT / Interest Expense.

  • Profitability Ratios: Measures the ability to generate profit relative to sales, assets, or equity.