Asset Management - Technical
Value Investing - answer Investing in stocks that are undervalued in the market but
have high potential for the future
Growth Investing - answer A strategy whereby an investor seeks out stocks with what
they deem good growth potential
Value Stock Traits - answer- Low price
- low P/E Ratio
- Lagging share price compared to similar companies
- Low price/earnings growth rate (P/E ratio divided by projected growth rate)
- High dividend yield
- Low market to book ratio
- risk of not appreciating as much
Growth Stock Traits - answer- overvalued price
- High P/E Ratio
- Low or no dividends
- Has the risk of high volatility
Free Cash Flow (FCF) - answer- the amount of cash that could be withdrawn without
harming a firm's ability to operate and to produce future cash flows.
-
free cash flow formula - answernet cash provided by operating activities - capital
expenditures - cash dividends
Difference between Net Income and FCF - answer- Net income is a key metric of
profitability and is a major driver of stock prices and bond valuations.
- Cash flows from operating activities makes adjustments to net income and excludes
non-cash items like depreciation and amortization, which can misrepresent a company's
actual financial position
3 Important Ratios in Valuing a Stock - answerP/E Ratio, P/B Ratio, EPS
P/E Ratio (Price Earnings Ratio) - answerStock Price/Total Earnings of company
P/B Ratio - answer- The price per share of a stock divided by its book value (net worth)
per share.
- For a stock portfolio, the ratio is the weighted average price-to-book ratio of the stocks
it holds.
Value Investing - answer Investing in stocks that are undervalued in the market but
have high potential for the future
Growth Investing - answer A strategy whereby an investor seeks out stocks with what
they deem good growth potential
Value Stock Traits - answer- Low price
- low P/E Ratio
- Lagging share price compared to similar companies
- Low price/earnings growth rate (P/E ratio divided by projected growth rate)
- High dividend yield
- Low market to book ratio
- risk of not appreciating as much
Growth Stock Traits - answer- overvalued price
- High P/E Ratio
- Low or no dividends
- Has the risk of high volatility
Free Cash Flow (FCF) - answer- the amount of cash that could be withdrawn without
harming a firm's ability to operate and to produce future cash flows.
-
free cash flow formula - answernet cash provided by operating activities - capital
expenditures - cash dividends
Difference between Net Income and FCF - answer- Net income is a key metric of
profitability and is a major driver of stock prices and bond valuations.
- Cash flows from operating activities makes adjustments to net income and excludes
non-cash items like depreciation and amortization, which can misrepresent a company's
actual financial position
3 Important Ratios in Valuing a Stock - answerP/E Ratio, P/B Ratio, EPS
P/E Ratio (Price Earnings Ratio) - answerStock Price/Total Earnings of company
P/B Ratio - answer- The price per share of a stock divided by its book value (net worth)
per share.
- For a stock portfolio, the ratio is the weighted average price-to-book ratio of the stocks
it holds.
