Tenaja-Sigales_EL5.pdf

Stock Warrants vs. Stock Options LESSON 1 Stock warrant Economy Analysis...

Stock Warrants vs. Stock Options LESSON 1 Stock warrant Economy Analysis ® gives the holder the right to purchase a company's stock at a Factors including while making economy…. specific price and at a specific date. A stock warrant is issued GDP directly by the company concerned; when an investor Interest Rates exercises a stock warrant, the shares that fulfill the obligation Inflation are not received from another investor but directly from the Exchange Rates company. Government Revenue Expenditures Equity Stock Option Company Analysis ® on the other hand, is a contract between two people that FACTORS SHARE VALUE gives the holder the fight, but not the obligation, to buy or Competitive Edge Historical Price of Stock sell a stock at a specific price, prior to a specific date, referred Earnings P/E Ratio to as the contract expiration date Capital Structure Economic Condition Management Stock Market Condition Investment Banking is a type of banking that organizes large, complex Operating Efficiency financial transactions such as mergers or initial public offering (IPO) underwriting. Technical Analysis ® Tries to identify the historical patterns from the chart, based Securities Trading on this he/she is going to forecast the future movement ® Trading is the buying and selling of securities, typically within a short timeframe. Stages in Technical Analysis ® Trading securities are securities purchased by a company for - Collecting Data the purpose of realizing a short-term profit. - Represent in Charts ® Trading securities is a category of securities that includes - Evaluation of historical patterns both debt securities and equity securities, and which an - Forecasting the prices entity intends to sell in the short term for a profit that it expects to generate from increases in the price of the Conclusion: securities Both analysis are very essential to analysis the securities. Fundamental analysis gives good result comparatively to Trading Participants technical analysis - individual and Corporate Members of the Exchange If investor wants to invest his amount on long term bases, immediately prior to demutualization who are granted he got for F. Analysis trading rights. Trading Participants may also be called Then investor may get good amount of return "Members of the Philippine Stock Exchange, Inc." Securities Stock Market-Stock Exchange (Stock Market or Share) ® are shares, participation or interests in a corporation or in a ® the price at which each buying and selling transactions takes commercial enterprise or profit- making venture and is determined by market forces evidenced by a certificate, contract, instruments, whether written or electronic in character: ß Spread is their middle à BID ASK It includes: - Price a buyer is willing to pay - Price a seller is willing to pay a) Shares of stocks, bonds, debentures, notes evidences of for asset for asset indebtedness, asset-backed securities; b) Investment contracts, certificates of interest or participation Types of Securities in a profit-sharing agreement, certifies of deposit for a 1. Shares: Equity Shares; Preference Shares future subscription; 2. Debt: Govn’t Secu; Debentures; Bonds c) Fractional undivided interests in oil, gas or other mineral 3. Derivatives: Options rights; d) Derivatives like option and warrants; Debentures: Long term investment; Doesn’t have Collateral e) Certificates of assignments, certificates of participation, Derivatives: There’s a period of time where the buyer’s obligation to a trust certificates, voting trust certificates or similar certain asset instruments f) Proprietary or nonproprietary membership certificates in Security Analysis Fundamental Analysis corporations; and - Analysis of various tradable - Logical and systematic g) Other instruments as may in the future be determined by financial instruments approach on estimating the the Commission. future dividends and price  LESSON 2: FUNDAMENTAL ANALYSIS SECURITIES REGULATION - provides company’s financial health, competitive position, and future The Securities and Exchange Commission Is the regulatory prospects. This information is valuable for making investment body of PSE & PDEx decisions depending on our preferrable investment (short or long- The International Organization of Securities Commissions is term) an association of organizations that regulate the world's Profit volume ratio (P/E ratio) securities and futures markets. Members are typically Market price primary securities and/or futures regulators in a national Earnings per share (EPS) jurisdiction or the main financial regulator from each Ø It shows how much investors are willing to pay for each country. amount of a company’s earnings. Ø Helps assess whether a stock is overvalued or undervalued Registration of Securities relative to its earnings. CHAPTER Il REGISTRATION OF SECURITIES Overvalued – investors are paying more for the stock than it’s worth. Undervalued – investors are getting a bargain, as the stock is priced Section 8. Requirement of Registration of Securities: - 8.1. Securities below what it’s actually worth. shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commissions. Prior l such sale, information on the Earnings per share (EPS) securities, in such form and with such substance as the Commission Net profit available to Equity Shareholders (NPS) may prescribe, shall be made available to each prospective purchaser. Number of Shareholders Ø It indicates how much profit a company earns for every Investor Protection share it has issued. a) The PSE and Securities and Exchange Commission (SEC) have Ø A higher EPS indicates a more profitable company. put in place several safeguards that promote transparent, Ø Companies with higher EPS are more likely to pay dividends fair, and organized buying and selling of stocks where every to their shareholders. investor, big or small alike, are protected from fraud, Ø EPS can be used to compare the profitability of different manipulative trading practices, and erring stockbrokers. companies within the same industry. Manipulation of Security Prices Example of Technical Analysis includes: Section 24. Manipulation of Security Prices; Devices and Practices. - Date Open price High Low Close 24.I It shall be unlawful for any person acting for himself or through a Price Price Price dealer or broker, directly or indirectly Insider Trading - It would help traders to identify patterns, trends, and potential support or resistance levels that may influence future price - It shall be unlawful for an insider to sell or buy a security of movements. the issuer while in possession of material information with respect to the security or the issuer that is not generally Date – represents the specific day or time when the data point available to the public, unless: (1) The insider proves was recorded. It is essential for tracking price movements over information not gained from such relationship: or (2) If the time. other party selling to or buying from the insider (or his Open Price - This is the price at which the first trade of the day agent) is identified, the insider proves: occurs. It provides a starting point for the day's price action. High Price - This is the highest price reached during the trading a) that he disclosed the information to the other party. period (e.g., a day, week, or month). It indicates the maximum b) that he had reason to believe that the other party otherwise price resistance encountered. is also in possession of the information. Low Price - This is the lowest price reached during the trading period. It indicates the minimum price support level. Tender Offer 19.1.8, "Tender offer" Close Price - This is the final price at which a trade occurs before the market closes. It's often considered the most significant price ® means a publicly announced intention by a person acting point as it reflects the overall sentiment at the end of the trading alone or in concert with other persons (hereinafter referred period. to as "person") to acquire outstanding equity securities of a public company as defined in SRC Rule 3, or outstanding HOW TO ANALYZE STOCKS equity securities of an associate or related company of such Ratio Analysis – involves methods of calculating and interpreting public company which controls the said public company. financial ratios to analyze and interpret a firm’s performance. White Collar Crimes Related to Securities Financial Ratios involve the use of numerical values taken from both - White-collar crime is a nonviolent crime often characterized Income Statement and Balance Sheet. by deceit or concealment to obtain or avoid losing money or property, or to gain a personal or business advantage. 1. Balance Sheet 2. Income Statement 3. Cash Flow Statement 4. Statement of Owner’s Equity LIQUIDITY RATIOS – have enough cash to pay short-term obligation d) Ave. Collection Period – it measures how many days, on average, a company collects its receivables. a) Current Ratio indicates the ability to pay current obligations and measures of adequacy of working capital. Benchmark: 30-60 days Lower the better: means faster collection of the AR Benchmark: Greater than 1; means good short term financial health Higher, the better: bc it has ability to cover short term liabilities e) Fixed Asset Turnover – it measures how effective companies in utilizing fixed assets to generate revenues. b) Quick Ratio – a better measurement of liquidity than Current Ratio for it excludes inventory and other current assets in the computation. Benchmark: 0.2 – 0.5 Higher the better: means efficient use of fixed asset to generate revenue f) Total Assets Turnover – it measures how effective companies Benchmark: Greater than 1 in utilizing total assets to generate revenues. Higher the better: bc it has ability to meet short term obligations c) Cash Ratio – indicates the ability to pay current obligations using only cash and cash equivalents. Benchmark: 0.5 – 2.0 Higher the better: means efficient use of assets to generate sales STABILITY RATIOS - ability to pay long-term obligation & determine the Benchmark: 0.2 to 0.5 or 0.20 to 0.50 equity and the debt of the company Higher the better: Means more cash on hand = greater liquidity a) Debt Ratio – it measures the proportion of total assets financed by creditors EFFICIENCY RATIOS – answers how efficient in using assets to generate sales a) Inventory Turnover – tells how many times a company has Benchmark: 0.3 – 0.7 sold and replaced inventory during a given period. Higher the better b) Debt to Equity – It measures how much debt the company has for every 1 peso of equity. Benchmark: Higher the better: bc inventory is sold and replaced b) Ave. Age of Inventory – It measures how many days, on average, it takes a firm to sell its inventory Benchmark: lower than 1; means more equity than debt. If its greater than 1 means more debt than equity Lower the better: bc low risk and less reliance on debt for financing PROFITABILITY RATIOS – ability to generate earnings Benchmark: 30-60 days Lower the better: bc it has quick inventory turnover a) Net Profit Margin – it indicates the net profitability of each peso sales c) Receivables Turnover – it measures how many times a company collects its receivables in a period Benchmark: Higher the better: means it retains more profit from each peso of revenue Benchmark: 10-20 times per year Higher the Better: means efficient collection of the AR  inflation Financial b) Return on Equity – it measures the rate of return that the statements owners of common stock of a company receive on their The labor market shareholdings Foreign trade Government fiscal and monetary policies Benchmark: 0.1 to 0.2 Higher the better: means generating more profit on each peso of stock equity GDP and GNP – designed to measure economic well being c) Return on Assets – it measures how efficiently a company uses the assets it owns to generate profits. Technical Analysis Ø Focuses on capital markets Ø uses stocks prices, trading volumes, and other market data that tried to discover patterns and Benchmark: 5% - 10% predict future prices Higher the better: means efficient use of assets to generate income Ø Is a forecasting technique that studies how stock prices behave. It assesses past or historical stock MARKET RATIO prices and trading volume so as to predict the future stock price behavior a) Earnings per share – it measures the amount of profit a company earns of each of its outstanding common shares. Technical analyst believe that past pattern of market action will occur in the future and past patterns…. Technical analysis is often called chartists because they spend their time pouring over stock. Benchmark: between 1-3 Higher the better: means higher future growth Lower: Undervaluation of the market and experiencing difficulties Security market – is not focus on stock b) Price/Earnings Ratio – It measures how expensive a FUNDAMENTAL TECHNICAL company’s shares are Objective Investing Trading Data Financial statements Stock chart & economic reports analysis Time Long-term Short-term Benchmark: greater than 1 Horizon Lower the better: means stock is not expensive Focus Quantitative and quali Stock price and c) Book Value Per Share – it is the value of the company’s factors volume assets if it were to be liquidated on a day net of creditors’ Def. Intrinsic Value Future price is claims. calculated base or predicted based economic factors on past price move LESSON 3: TECHNICAL ANALYSIS and pattern on charts Fundamental and Technical Analysis Buy/Sell When price falls When trader sees Two ways of analyzing securities to predict future below (above) a price formation prices. intrinsic value that has high profitability of Fundamental Analysis moving into profit Study how external and internal factors affect the in the future price of a company's securities Types of Usually, long-term Generally, short- Traders traders term traders EXTERNAL INTERNAL Concept Reports expectations Trendlines, GDP & GNP as Prospects for Utilized vs. actual outcomes. support and measures the growth Current news events resistance, dow economy vs. historical events theory, price The business cycle Competition patterns Reasons for Return on equity economic growth Interest rates Factors affecting profitability  TRADING INVESTING Generate short- Build wealth over a term revenue by period of time buying and Companies with selling securities strong fundamental Price of a will perform well in security will move the long run in a particular direction to achieve a target price EL5: SECURITY ANALYSIS 1st Semester Midterm Examination