Overview of Capital Markets

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Overview of Capital Markets

• I-What are Stocks?
• II-How does the Stock market work?
• III-Market Indices
• IV -How to read a Stock Table
• V-Financial Statements

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I-What are Stocks?

• A) Definition
• Share in the Ownership of a Company
• Claim in the companys assets and earnings
• One vote per share to elect board members

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I-What are Stocks?

• B) Stocks vs. Bonds
• Bonds guaranteed return on your money
• Stock no guaranty
• Bondholders have absolute priority over company's
  assets
• C) Risk Return Relationship
• Investments with greater risk require a greater
  return

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II-How the Stock market works

• Role of the market is to facilitate exchange
  between buyers and sellers
• 2 types of exchanges physical(NYSE), virtual
  (NASDAQ)
• NYSE Place and order through your broker, firm
  send order to the floor, which goes to a
  specialist.
• Price determined through an auction
• NASDAQ An Over The Counter market no central
  location, trade done through network of dealers

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II-How the Stock market works

• Amex Small Cap and derivatives
• Over the counter bulletin board (OTCBB)
• Small public companies that dont meet the
  listing requirements of any of the regulated
  markets, including the NASDAQ. Home penny stocks

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III-Market Indices

• An index is a statistical measure of the changes
  in a portfolio of stocks representing a portion
  of the overall market
• A) Dow Jones Industrial Average(DJIA)
• 30 of the largest companies in the U.S.
• Price based weighting
• There are over 10,000 companies in the U.S.

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III-Market Indices

• B) The Standard and Poors 500 index
• Not the 500 largest companies, but rather the 500
  most widely held companies with respect to market
  size, liquidity, and industry
• Market Cap weighted index
• Accounts for 70 of the U.S. market
• The top 45 companies comprise more than 50 of
  the index value

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Other Indexes

• The Nasdaq Composite index
• The Wilshire 5000 total market All NYSE stocks
  and most Amex and Nasdaq. Over 6500 companies
• Russell 2000 2000 small cap companies

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How to Read a Stock Table
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Overview of Financial Statements

• Balance Sheet
• Income Statement
• Statement of Cash Flows

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Balance Sheet

• Highlights the financial condition of a company
  at a single point in time. This is important, the
  cash flow and income statements record
  performance over a period of time, while the
  balance sheet is a snapshot in time
• It lists all of the assets held by a company in
  addition to the portion of those assets that are
  financed by debt (liabilities) or equity
  (retained earnings and stock)

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Income Statement

• Tells you how much money a company brought in
  (its revenues), how much it spent (its expenses),
  and the difference between the two (its
  profit/loss), over a specified time
• Includes figures figures such as revenue, net
  income, and earnings per share (EPS)

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Statement of Cash Flow

• Similar to the income statement
• However, the income statement also takes into
  account some non-cash accounting items such as
  depreciation
• The cash-flow statement strips away all of this
  and tells you how much actual money the company
  has generated
• Cash flow shows us how the company has performed
  in managing inflows and outflows of cash. It
  provides a sharper picture of the company's
  ability to pay bills, creditors, and finance
  growth

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On Valuation

• Fundamental Analysis A method of evaluating
  securities by attempting to measure the intrinsic
  value of a particular stock. Fundamental analysts
  study everything from the overall economy and
  industry conditions, to the financial condition
  and management of companies
• Technical Analysis A method of evaluating
  securities by analyzing statistics generated by
  market activity, such as past prices and volume.
  Technical analysts do not attempt to measure a
  security's intrinsic value. Technical analysts
  often use charts to identify patterns that can
  suggest future activity

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Appendix 1

• Columns 1 2 52-Week Hi and Low - These are the
  highest and lowest prices at which a stock has
  traded over the previous 52 weeks (one year).
  This typically does not include the previous
  day's trading. Column 3 Company Name Type of
  Stock - This column lists the name of the
  company. If there are no special symbols or
  letters following the name, it is common stock.
  Different symbols imply different classes of
  shares. For example, "pf" means the shares are
  preferred stock. Column 4 Ticker Symbol - This
  is the unique alphabetic name which identifies
  the stock. If you watch financial TV, you have
  seen the ticker tape move across the screen,
  quoting the latest prices alongside this symbol.
  If you are looking for stock quotes online, you
  always search for a company by the ticker symbol.
  If you don't know what a particular company's
  ticker is you can search for it at
  http//finance.yahoo.com/l.Column 5 Dividend
  Per Share - This indicates the annual dividend
  payment per share. If this space is blank, the
  company does not currently pay out
  dividends.Column 6 Dividend Yield - The
  percentage return on the dividend. Calculated as
  annual dividends per share divided by price per
  share. Column 7 Price/Earnings Ratio - This is
  calculated by dividing the current stock price by
  earnings per share from the last four quarters.
  For more detail on how to interpret this, see our
  P/E Ratio tutorial.

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Appendix 1 cont

• Column 8 Trading Volume - This figure shows the
  total number of shares traded for the day, listed
  in hundreds. To get the actual number traded, add
  "00" to the end of the number listed. Column 9
  10 Day High Low - This indicates the price
  range at which the stock has traded at throughout
  the day. In other words, these are the maximum
  and the minimum prices that people have paid for
  the stock.Column 11 Close - The close is the
  last trading price recorded when the market
  closed on the day. If the closing price is up or
  down more than 5 than the previous day's close,
  the entire listing for that stock is bold-faced.
  Keep in mind, you are not guaranteed to get this
  price if you buy the stock the next day because
  the price is constantly changing (even after the
  exchange is closed for the day). The close is
  merely an indicator of past performance and
  except in extreme circumstances serves as a
  ballpark of what you should expect to
  pay.Column 12 Net Change - This is the dollar
  value change in the stock price from the previous
  day's closing price. When you hear about a stock
  being "up for the day," it means the net change
  was positive.