Industry Classification Systems
Industry classification attempts to place companies into groups based on commonalities. There are three major approaches to industry classification. Current Industry Classification Systems Commercial Industry Classification Systems Global Industry Classification Standard: developed by Standard & Poor’s and MSCI Barra. Each…
Factors that Affect Sensitivity to Business Cycles
Sensitivity Factors A cyclical company is likely to experience wider-than-average fluctuations in demand, high demand in economic expansion, and low demand in economic contraction. It may be subject to greater-than-average profit variability related to high operating leverage. Non-cyclical companies produce…
Elements Covered in a Thorough Industry Analysis
Thorough industry analysis will often split the industry into strategic groups (groups sharing distinct business models or catering to specific market segments in an industry). The analysis will likely involve identifying the industry’s life-cycle, usually placing the industry somewhere along…
Company’s Cost of Equity
Required rates of return describe the reward investors expect from taking on a given level of risk. Cost of Equity The cost of equity is the minimum return a company must offer to attract investors and keep its share price…
Dividends, Stock Splits, and Share Repurchases
According to the dividend discount model (DDM), the value of an investment should be equal to the present value of the expected future benefits. For common shares, these benefits come in the form of dividends and the expected capital gain…
Dividend Payment Chronology
Dividend chronology describes the timeline for a series of events that take place after a company decides to pay dividends to its shareholders. Included in this chronology are the declaration date, ex-dividend date, record date, and payment date in that…
Measurement of Current and Deferred Tax Items
Current taxes payable or recoverable are determined using the relevant tax rates at the balance sheet date. Deferred taxes, however, are measured at the tax rate that is expected to be applicable when the asset is realized or the liability…
