Types of Equity Securities
Unlike debt securities, equity securities do no impose an obligation on the issuer to repay the amount financed. Instead, shareholders act as owners of a company with a claim on the company’s net assets and expect that management will act…
Public vs. Private Equity Securities
Investment Characteristics: Public Equity Securities: Practice Equity Securities Questions with Our Free Trial. Private Equity Securities: Start Free Trial → Master CFA Level I Equity concepts, including public and private equity, ownership structures, market characteristics, and investment considerations with study…
Risk and Return of Equity Securities
The type of security and its features affect its risk/return profile. Therefore, as an investor’s risk increases, its expected return should also increase to compensate. Equity Return Characteristics There are two main sources of total return for equity securities –…
Role of Equity Securities
Companies issue equity securities in the primary markets to raise capital and increase liquidity. Having public shares also gives the company another currency to make acquisitions with or incentivize employees. Raising capital aims to maximize shareholder wealth, which may be…
Market Value vs. Book Value of Equity Securities
The book value of a company’s equity reflects the historical operating and financing decisions of its management. The market value of the company’s equity reflects these decisions as well as investors’ collective assessment and expectations about the company’s future cash…
Industry Analysis
Effective industry analysis helps to provide a framework for company analysis. Uses of Industry Analysis Start Free Trial → Master CFA Level I Equity concepts, including industry analysis, competitive forces, industry cycles, and investment evaluation with study notes, practice questions,…
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 Practice Industry Classification Questions with Our Free Trial. Description of Representative Sectors Basic…
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…
Peer Group for Equity Valuation
A company’s industry classification is useful as a starting point for identifying a company’s peer group. While some comparable companies are likely to exist within the same industry group, others will likely require significant adjustments before comparison or compete in…
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…
