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Flashcard 1428184501516

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#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4

Question

A rise in price typically results in a greater quantity supplied, and viceversa. Hence, the supply curve has a positive slope, in contrast to the negative slope of a demand curve. This positive relationship is often referred to as [...]

Answer

the law of supply .

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ults in a greater quantity supplied, and a lower price results in a lower quantity supplied. Hence, the supply curve has a positive slope, in contrast to the negative slope of a demand curve. This positive relationship is often referred to as the law of supply .<body><html>

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3.3. The Supply Function and the Supply Curve
ek. The increase in price has enticed the seller to supply a greater quantity of gasoline per week than at the lower price. 3.4. Changes in Supply vs. Movements along the Supply Curve As we saw earlier, a change in the (own) price of a product causes a change in the quantity of that good willingly supplied. A rise in price typically results in a greater quantity supplied, and a lower price results in a lower quantity supplied. Hence, the supply curve has a positive slope, in contrast to the negative slope of a demand curve. This positive relationship is often referred to as the law of supply . What happens when a variable other than own-price takes on different values? We could answer this question in our example by assuming a different value for wage rate, say,

Flashcard 1438918249740

Tags

#cfa #cfa-level-1 #economic-and-normal-profit #economics #microeconomics #reading-15-demand-and-supply-analysis-the-firm #section-2-objectives-of-the-firm #study-session-4

Question

Economic profit for a firm can originate from sources such as:

exclusive access to [...];

Answer

less-expensive inputs

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#13; competitive advantage; exceptional managerial efficiency or skill; difficult to copy technology or innovation (e.g., patents, trademarks, and copyrights); exclusive access to less-expensive inputs; fixed supply of an output, commodity, or resource; preferential treatment under governmental policy; large increases in demand where sup

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2. OBJECTIVES OF THE FIRM
00 – $48,000,000 = $2,000,000. Note that total accounting costs in either case include interest expense—which represents the return required by suppliers of debt capital—because interest expense is an explicit cost. 2.1.2. Economic Profit and Normal Profit Economic profit (also known as abnormal profit or supernormal profit ) may be defined broadly as accounting profit less the implicit opportunity costs not included in total accounting costs. Equation (3a) Economic profit = Accounting profit – Total implicit opportunity costs We can define a term, economic cost , equal to the sum of total accounting costs and implicit opportunity costs. Economic profit is therefore equivalently defined as: Equation (3b) Economic profit = Total revenue – Total economic costs For publicly traded corporations, the focus of investment analysts’ work, the cost of equity capital is the largest and most readily identified implicit opportunity cost omitted in calculating total accounting cost. Consequently, economic profit can be defined for publicly traded corporations as accounting profit less the required return on equity capital. Examples will make these concepts clearer. Consider the start-up company for which we calculated an accounting profit of €300,000 and suppose that the entrepreneurial executive who launched the start-up took a salary reduction of €100,000 per year relative to the job he left. That €100,000 is an opportunity cost of involving him in running the start-up. Besides labor, financial capital is a resource. Suppose that the executive, as sole owner, makes an investment of €1,500,000 to launch the enterprise and that he might otherwise expect to earn €200,000 per year on that amount in a similar risk investment. Total implicit opportunity costs are €100,000 + €200,000 = €300,000 per year and economic profit is zero: €300,000 – €300,000 = €0. For the publicly traded corporation, we consider the cost of equity capital as the only implicit opportunity cost identifiable. Suppose that equity investment is $18,750,000 and shareholders’ required rate of return is 8 percent so that the dollar cost of equity capital is $1,500,000. Economic profit for the publicly traded corporation is therefore $2,000,000 (accounting profit) less $1,500,000 (cost of equity capital) or $500,000. For the start-up company, economic profit was zero. Total economic costs were just covered by revenues and the company was not earning a euro more nor less than the amount that meets the opportunity costs of the resources used in the business. Economists would say the company was earning a normal profit (economic profit of zero). In simple terms, normal profit is the level of accounting profit needed to just cover the implicit opportunity costs ignored in accounting costs. For the publicly traded corporation, normal profit was $1,500,000: normal profit can be taken to be the cost of equity capital (in money terms) for such a company or the dollar return required on an equal investment by equity holders in an equivalently risky alternative investment opportunity. The publicly traded corporation actually earned $500,000 in excess of normal profit, which should be reflected in the common shares’ market price. Thus, the following expression links accounting profit to economic profit and normal profit: Equation (4) Accounting profit = Economic profit + Normal profit When accounting profit equals normal profit, economic profit is zero. Further, when accounting profit is greater than normal profit, economic profit is positive; and when accounting profit is less than normal profit, economic profit is negative (the firm has an economic loss ). Economic profit for a firm can originate from sources such as: competitive advantage; exceptional managerial efficiency or skill; difficult to copy technology or innovation (e.g., patents, trademarks, and copyrights); exclusive access to less-expensive inputs; fixed supply of an output, commodity, or resource; preferential treatment under governmental policy; large increases in demand where supply is unable to respond fully over time; exertion of monopoly power (price control) in the market; and market barriers to entry that limit competition. Any of the above factors may lead the firm to have positive net present value investment (NPV) opportunities. Access to positive NPV opportunities and therefore profit in excess of normal profits in the short run may or may not exist in the long run, depending on the potential strength of competition. In highly competitive market situations, firms tend to earn the normal profit level over time because ease of market entry allows for other competing firms to compete away any economic profit over the long run. Economic profit that exists over the long run is usually found where competitive conditions persistently are less than perfect in the market. 2.1.3. Economic Rent The surplus value known as economic rent results when a particular resource or good is fixed in supply (with a vertical su

Flashcard 1478494391564

Tags

#cfa-level-1 #reading-25-understanding-income-statement

Question

For [...] companies, interest expense would be included in operating expenses and subtracted in arriving at operating profit because it relates to the operating activities for such companies.

Answer

financial

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For financial companies, interest expense would be included in operating expenses and subtracted in arriving at operating profit because it relates to the operating activities for such companies.</sp

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2. COMPONENTS AND FORMAT OF THE INCOME STATEMENT
dministrative, and research and development expenses from gross profit. Operating profit reflects a company’s profits on its usual business activities before deducting taxes, and for non-financial companies, before deducting interest expense. For financial companies, interest expense would be included in operating expenses and subtracted in arriving at operating profit because it relates to the operating activities for such companies. For some companies composed of a number of separate business segments, operating profit can be useful in evaluating the performance of the individual business segments, because interest

Flashcard 1479076613388

Tags

#daniel-goleman #emotional-brain #emotional-iq #impulses-to-action #what-are-emotions-for #when-passions-overwhelm-reasons

Question

The root of the word emotion is [...], the Latin verb " [...]," this means a tendency to act is implicit in every emotion.

Answer

motere

to move

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The root of the word emotion is motere, the Latin verb "to move," this means a tendency to act is implicit in every emotion.

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Flashcard 1479782042892

Tags

#cfa-level-1 #reading-25-understanding-income-statement

Question

In simple words revenue is recognized when

The seller no longer [...]

Answer

bears risks with respect to the goods

(If the goods were destroyed, it would be a loss to the purchaser),

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In simple words revenue is recognized when The seller no longer bears risks with respect to the goods (for example, if the goods were destroyed by fire, it would be a loss to the purchaser), The seller cannot tell the purchaser what to do with the goods, The seller

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3. REVENUE RECOGNITION
lace and measures revenue at the amount of cash received. In practice, however, determining when revenue should be recognized and at what amount is considerably more complex for reasons discussed in the following sections. 3.1. General Principles An important aspect concerning revenue recognition is that it can occur independently of cash movements. For example, assume a company sells goods to a buyer on credit, so does not actually receive cash until some later time. A fundamental principle of accrual accounting is that revenue is recognized (reported on the income statement) when it is earned, so the company’s financial records reflect revenue from the sale when the risk and reward of ownership is transferred; this is often when the company delivers the goods or services. If the delivery was on credit, a related asset, such as trade or accounts receivable, is created. Later, when cash changes hands, the company’s financial records simply reflect that cash has been received to settle an account receivable. Similarly, there are situations when a company receives cash in advance and actually delivers the product or service later, perhaps over a period of time. In this case, the company would record a liability for unearned revenue when the cash is initially received, and revenue would be recognized as being earned over time as products and services are delivered. An example would be a subscription payment received for a publication that is to be delivered periodically over time. When to recognize revenue (when to report revenue on the income statement) is a critical issue in accounting. IFRS specify that revenue from the sale of goods is to be recognized (reported on the income statement) when the following conditions are satisfied:11 the entity has transferred to the buyer the significant risks and rewards of ownership of the goods; the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the entity; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. In simple words, this basically says revenue is recognized when the seller no longer bears risks with respect to the goods (for example, if the goods were destroyed by fire, it would be a loss to the purchaser), the seller cannot tell the purchaser what to do with the goods, the seller knows what it expects to collect and is reasonably certain of collection, and the seller knows how much the goods cost. IFRS note that the transfer of the risks and rewards of ownership normally occurs when goods are delivered to the buyer or when legal title to goods transfers. However, as noted by the above remaining conditions, physical transfer of goods will not always result in the recognition of revenue. For example, if goods are delivered to a retail store to be sold on consignment and title is not transferred, the revenue would not yet be recognized.12 IFRS specify similar criteria for recognizing revenue for the rendering of services.13 When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction shall be recognized by reference to the stage of completion of the transaction at the balance sheet date. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the entity; the stage of completion of the transaction at the balance sheet date can be measured reliably; and the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. IFRS criteria for recognizing interest, royalties, and dividends are that it is probable that the economic benefits associated with the transaction will flow to the entity and the amount of the revenue can be reliably measured. US GAAP14 specify that revenue should be recognized when it is “realized or realizable and earned.” The US Securities and Exchange Commission (SEC),15 motivated in part because of the frequency with which overstating revenue occurs in connection with fraud and/or misstatements, provides guidance on how to apply the accounting principles. This guidance lists four criteria to determine when revenue is realized or realizable and earned: There is evidence of an arrangement between buyer and seller. For instance, this would disallow the practice of recognizing revenue in a period by delivering the product just before the end of an accounting period and then completing a sales contract after the period end. The product has been delivered, or the service has been rendered. For instance, this would preclude revenue recognition when the product has been shipped but the risks and rewards of ownership have not actually passed to the buyer. The price is determined, or determinable. For instance, this would preclude a company from recognizing revenue that is based on some contingency. The seller is reasonably sure of collecting money. For instance, this would preclude a company from recognizing revenue when the customer is unlikely to pay. Companies must disclose their revenue recognition policies in the notes to their financial statements (sometimes referred to as footnotes). Analysts should review these policies carefully to understand how and when a company recognizes revenue, which may differ depending on the types of product sold and services rendered. Exhibit 4 presents a portion of the summary of significant accounting policies note that discusses revenue recognition for DaimlerChrysler (DB-F: DAI) from its 2009 annual report, prepared under IFRS. <body><html>

Flashcard 1637195058444

Question

[...] a trade in two closely related stocks involving the short sale of one and the purchase of the other.

Answer

pairs arbitrage trade:

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Flashcard 1641145306380

Tags

#reading-8-statistical-concepts-and-market-returns

Question

The harmonic mean is the value obtained by summing the reciprocals of the observations— [...] —then averaging that sum by dividing it by the number of observations n, and, finally, taking the reciprocal of the average.

Answer

terms of the form 1/X_i

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Flashcard 1646917717260

Tags

#reading-9-probability-concepts

Question

The [...] between two variables represents the degree to which these variables are related.

Answer

correlation

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Subject 7. Covariance and Correlation
relationship (up to 1, which indicates a perfect linear relationship). Increasingly negative correlation indicates an increasingly strong negative linear relationship (down to -1, which indicates a perfect inverse linear relationship). The correlation between two variables represents the degree to which these variables are related. It is important to keep in mind that correlation does not necessarily mean causation. For example, there is a high positive relationship between the number of fire-fighters sent to a fi

Annotation 1734711315724

Critical opinions and reaction on h&'ii) are determined to some extent by one's interpretation of the term h&"ii). It is an old word which has been variously understood. A number of critics take it in its broadest sense, as the opposite of madb, 'praise'; thus it includes mild criticism, reproach and various other edifying modes. In this study I shall concentrate on a narrower interpretation of hijii' as invective a type wherebt one intends to humiliate riclicul and in ult rather I.ban reform

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on 18-Jan-2018 (Thu)

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