Equity Investments
Equity Investments in short lessons: how markets and orders work, indexes and market efficiency, the types of equity, company and industry analysis, forecasting and valuation with DDM, multiples and EV, each with worked examples, charts and exam traps.
How this topic is tested, its exam weight and study tips: Equity Investments exam guide.
FlashcardsPDF · A4 · 71 pages
Equity Investments formula sheet
All 227 formulas of the topic, each explained. Every module page ends with its own formulas; the key formulas are here. Downloads come with a subscription or a pass; the free trial does not include them.
How the financial system works: why people use it, the assets and contracts that trade in it, the intermediaries that connect buyers and sellers, long, short and leveraged positions (leverage ratio, margin return, margin-call price), order instructions, primary and secondary markets, market structures, and what makes a system well functioning and well regulated.
- What the financial system does, and what makes it work well14 min
- Classifying assets and markets: securities, pooled vehicles, currencies, commodities and real assets15 min
- Contracts: forwards, futures, swaps, options and insurance14 min
- Financial intermediaries and the services they provide15 min
- Long, short and leveraged positions: leverage ratio, margin return and margin callsVideo · 5 min15 min
- Orders: execution, validity and clearing instructionsVideo · 6 min14 min
- Integrated cases: a leveraged loss, a hedge with a floor and a stop-limit buy16 min
- Primary markets, secondary markets and how trades are arranged15 min
Security market indexes: what an index is, how price return and total return indexes are calculated over one and many periods, how providers choose the target market, constituents and weighting method (price, equal, market-cap, float-adjusted and fundamental), how indexes are rebalanced and reconstituted, what investors use them for, and the main equity, fixed-income and alternative-investment indexes and their quirks.
- What an index is: value, price return and total returnVideo · 6 min13 min
- Building an index: target market, constituents and weighting12 min
- Price-weighted and equal-weighted indexesVideo · 5 min14 min
- Market-cap, float-adjusted and fundamental weightingVideo · 5 min14 min
- Rebalancing, reconstitution and what indexes are used for13 min
- Types of equity indexes11 min
- Fixed-income, commodity, real estate and hedge fund indexes14 min
How quickly and how fully prices absorb information: what an efficient market is, the gap between market value and intrinsic value, the factors that make a market more or less efficient, Fama's weak, semi-strong and strong forms and what each means for technical analysis, fundamental analysis and the active-versus-passive choice, the best-known market anomalies and why most fade, and how behavioural finance tries to explain them.
- What an efficient market is14 min
- What makes a market more or less efficient14 min
- Weak, semi-strong and strong formsVideo · 6 min15 min
- Implications for analysis and portfolio management13 min
- Market anomalies I: calendar, momentum, size and valueVideo · 5 min15 min
- Market anomalies II: other anomalies and what they mean14 min
- Behavioural finance and market efficiency14 min
What equity is and why companies issue it: common shares and their voting and class rights, preference shares (cumulative, participating, convertible, callable and putable), private versus public equity, the ways to invest in foreign shares (direct, depository receipts, global registered shares, baskets), the risk and return of each type, and how book value, market value, ROE, the cost of equity and investors' required return fit together.
- Equity versus debt, why companies issue shares, and equity in global markets11 min
- Common shares: voting rights, share classes, callable and putable shares13 min
- Preference shares: cumulative, participating and convertibleVideo · 5 min13 min
- Integrated cases: share classes, control and the liquidation ladder15 min
- Private versus public equity: venture capital, buyouts and PIPEs11 min
- Investing in foreign equity: direct, depository receipts, GRS and BLDRs14 min
- Risk and return of different equity securities12 min
- Book value, market value, ROE and the cost of equityVideo · 5 min15 min
The first block of company analysis: what a research report contains, how to pin down a business model, and how to analyse a company's historical revenue drivers and pricing power, operating costs, margins and working capital, and its capital investments and capital structure.
- Company research reports and the analysis framework11 min
- Determining the business model13 min
- Revenue drivers: bottom-up and top-down14 min
- Pricing power11 min
- Operating costs and operating leverageVideo · 6 min14 min
- Operating profitability and working capital15 min
- Integrated case: reading a marketplace from GMV, take rate and mix15 min
- Capital investments and capital structure15 min
How analysts define an industry, survey its size, growth, profitability and market shares, judge its structure with Porter's Five Forces and its external influences with PESTLE, and then evaluate whether a company's competitive strategy can earn returns above the industry's base rate.
- Why analyse an industry, and the five steps11 min
- Defining an industry and grouping companies15 min
- Industry size and the character of its growth13 min
- Profitability, market share trends and concentration (HHI)Video · 6 min14 min
- Industry structure: Porter's Five ForcesVideo · 6 min15 min
- External influences: PESTLE analysis13 min
- Integrated case: from an industry survey to a forecast15 min
- Competitive strategy and positioning15 min
How an equity analyst decides what to forecast (drivers, line items, summary measures or ad hoc items), which approach to use (history, base rates and convergence, management guidance or discretion), how far ahead to look, and how to forecast revenue, operating costs, working capital, capital spending and capital structure, finishing with scenario analysis around the key risk factors.
- What to forecast: forecast objects and principles12 min
- Forecast approaches and the forecast horizon14 min
- Forecasting revenue: top-down, bottom-up and non-recurring items15 min
- Forecasting operating costs: COGS, SG&A and segment margins14 min
- Working capital, capital investments and capital structure15 min
- Integrated case: fixed assets class by class and a marketplace cost base16 min
- Scenario analysis: risk factors, cost structure and sensitivityVideo · 6 min15 min
How analysts estimate what a share is really worth and compare it with the market price: present value models (dividend discount, two-stage and free cash flow to equity), preferred stock, price and enterprise value multiples, and asset-based valuation, with the strengths and limits of each.
- Intrinsic value, mispricing and the three model familiesVideo · 6 min11 min
- Dividends, splits, buybacks and the payment timelineVideo · 6 min12 min
- Present value models: DDM and FCFEVideo · 5 min13 min
- Preferred stock and the Gordon growth modelVideo · 6 min15 min
- Multistage dividend discount modelsVideo · 5 min14 min
- Price multiples and the method of comparablesVideo · 6 min14 min
- Integrated cases: why multiples differ, the justified P/E and comparables18 min
- Enterprise value multiples, asset-based valuation and choosing a modelVideo · 5 min15 min
- Integrated cases: growth from dividend history, enterprise value and reconciling models18 min