A 10-K is a comprehensive report filed annually by a publicly traded company about its financial performance and is required by the U.S. Securities and Exchange Commission (SEC).

A 10-K is a comprehensive report filed annually by a publicly-traded company about its financial performance and is required by the U.S. Securities and Exchange Commission (SEC). Some of the information a company is required to document in the 10-K includes its history, organizational structure, financial statements, earnings per share, subsidiaries, executive compensation, and any other relevant data. A 10-K is a comprehensive report filed annually by a publicly-traded company about its financial performance and is required by the U.S. Securities and Exchange Commission (SEC). The SEC requires this report to keep investors aware of a company's financial condition and to allow them to have enough information before they buy or sell shares in the corporation, or before investing in the firm’s corporate bonds. Along with the 10-K, the SEC requires that public companies regularly file forms 10-Q and 8-K.
Form 10-Q must be submitted to the SEC on a quarterly basis.

10-K

Aggregate risk is the amount of an institution or investor's exposure to foreign exchange counterparty risk from a single client. 

Aggregate risk is often defined as the total amount of an institution's exposure to foreign exchange counterparty risk deriving from a single client. Aggregate risk is often defined as the total amount of an institution's exposure to foreign exchange counterparty risk deriving from a single client. These limits are in place to protect XYZ Corporation from taking on too much counterparty risk, or aggregate risk, with ABC Company. Banks and financial institutions closely monitor aggregate risk in order to minimize their exposure to adverse financial developments—such as a credit crunch or even insolvency—arising at a counterparty or client. Aggregate risk limits will generally be larger for long-standing counterparties and clients with sound credit ratings, and will be lower for clients who are either new or have lower credit ratings.

Aggregate Risk

Analysis of variances (ANOVA) is a statistical examination of the differences between all of the variables used in an experiment. 

Variations of ANOVA testing include One-Way ANOVA (used to search for statistically significant differences between two or more independent variables), Two-Way ANOVA (to uncover potential interaction of two independent variables on one dependent variable) and Factorial ANOVA, which typically involves assessing two or more factors or variables with two levels. In addition to its applications in the finance industry, ANOVA is also used to test hypotheses in reviewing clinical trial data, for example, to compare the effects of different treatment protocols on patient outcomes; in social science research (for instance to assess the effects of gender and class on specified variables), in software engineering (for instance to evaluate database management systems), in manufacturing (to assess product and process quality metrics) and industrial design among other fields. Analysis of variances (ANOVA) is used in finance in several different ways, such as to forecast the movements of security prices by first determining which factors influence stock fluctuations. A t-test and f-test are used to analyze the results of an analysis of variance test to determine which variables are of statistical significance.

Analysis Of Variances (ANOVA)

An analyst meeting is an annual event hosted by public companies to help them share valuable information with security analyst and strategist.

An analyst meeting is an annual gathering held by many publicly traded corporations. An analyst meeting should not be confused with a company's annual shareholder meeting (known formally as the annual general meeting, or AGM), which is intended for owners of stock in the company, although analysts may also attend this event. At an analyst meeting, the company executives (generally the CEO and the CFO) provide information about how the company is performing and its future prospects. An analyst meeting provides information from a company's management and board intended to inform equity analysts that cover the company. Analyst meetings typically start with a presentation by the CEO about the strategy of the company, followed by a presentation by the CFO that details the financial information about the company.

Analyst Meeting

Average Qualitative Opinion (AQO) summarizes investment analysts' ratings for a particular security. It is often expressed numerically.

Either way, the AQO attempts to encapsulate all of the information contained in an analyst report, including a company's financials, industry financials and the security's target price for the next 12 to 24 months, and convey that information as a consensus recommendation for investors. Other than contrarians, few other types of investors tend to use the AQO as the basis of their decision-making, believing that the collective opinion of analysts tends to skew too positive. For instance, contrarians seek situations where the price of a stock is technically overbought, the AQO is exceptionally positive, and there is new, somewhat undigested negative news about the stock that could cause the underlying company difficulties for some time. Knowing the collective opinion about a particular security can be somewhat helpful in making buy and sell decisions at times.

Average Qualitative Opinion (AQO)

Asset performance refers to a business's ability to take operational resources, manage them, and produce profitable returns.

Asset performance refers to a business's ability to take operational resources, manage them, and produce profitable returns. Ratios such as return on assets (ROA), and other metrics that track how efficiently a firm uses its assets to generate revenue and how efficiently operations are being run, are measures of asset performance. Typically, an improvement in asset performance means that a company can either earn a higher return using the same amount of assets or is efficient enough to create the same amount of return using fewer assets. Analysts use metrics like the cash conversion cycle, the return on assets ratio, and the fixed asset turnover ratio to compare and assess a company's annual asset performance. > Return on Assets (ROA) = EBIT/Total Assets
This is a pure measure of the ability of a company to generate returns from its assets without being affected by management financing decisions.

Asset Performance

An average selling price is the price at which a certain class of good or service is typically sold.

Products like computers, cameras, televisions, and jewelry tend to have higher average selling prices while products like books and DVDs will have a low average selling price. For product-driven companies like Apple, calculations for average selling price provide pivotal information about its financial performance and, by extension, the performance of its stock price. The ASP is the average selling price of the product across multiple distribution channels, across a product category within a company, or even across the market as a whole. The term average selling price (ASP) refers to the price at which a certain class of good or service is typically sold.

Average Selling Price (ASP) Defintion

A bellwether stock is believed to be a leading indicator of the direction of the economy or the market as a whole. Learn more about these stocks and how they work.

GE's Industrial Focus Makes it Less of an Economic Bellwether Stock

The term bellwether stock refers to a stock that is believed to be a leading indicator of the direction of the economy, a specific sector, or the market as a whole. Because they're considered market leaders, strong earnings reported by bellwether stocks indicate a strong economy. For instance, Alcoa (AA) is often considered a bellwether for the economy because it operates in a cyclical industry, and if it reports strong earnings, that suggests the economy is strong. The term bellwether stock refers to a stock that is believed to be a leading indicator of the direction of the economy, a specific sector, or the market as a whole. A bellwether stock is a stock that is used to gauge the performance of the market or economy in general.

Bellwether Stock

A bond ratio is a financial ratio that expresses the leverage of a bond issuer. 

The bond ratio is a financial ratio that expresses the leverage of a bond issuer by examining the value of bonds outstanding and when they come due. The ratio divides the notional value of long-term bonds by a firm by its enterprise value, excluding cash or short-term debts. The bond ratio is a financial ratio that expresses the leverage of a bond issuer by examining the value of bonds outstanding and when they come due. The numerator of the bond ratio captures the total value of any long-term bonds that the company has issued with maturity dates greater than one year. The bond ratio formally expresses the ratio of the bonds issued by a firm as a percentage of its total capital structure.

Bond Ratio

Book value per common share (BVPS) derives a company's book value on a per-share basis.

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Book value per common share (or, simply book value per share - BVPS) is a method to calculate the per-share book value of a company based on common shareholders' equity in the company. If a company’s BVPS is higher than its market value per share, then its stock may be considered to be undervalued.
The book value per common share (formula below) is an accounting measure based on historical transactions:
B V P S \= T o t a l   S h a r e h o l d e r   E q u i t y − P r e f e r r e d   E q u i t y T o t a l   O u t s t a n d i n g   S h a r e s BVPS = \\frac{Total \\ Shareholder \\ Equity - Preferred \\ Equity}{Total \\ Outstanding \\ Shares} BVPS\=Total Outstanding SharesTotal Shareholder Equity−Preferred Equity​
The book value of common equity in the numerator reflects the original proceeds a company receives from issuing common equity, increased by earnings or decreased by losses, and decreased by paid dividends. Book value per common share (or, simply book value per share - BVPS) is a method to calculate the per-share book value of a company based on common shareholders' equity in the company. Because book value per share only considers the book value, it fails to incorporate other intangible factors that may increase the market value of a company's shares, even upon liquidation. Book value per common share (BVPS) calculates the common stock per-share book value of a firm.

Book Value Per Common Share - BVPS

A cash cow is one of the four BCG matrix categories that represents a product or business with high market share and low market growth.

A cash cow is one of the four categories (quadrants) in the growth-share, BCG matrix that represents a product, product line, or company with a large market share within a mature industry. A cash cow is a reference to a business, product, or asset that produces consistent cash flow over its lifespan; it's also a reference to one of the four quadrants in the BCG Matrix, a business unit organization method. A cash cow is one of the four categories (quadrants) in the growth-share, BCG matrix that represents a product, product line, or company with a large market share within a mature industry. In contrast to a cash cow, a star, in the BCG matrix, is a company or business unit that realizes a high market share in high-growth markets. A cash cow is also a reference to a business, product, or asset that, once acquired and paid off, will produce consistent cash flows over its lifespan.

Cash Cow

Cash flow per share is a measure of a firm's financial strength, calculated as after-tax earnings plus depreciation and amortization. 

Cash flow per share is the after-tax earnings plus depreciation on a per-share basis that functions as a measure of a firm's financial strength. The calculation to determine cash flow per share is:
Cash Flow Per Share = (Operating Cash Flow – Preferred Dividends) / Common Shares Outstanding
Free cash flow (FCF) is similar to cash flow per share in that it expands on the attempt to avoid artificial deflation of a company’s cash flow. Because they view free cash flow as providing a more accurate snapshot of a company's finances and profitability, some investors prefer to evaluate a stock on its free cash flow per share instead of its earnings per share. Since the cash flow per share takes into consideration a company's ability to generate cash, it is regarded by some as a more accurate measure of a company's financial situation than earnings per share. Because cash flow per share represents the net cash a company produces, some financial analysts view it as a more accurate measurement of a company's financial health.

Cash Flow Per Share

Channel check is a method of stock analysis whereby company information is supplied by examining the company's distribution channels.

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A channel check is a method of independent stock analysis whereby company information is supplied by examining the company's distribution channels. A channel check is when a financial analyst or third-party researcher gathers information about a company by having conversations with managers of businesses that utilize or sell the subject company's products or services. An analyst looking to place a value on a company may conduct a channel check by having conversations with direct managers of businesses within a sector or industry that utilizes the subject company's products or services. However, a channel check is unique in that it gives the analyst an opportunity to gain insight directly from a company's vendors and distribution partners who are selling, using, or helping to manufacture the company's products. A channel check is a method of independent stock analysis whereby company information is supplied by examining the company's distribution channels.

Channel Check

A consensus estimate is a forecast of a public company's projected earnings based on the combined estimates of all equity analysts that cover the stock.

A consensus estimate is a forecast of a public company's projected earnings based on the combined estimates of all equity analysts that cover the stock. These estimates are not an exact science and depend on a variety of factors, from access to company records to previous financial statements and estimates of the market for the company's products. A consensus estimate is a forecast of a public company's projected earnings based on the combined estimates of all equity analysts that cover the stock. In contrast, if the present value of future cash flows is lower than the price of the stock at the time of calculation, an analyst may conclude that the stock is priced “below” consensus. A 2013 study by consulting firm McKinsey found that missing consensus estimates does not have a material effect on a company's share price.

Consensus Estimate

A covered stock is a stock for which a sell-side analyst publishes research reports and investment recommendations for clients.

A covered stock refers to a public company's shares for which one or more sell-side equity analysts publish research reports and investment recommendations for their clients. A covered stock refers to a public company's shares for which one or more sell-side equity analysts publish research reports and investment recommendations for their clients. A covered stock is followed by professional research analysts who publish fundamental research analysis and valuation metrics for that stock. A company that is taken public by an investment bank will invariably have its stock covered by the brokerage arm of the investment bank to support trading of its equity in the markets and build an investor base for the shares. A sell-side analyst conducts thorough research on a company—its business model, competitive advantages, risks, management quality, financial performance, etc.

Covered Stock (Coverage)

Dun & Bradstreet is a corporation that offers information on commercial credit as well as reports on businesses.

Dun & Bradstreet is a corporation that offers information on commercial credit as well as reports on businesses. Dun & Bradstreet was established as the result of a merger in the 1930s between R.G. Dun & Co. and the Bradstreet Cos.
Dun & Bradstreet, or D&B, is a company providing corporate analysis, insights, and analytics for businesses. _The Wall Street Journal_ published a notification of the merger and indicated the newly formed company would be operating under the name R.G. Dun-Bradstreet, changed to Dun & Bradstreet Inc. in 1939. While the majority of Dun & Bradstreet’s products remain in print, the technological age has pushed the company’s products and services onto the internet and beyond. Most notably, Dun & Bradstreet is recognizable for its Data Universal Numbering System (DUNS numbers); these generate business information reports for more than 100 million companies around the globe.

Definiton Dun & Bradstreet (D&B)

The EBIT/EV multiple is a financial ratio used to measure a company's "earnings yield." 

The EBIT/EV multiple, shorthand for earnings before interest and taxes (EBIT) divided by enterprise value (EV), is a financial ratio used to measure a company's "earnings yield." Company Z has:
EBIT of $1.3 billion;
A market cap of $18 billion;
$12 billion in debt; and
$0.6 billion in cash.
EBIT/EV for Company X would be approximately 7.7%, while the earnings yield for Company Z would be approximately 4.4%. EV is an important component of several ratios investors can use to compare companies, such as the EBIT/EV multiple and EV/Sales. The EBIT/EV multiple allows investors to effectively compare earnings yields between companies with different debt levels and tax rates, among other things. Investors often use EV when comparing companies against one another for possible investment because EV provides a clearer picture of the real value of a company as opposed to simply considering market capitalization.

EBIT/EV Multiple

Economic moat is a distinct advantage a company has over its competitors which allows it to protect its market share and profitability.

Conceptualized and named by Warren Buffett, an economic moat is a distinct advantage a company has over its competitors which allows it to protect its market share and profitability. An intangible asset, such as a company crafting a well-known brand name (Nike), pricing power edge (Apple), cost advantages (Walmart), making it costly for customers to switch products (cell phone companies), efficient scale, and network effects are all advantages that businesses can utilize to create a wide economic moat. Conceptualized and named by Warren Buffett, an economic moat is a distinct advantage a company has over its competitors which allows it to protect its market share and profitability. An economic moat is a distinct advantage a company has over its competitors which allows it to protect its market share and profitability. The most obvious financial characteristics that companies with a wide economic moat have is that they usually generate large amounts of free cash flow and have a track record of strong returns.

Economic Moat

The Fama and French Three-Factor model expanded the CAPM to include size risk and value risk to explain differences in diversified portfolio returns.

The Fama and French Three-Factor Model (or the Fama French Model for short) is an asset pricing model developed in 1992 that expands on the capital asset pricing model (CAPM) by adding size risk and value risk factors to the market risk factor in CAPM. The formula is:
R i t − R f t \= α i t \+ β 1 ( R M t − R f t ) \+ β 2 S M B t \+ β 3 H M L t \+ ϵ i t where: R i t \= total return of a stock or portfolio  i  at time  t R f t \= risk free rate of return at time  t R M t \= total market portfolio return at time  t R i t − R f t \= expected excess return R M t − R f t \= excess return on the market portfolio (index) S M B t \= size premium (small minus big) H M L t \= value premium (high minus low) β 1 , 2 , 3 \= factor coefficients \\begin{aligned} &R\_{it} - R\_{ft} = \\alpha\_{it} + \\beta\_1 ( R\_{Mt} - R\_{ft} ) + \\beta\_2SMB\_t + \\beta\_3HML\_t + \\epsilon\_{it} \\\\ &\\textbf{where:} \\\\ &R\_{it} = \\text{total return of a stock or portfolio } i \\text{ at time } t \\\\ &R\_{ft} = \\text{risk free rate of return at time } t \\\\ &R\_{Mt} = \\text{total market portfolio return at time } t \\\\ &R\_{it} - R\_{ft} = \\text{expected excess return} \\\\ &R\_{Mt} - R\_{ft} = \\text{excess return on the market portfolio (index)} \\\\ &SMB\_t = \\text{size premium (small minus big)} \\\\ &HML\_t = \\text{value premium (high minus low)} \\\\ &\\beta\_{1,2,3} = \\text{factor coefficients} \\\\ \\end{aligned} ​Rit​−Rft​\=αit​+β1​(RMt​−Rft​)+β2​SMBt​+β3​HMLt​+ϵit​where:Rit​\=total return of a stock or portfolio i at time tRft​\=risk free rate of return at time tRMt​\=total market portfolio return at time tRit​−Rft​\=expected excess returnRMt​−Rft​\=excess return on the market portfolio (index)SMBt​\=size premium (small minus big)HMLt​\=value premium (high minus low)β1,2,3​\=factor coefficients​
Fama and French highlighted that investors must be able to ride out the extra volatility and periodic underperformance that could occur in a short time. The Fama and French Three-Factor Model (or the Fama French Model for short) is an asset pricing model developed in 1992 that expands on the capital asset pricing model (CAPM) by adding size risk and value risk factors to the market risk factor in CAPM. The Fama French 3-factor model is an asset pricing model that expands on the capital asset pricing model by adding size risk and value risk factors to the market risk factors. SMB accounts for publicly traded companies with small market caps that generate higher returns, while HML accounts for value stocks with high book-to-market ratios that generate higher returns in comparison to the market.

Fama and French Three Factor Model

For Valuation Only (FVO) is a notation placed in front of a security's price quote denoting that it is only for informational purposes, not for trade.

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For Valuation Only (FVO) is a notation included in a nominal quotation for a security. When an FVO notation appears in front of a price quote, it denotes the quote is merely for informational purposes, and not an offer from the issuing party.
For Valuation Only (FVO) will appear as a notation in a nominal security price quote as a courtesy to investors, indicating that it is not an invitation to trade. Such nominal quotations will include either FVO or FYI (For Your Information).
The purpose of a nominal quote is to allow a trader to value a current holding where it may be otherwise difficult to establish a current benchmark, and to indicate a price for informational purposes without obligating a broker to enter a trade. For example, an FVO nominal quote may be presented when a trader considers purchasing a contract on a futures exchange, only to find that no market maker has put out a firm bid and therefore a price for the contract has not been established for a long period of time. Both nominal quotes and firm quotes are key tools of market makers, both brokerage houses and individual intermediaries, whose purpose is to enable the smooth flow of financial markets.

For Valuation Only (FVO)

A fully valued stock is fairly valued in the market.

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Nike Inc Stock Appears to Be Fully Valued at This Point

A fully valued stock is a security whose price, analysts believe, reflects its full and fair value. An undervalued stock is one that is selling at a price significantly below what is assumed to be its intrinsic value, and conversely, an overvalued stock has a current price that is not justified by its earnings outlook or price-earnings (P/E) ratio and whose price, therefore, is expected to drop. If the price were to rise and become overvalued, traders may be incentivized to come in and sell the security back to its fully valued price, and vice-versa if the price becomes undervalued. Experts can value a stock differently, so a stock that is considered fully valued by one may not be perceived as being fully valued by another. While a fully valued stock is less likely to experience significant appreciation in value, some investors may be willing to invest in fully valued stocks for their stability as well as any dividends they might pay.

Fully Valued

Fundamental analysis is a method of measuring a stock's intrinsic value. Analysts who follow this method seek out companies priced below their real worth.

Table of Contents
What Is Fundamental Analysis? This method of stock analysis is considered to be in contrast to technical analysis, which forecasts the direction of prices through an analysis of historical market data such as price and volume. This method of stock analysis is considered to be the opposite of technical analysis, which forecasts the direction of prices through an analysis of historical market data such as price and volume. One of the primary assumptions of fundamental analysis is that the current price from the stock market often does not fully reflect the value of the company supported by the publicly available data. For stocks, fundamental analysis uses revenues, earnings, future growth, return on equity, profit margins, and other data to determine a company's underlying value and potential for future growth.

Fundamental Analysis

Fundamentals consist of the basic qualitative and quantitative information that underlies a company or other organization's financial and economic position.

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Fundamentals include the basic qualitative and quantitative information that contributes to the financial or economic well-being of a company, security, or currency, and their subsequent financial valuation. Fundamental analysis involves digging deep into a company's financial statements to extract its profit and growth potential, relative riskiness, and to ultimately decide if its shares are over, under, or fairly valued in the market.
Often fundamental analysis involves computing and analyzing ratios to make apples-to-apples comparisons. While fundamentals are most often considered factors that relate to particular businesses or securities, national economies, and their currencies also have a set of fundamentals that can be analyzed. By looking at the economics of a business, including the overall management and the financial statements, investors are looking at a company's fundamentals. Investors and financial analysts are interested in evaluating the fundamentals of a company to compare its economic position relative to its industry peers, to the broader market, or to itself over time.

Fundamentals

A hedge clause is a clause in a research report that attempts to absolve the writer of any responsibility for the accuracy of the information included in the report or publication.

Information for Newly-Registered Investment Advisers

Commission Interpretation Regarding Standard of Conduct for Investment Advisers

A hedge clause is included in a research report to attempt to absolve the writer of any responsibility for the accuracy of the information included in the report or publication. The U.S. Securities and Exchange Commission (SEC) has stated that Sections 206(1) and 206(2) of the Advisers Act make it unlawful for any investment adviser to employ any device, scheme, or artifice to defraud, or to engage in any transaction, practice or course of business that operates as fraud or deceit on clients or prospective clients.
Those antifraud provisions may be violated by the use of a hedge clause or other exculpatory provision in an investment advisory agreement, which is likely to lead an investment advisory client to believe that they have waived non-waivable rights of action against the adviser.
The SEC has previously taken the position that hedge clauses that purport to limit an investment adviser’s liability to acts involving gross negligence or willful malfeasance are likely to mislead a client who is unsophisticated in the law into believing that they have waived non-waivable rights, even if the hedge clause explicitly provides that rights under federal or state law cannot be relinquished. A typical “hedge clause” in an investment advisory contract or hedge fund limited partnership/limited liability company agreement is structured as an exculpation of the adviser from liability and/or as indemnification of the adviser by the advisory client unless the adviser has been grossly negligent or has engaged in reckless or willful misconduct, illegal acts or acts outside the scope of its authority. Often, hedge clauses are followed by “non-waiver disclosure” that explains that the client may have certain legal rights, generally arising under federal and state securities laws, notwithstanding the hedge clauses that have not been waived. A hedge clause is included in a research report to attempt to absolve the writer of any responsibility for the accuracy of the information included in the report or publication.

Hedge Clause

Interpolation is a statistical method by which related known values are used to estimate an unknown price or potential yield of a security.

Interpolation is a statistical method by which related known values are used to estimate an unknown price or potential yield of a security. By using a consistent trend across a set of data points, investors can estimate unknown values and plot these values on charts representing a stock's price movement over time. 1:31
Investors use interpolation to create new estimated data points between known data points on a chart. There are several formal kinds of interpolation, including linear interpolation, polynomial interpolation, and piecewise constant interpolation. We could use a linear interpolation algorithm to estimate the value of f(x) at plot point xSep, or x2 that appears within the existing data range.

Interpolation

"Macro-environment" refers to the overall condition of the economy, as opposed to the well-being of a particular sector or region.

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A macro environment refers to the set of conditions that exist in the economy as a whole, rather than in a particular sector or region. The macro-environment can be affected by GDP, fiscal policy, monetary policy, inflation, employment rates, and consumer spending. In general, the macro environment includes trends in the gross domestic product (GDP), inflation, employment, spending, and monetary and fiscal policy. The macro-environment is closely linked to the general business cycle as opposed to the performance of an individual business sector. The amount of the macro environment's influence depends on how much of a company's business is dependent on the health of the overall economy.

Macro Environment

Market risk premium is the difference between the expected return on a market portfolio and the risk-free rate. it is an important element of modern portfolio theory and discounted cash flow valuation.

The market risk premium is the difference between the expected return on a market portfolio and the risk-free rate. The market risk premium can be calculated by subtracting the risk-free rate from the expected equity market return, providing a quantitative measure of the extra return demanded by market participants for the increased risk. The risk-free rate is a theoretical interest rate that would be paid by an investment with zero risks and long-term yields on U.S. Treasuries have traditionally been used as a proxy for the risk-free rate because of the low default risk. The market risk premium is the difference between the expected return on a market portfolio and the risk-free rate. The market risk premium is the difference between the expected return on a market portfolio and the risk-free rate.

Market Risk Premium

Market value is the price an asset gets in a marketplace. Market value also refers to the market capitalization of a publicly traded company.

Market value (also known as OMV, or "open market valuation") is the price an asset would fetch in the marketplace, or the value that the investment community gives to a particular equity or business. For example, Company X and Company B may both have $100 million in annual sales, but if X is a fast-growing technology firm while B is a stodgy retailer, X’s market value will generally be significantly higher than that of Company B.
In the example above, Company X may be trading at a sales multiple of 5, which would give it a market value of $500 million, while Company B may be trading at a sales multiple of 2, which would give it a market value of $200 million. A stock would generally be considered undervalued if its market value is well below book value, which means the stock is trading at a deep discount to book value per share. The book value is also known as the explicit value, and it can heavily influence a company's implicit value (i.e., the personal perceptions and research of investors and analysts), which in turn affects whether a company's stock price rises or drops. However, the greatest difficulty in determining market value lies in estimating the value of illiquid assets like real estate and businesses, which may necessitate the use of real estate appraisers and business valuation experts respectively.

Market Value

Metrics are measures of quantitative assessment commonly used for assessing, comparing, and tracking performance or production.

Metrics are measures of quantitative assessment commonly used for assessing, comparing, and tracking performance or production. While there are a wide range of metrics, below are some commonly used tools:
_Economic Metrics_
Gross domestic product (GDP)
Unemployment rate
_Operational Company Metrics_
From a comprehensive perspective, executives, industry analysts, and individual investors often look at key operational performance measures of a company, all from different perspectives. GE has also commissioned a set of metrics known as Six Sigma that are commonly used today, with metrics tracked in six key areas: critical to quality; defects; process capability; variation; stable operations; and, design for Six Sigma. Key financial statement metrics include sales, earnings before interest and tax (EBIT), net income, earnings per share, margins, efficiency ratios, liquidity ratios, leverage ratios, and rates of return. DuPont began using metrics to better their own business and in the process came up with the popular DuPont analysis which closely isolates variables involved in the return on equity (ROE) metric.

Metrics

Multicollinearity appears when there is strong correspondence among two or more independent variables in a multiple regression model.

Multicollinearity is the occurrence of high intercorrelations among two or more independent variables in a multiple regression model. It can also happen if an independent variable is computed from other variables in the data set or if two independent variables provide similar and repetitive results. Statistical analysts use multiple regression models to predict the value of a specified dependent variable based on the values of two or more independent variables. Instead, the market analysis must be based on markedly different independent variables to ensure that they analyze the market from different independent analytical viewpoints. Multicollinearity can lead to skewed or misleading results when a researcher or analyst attempts to determine how well each independent variable can be used most effectively to predict or understand the dependent variable in a statistical model.

Multicollinearity

The neglected firm effect is a market anomaly that predicts lesser-known stocks outperform the market due to information deficiencies.

Giraffes, Institutions and Neglected Firms

The neglected firm effect is a financial theory that explains the tendency for certain lesser-known companies to outperform better-known companies. The neglected firm effect suggests that stocks of lesser-known companies are able to generate higher returns because they are less likely to be analyzed and scrutinized by market analysts, leading savvy investors to scoop up values under the radar. In a 1983 study that examined the performance of 510 publicly traded firms over the course of a decade (i.e. 1971-80), three Cornell University professors found that the shares of companies that are neglected by institutions outperformed the shares of firms that were widely held by institutions. In a 1997 study of the performance of 7,117 publicly traded companies from January 1982 through December 1995, financial economists Craig G. Beard and Richard W. Sias found no support for the neglected firm effect after controlling for the correlation between neglect and market capitalization. These authors suggested that the neglected firm effect may have disappeared over time because investors have learned to exploit it, as institutional investors have increased their investment in smaller capitalization (and typically more neglected) stocks over the years.

Neglected Firm Effect

Net institutional sales is a measurement used when screening for securities that are being sold, on a net basis, by institutional investors. 

Net institutional sales (NIS) is a measurement used when screening for securities that are being sold, on a net basis, by institutional investors. As calculated as a ratio, a stock with a net institutional sales ratio of -10% would suggest that institutional investors are selling 11 shares of the firm for every ten they buy. Net institutional sales is a popular stock screening filter used by traders hoping to identify the stocks that are actively being net sold by institutional investors. Net institutional sales examines the net sales of a company's shares by large institutional investors such as pension funds and hedge funds. A stock with a high (negative) amount of net institutional sales would suggest that institutional investors, in the aggregate, no longer feel they should hold the stock.

Net Institutional Sales (NIS)

Net worth is the value of the assets a person or corporation owns, minus the liabilities they owe.

Net worth is the value of the assets a person or corporation owns, minus the liabilities they owe. Liabilities include:
An outstanding mortgage balance of $100,000
A car loan of $10,000
The couple's net worth would, therefore, be calculated as:
> \[$250,000 + $100,000 + $25,000\] - \[$100,000 + $10,000\] = $265,000
Assume that five years later, the couple's financial position changes: the residence value is $225,000, investment portfolio $120,000, savings $20,000, automobile and other assets $15,000; mortgage loan balance $80,000, and car loan $0 because it was paid off. People with a substantial net worth are known as high net worth individuals (HNWI), and form the prime market for wealth managers and investment counselors. Note that the value of personal net worth includes the current market value of assets and the current debt costs. The best way to improve net worth is to either reduce liabilities while assets stay constant or rise, or increase assets while liabilities either stay constant or fall.

Net Worth : Types & How to Calculate

An overcast occurs when a forecaster has overestimated key performance metrics, often due to wrong inputs or due to unforeseen circumstances.

An overcast is a type of forecasting error that occurs when an estimated metric, such as future cash flows, performance levels, or production, is forecast too high. For example, when estimating the net income of a company for next year, one may overcast the amount if you underestimate costs or overestimate sales. An overcast is a type of forecasting error that occurs when an estimated metric, such as future cash flows, performance levels, or production, is forecast too high. If an investor expects to collect $1,000 per year in dividends, but due to a dividend cut they collect $750, a $250 dividend income overcast happened. An undercast is the opposite of an overcast, in which a forecaster has underestimated a certain performance metric, either due to incorrect inputs or unforeseen events.

Overcast

A patent cliff occurs when a company's patents expire, thus losing its monopoly on its associated intellectual property rights,.

Frequently Asked Questions on Patents and Exclusivity

Why do generic medicines cost less than brand-name medicines?

A patent cliff is a colloquialism to denote the potential sharp decline in revenues upon patent expiry of one or more leading products of a firm. Additionally, for every drug that makes it to the market, a number of drugs never make it out of the lab or end up not being approved by the Food and Drug Administration (FDA).
The exclusivity of the drug allows pharmaceutical companies to recoup losses from failed drugs. The world's biggest pharmaceutical firms, such as Pfizer (PFE) and GlaxoSmithKline (GSK), thus stand to lose billions of dollars in revenues and profits from the patent expiration on such blockbuster drugs as cholesterol drug Lipitor and asthma medication Advair respectively. Numerous firms have established profitable businesses by manufacturing generic alternatives to off-patent drugs, which can be sold at a fraction of the price of branded drugs. A patent cliff is a colloquialism to denote the potential sharp decline in revenues upon patent expiry of one or more leading products of a firm.

Patent Cliff

Porter's 5 Forces is a model that identifies and analyzes the competitive forces that shape every industry and helps determine an industry's weaknesses and strengths.

Competitive Strategy: Techniques for Analyzing Industries and Competitors (Abstract)

Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape every industry and helps determine an industry's weaknesses and strengths. Porter's five forces are:
1\. Competition in the industry
2\. Potential of new entrants into the industry
3\. Power of suppliers
4\. Power of customers
5\. Threat of substitute products
Porter's Five Forces is a framework for analyzing a company's competitive environment.
The number and power of a company's competitive rivals, potential new market entrants, suppliers, customers, and substitute products influence a company's profitability.
Five Forces analysis can be used to guide business strategy to increase competitive advantage.
The first of the five forces refers to the number of competitors and their ability to undercut a company. Understanding Porter's Five Forces and how they apply to an industry, can enable a company to adjust its business strategy to better use its resources to generate higher earnings for its investors. An industry with strong barriers to entry is ideal for existing companies within that industry since the company would be able to charge higher prices and negotiate better terms. It is affected by how many buyers or customers a company has, how significant each customer is, and how much it would cost a company to find new customers or markets for its output.

Porter's 5 Forces : Analyzing Businesses

The price-to-earnings (P/E) ratio is the ratio for valuing a company that measures its current share price relative to its per-share earnings.

S&P 500 PE Ratio - 90 Year Historical Chart

Table of Contents
Price-to-Earnings (P/E) Ratio
P/E Ratio Formula and Calculation
Understanding the P/E Ratio
Forward Price-to-Earnings
Trailing Price-to-Earnings
Valuation From P/E
Example of the P/E Ratio To compare Bank of America's P/E to a peer's, we calculate the P/E for JPMorgan Chase & Co. (JPM) as of the end of 2020:
**Stock Price** = $127.07
**Diluted EPS** = $8.88
**P/E** = 14.31x
When you compare Bank of America's P/E of 16x to JPMorgan's P/E of roughly 14x, Bank of America's stock does not appear as overvalued as it did when compared with the average P/E of 15 for the S&P 500. P/E Ratio \= Market value per share Earnings per share \\text{P/E Ratio} = \\frac{\\text{Market value per share}}{\\text{Earnings per share}} P/E Ratio\=Earnings per shareMarket value per share​
To determine the P/E value, one must simply divide the current stock price by the earnings per share (EPS).
The current stock price (P) can be found simply by plugging a stock’s ticker symbol into any finance website, and although this concrete value reflects what investors must currently pay for a stock, the EPS is a slightly more nebulous figure. If the forward P/E ratio is lower than the trailing P/E ratio, it means analysts are expecting earnings to increase; if the forward P/E is higher than the current P/E ratio, analysts expect them to decrease. Table of Contents
Price-to-Earnings (P/E) Ratio
P/E Ratio Formula and Calculation
Understanding the P/E Ratio
Forward Price-to-Earnings
Trailing Price-to-Earnings
Valuation From P/E
Example of the P/E Ratio

Price-to-Earnings (P/E) Ratio

A price multiple is any ratio that uses the share price of a company in conjunction with some specific per-share financial metric for a valuation measure.

A price multiple is any ratio that uses the share price of a company in conjunction with some specific per-share financial metric for a snapshot on valuation. Some common price multiples are the price-to-earnings (P/E) ratio, price-to-forward earnings (forward P/E), price-to-book (P/B) ratio, and price-to-sales (P/S) ratio. Common price multiples include price-to-earnings (P/E) ratios, price-to-sales (P/S) ratios, and price-to-cash flow (P/CF) ratios. Other ratios include price-to-tangible book (P/TBV), price-to-cash flow (P/CF), price-to-EBITDA (P/EBITDA), and price-to-free cash flow (P/FCF). A price multiple is any ratio that uses the share price of a company in conjunction with some specific per-share financial metric for a snapshot on valuation.

Price Multiple

Price to free cash flow is an equity valuation metric used to compare a company's per share market price to its per share amount of free cash flow. 

Price to free cash flow is an equity valuation metric used to compare a company's per-share market price to its per-share amount of free cash flow (FCF). This metric is very similar to the valuation metric of price to cash flow but is considered a more exact measure, owing to the fact that it uses free cash flow, which subtracts capital expenditures (CAPEX) from a company's total operating cash flow, thereby reflecting the actual cash flow available to fund non-asset-related growth. The price to free cash flow metric is calculated as follows:
Price to free cash flow = market capitalization value / total free cash flow amount Price to free cash flow is an equity valuation metric used to compare a company's per-share market price to its per-share amount of free cash flow (FCF). They tend to avoid companies with high price to free cash flow values that indicate the company's share price is relatively high compared to its free cash flow.

Price to Free Cash Flow

A principal shareholder is a person or entity that owns 10% or more of a company's voting shares. 

A principal shareholder is a person or entity that owns 10% or more of a company's voting shares. Due to this business insider status, the Securities and Exchange Commission requires principal shareholders to file reports with the SEC regarding any buying and selling of their shares within two business days of the activity. If the principal shareholder makes a large additional investment in the company, for example, this is probably an indication that the company is performing well. A principal shareholder is a person or entity that owns 10% or more of a company's voting shares. This is not to be confused with a majority shareholder or majority stakeholder, which is a person or entity that owns 50% or more of a company's voting shares.

Principal Shareholder

Process Value Analysis (PVA) is a the examination of an internal process that businesses undertake to determine whether it can be streamlined. 

Process Value Analysis (PVA) is the examination of an internal process that businesses undertake to determine if it can be streamlined. A drawback to conducting a PVA is the potential the company eliminates a process or alters a step that then results in unintended consequences, such as delaying the delivery of goods or impairing its relationship with its customers. A Process Value Analysis (PVA) examines each step in a specific business process to determine if it can be improved or streamlined while still maintaining customer satisfaction. An illustration of this would be a company that decides to outsource its customer service department to a third-party vendor only to find that the vendor does not have the workforce or expertise in place to provide good customer service. For example, if a PVA focuses too much on cutting costs, the company runs the risk of removing or altering a process that keeps the business running smoothly.

Process Value Analysis (PVA)

Random factor analysis is a statistical technique to decipher whether outlying data is caused by an underlying trend or just simply a random event.

Random factor analysis, or random effects, is a statistical technique used to determine the origin of data in a randomly collected sample. Random factor analysis is used to decipher whether the outlying data is caused by an underlying trend or just simply random occurring events and attempts to explain the apparently random data. Random factor analysis, or random effects, is a statistical technique used to determine the origin of data in a randomly collected sample. Sales of breathing masks may skyrocket, and if someone were to just look at the sales data over a multi-year period this would look like an outlier, but the analysis would attribute this data to this random event. If the random data is caused by an underlying trend or random recurring event, that trend will need to be addressed and remedied accordingly.

Random Factor Analysis

The required rate of return (RRR) is the minimum return an investor will accept for an investment as compensation for a given level of risk.

Table of Contents
What Is Required Rate of Return?
Two Methods to Calculate Required Rate of Return (RRR)
What Does the Required Rate of Return (RRR) Tell You?
Example of Required Rate of Return (RRR) Using the Dividend Discount Model (DDM)
Example of Required Rate of Return Using the Capital Asset Pricing Model (CAPM)
Required Rate of Return vs. Cost of Capital
Limitations of Required Rate of Return (RRR) The formula for RRR using the CAPM model is as follows:
**RRR =  Risk-free rate of return + _Beta_ X (Market rate of return - Risk-free rate of return)*
To calculate RRR using the CAPM:
1.  Subtract the risk-free rate of return from the market rate of return. **RRR = 7% or (($3 expected dividend / $100 per share) + 4% growth rate)**
In the capital asset pricing model (CAPM), RRR can be calculated using the beta of a security, or risk coefficient, as well as the excess return that investing in the stock pays over a risk-free rate (called the equity risk premium).
Assume the following:
The current risk-free rate is 2% on a short-term U.S. Treasury. To invest in Company B, RRR = 6% or (2% + 0.50 X (10% - 2%))
Thus, an investor evaluating the merits of investing in Company A versus Company B would require a significantly higher rate of return from Company A because of its much higher beta.
Although the required rate of return is used in capital budgeting projects, RRR is not the same level of return that's needed to cover the cost of capital. Table of Contents
What Is Required Rate of Return?
Two Methods to Calculate Required Rate of Return (RRR)
What Does the Required Rate of Return (RRR) Tell You?
Example of Required Rate of Return (RRR) Using the Dividend Discount Model (DDM)
Example of Required Rate of Return Using the Capital Asset Pricing Model (CAPM)
Required Rate of Return vs. Cost of Capital
Limitations of Required Rate of Return (RRR)

Required Rate of Return (RRR)

A research note is a statement from a brokerage firm or other investment advisory service discussing a specific security, industry, market or news item. 

A research note is a statement from a brokerage firm or other investment advisory service discussing specific security, industry, market, or news item. Research notes are usually meant to contain time-sensitive information that applies to the current day's trading session or some event in the near future. Entities supplying research notes to clients can be careful not to disadvantage certain classes of investors at the expense of another group. Entities supplying research notes to clients should be careful not to disadvantage any one class of investors at the expense of another group. Research notes are useful tools for investors but entities sharing them must be careful how they are utilized in order to prevent market manipulation or bias.

Research Note

The residual sum of squares (RSS) is a statistical technique used to measure the variance in a data set that is not explained by the regression model.

Table of Contents
What Is the RSS? The smaller the residual sum of squares, the better your model fits your data; the greater the residual sum of squares, the poorer your model fits your data. The smaller the residual sum of squares, the better your model fits your data; the greater the residual sum of squares, the poorer your model fits your data. The total sum of squares (TSS) measures how much variation there is in the observed data, while the residual sum of squares measures the variation in the error between the observed data and modelled values. The residual sum of squares (RSS) is a statistical technique used to measure the amount of variance in a data set that is not explained by a regression model itself.

Residual Sum of Squares (RSS)

The scattergraph method is a visual technique for separating the fixed and variable elements of a semi-variable expense in order to estimate and budget future costs. 

The scattergraph (or scatter graph) method is a visual technique used in accounting for separating the fixed and variable elements of a semi-variable expense (also called a mixed cost) in order to estimate and budget for future costs. If an analyst calculates that the fixed cost associated with a mixed cost is $1,000 per month and the variable cost component is $3.00 per unit, then it can be determined that an activity level of 500 units in an accounting period will equate to a total mixed cost of $2,500 (calculated as $1,000 fixed cost + ($3.00/unit x 500 units)).
The scattergraph method is not an overly precise approach for determining cost levels since it does not include the impact of step costing points, where costs change dramatically at certain activity levels. Alternate methods of cost estimation include cost accounting's high-low method, a technique of attempting to separate out fixed and variable costs given a limited amount of data; account analysis, in cost accounting, a way for an accountant to analyze and measure the cost behavior of a firm; and least squares, a statistical method used to determine a line of best fit by minimizing the sum of squares created by a mathematical function. The scattergraph (or scatter graph) method is a visual technique used in accounting for separating the fixed and variable elements of a semi-variable expense (also called a mixed cost) in order to estimate and budget for future costs. Ideally, the result of a scattergraph analysis is a formula with the total amount of fixed cost and the variable cost per unit of activity.

Scattergraph Method

SEC Form S-1 is the initial registration form the Securities and Exchange Commission (SEC) requires public companies to fill out if they want to list their shares on a national exchange.

SEC Form S-1 is the initial registration form for new securities required by the SEC for public companies that are based in the U.S. SEC Form S-1 is the initial registration form for new securities required by the SEC for public companies that are based in the U.S. Form S-1 requires companies to provide information on the planned use of capital proceeds, detail the current business model and competition and provide a brief prospectus of the planned security itself, offering price methodology and any dilution that will occur to other listed securities. Foreign issuers of securities in the U.S. do not use SEC Form S-1 but instead must submit an SEC Form F-1. SEC Form S-1 is an SEC registration required for U.S. companies that want to be listed on a national exchange.

SEC Form S-1

Stepwise regression involves selection of independent variables to use in a model based on an iterative process of adding or removing variables.

Stepwise regression is the step-by-step iterative construction of a regression model that involves the selection of independent variables to be used in a final model. Some use a combination of both methods and therefore there are three approaches to stepwise regression:
1.  **Forward selection*begins with no variables in the model, tests each variable as it is added to the model, then keeps those that are deemed most statistically significant—repeating the process until the results are optimal.
2.  **Backward elimination*starts with a set of independent variables, deleting one at a time, then testing to see if the removed variable is statistically significant.
3.  **Bidirectional elimination*is a combination of the first two methods that test which variables should be included or excluded. Stepwise regression can be achieved either by trying out one independent variable at a time and including it in the regression model if it is statistically significant or by including all potential independent variables in the model and eliminating those that are not statistically significant. Stepwise regression is the step-by-step iterative construction of a regression model that involves the selection of independent variables to be used in a final model. Stepwise regression is a method that iteratively examines the statistical significance of each independent variable in a linear regression model.

Stepwise Regression

A story stock is a stock that is trading markedly higher on optimistic expectations about its potential profits. 

A story stock refers to a company's shares whose value reflects expected outperformance, the culmination of some new innovation, or favorable press coverage, rather than its market value being solely based on fundamentals like assets and income. A story stock refers to a company's shares whose value reflects expected outperformance, the culmination of some new innovation, or favorable press coverage, rather than its market value being solely based on fundamentals like assets and income. In 2013, CNBC's Jim Cramer coined the term FANG to refer to four dominant technology stocks as measured by market performance and capitalization: Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google's parent company Alphabet Inc. (GOOG). Many story stocks are in the dynamic technology or biotechnology sectors due to the lure of purchasing shares of an innovative company that may discover the cure for cancer or invent a new fuel source. These story stocks were strong performers from 2013 on, and in 2017, the five stocks' average performance was about 50%, compared with a 19% gain for the S&P 500 Index (SPX).

Story Stock

SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used to evaluate a company's competitive position and to develop strategic planning.

SWOT Analysis: What It Is and When to Use It

The Coca-Cola Company: A Short SWOT Analysis

Home Depot SWOT Analysis & Recommendations

Table of Contents
Expand What Is SWOT Analysis?
How to Do a SWOT Analysis
How to Use a SWOT Analysis
SWOT Analysis Example
Frequently Asked Questions About SWOT Analysis
The Bottom Line
SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used to evaluate a company's competitive position and to develop strategic planning. SWOT (strengths, weaknesses, opportunities, and threats) analysis is a method for identifying and analyzing internal strengths and weaknesses and external opportunities and threats that shape current and future operations and help develop strategic goals. Potential questions to list external factors are:
(Opportunity) What trends are evident in the marketplace?
(Opportunity) What demographics are we not targeting?
(Threat) How many competitors exist, and what is their market share?
(Threat) Are there new regulations that potentially could harm our operations or products?
Use a SWOT analysis to identify challenges affecting your business and opportunities that can enhance it. In conjunction with other planning techniques, the company used the SWOT analysis to leverage its strengths and external opportunities to eliminate threats and strengthen areas where it is weak.

Strength, Weakness, Opportunity, and Threat (SWOT) Analysis

Terminal value (TV) determines the value of a business or project beyond the forecast period when future cash flows can be estimated.

Terminal value (TV) is the value of an asset, business, or project beyond the forecasted period when future cash flows can be estimated. The formula to calculate terminal value is:
> (FCF \(1 + g)) / (d - g)
FCF = Free cash flow for the last forecast period
g = Terminal growth rate
d = discount rate (which is usually the weighted average cost of capital)
The terminal growth rate is the constant rate that a company is expected to grow at forever. Like discounted cash flow (DCF) analysis, most terminal value formulas project future cash flows to return the present value of a future asset. Terminal value is calculated by dividing the last cash flow forecast by the difference between the discount rate and terminal growth rate. Terminal value (TV) is the value of an asset, business, or project beyond the forecasted period when future cash flows can be estimated.

Terminal Value (TV)  & Calculation

Undisclosed reserves can occur when a bank charges an expense that will not ultimately materialize.

Part 2: The First Pillar – Minimum Capital Requirements

Undisclosed reserves include unpublished or "hidden" reserves that may not appear on public documents—such as on the balance sheet—but are nonetheless real assets and are considered as such by most banking institutions. Five items can typically be included in Tier 2 capital calculations:
Undisclosed reserves
Revaluation reserves
General loan-loss reserves
Hybrid debt-equity capital instruments
Subordinated term debt
Tier 1 capital, which is also known as core capital, is more liquid and consists of equity capital and disclosed reserves (e.g. retained earnings). Tier 2 capital, or supplementary capital, also includes a number of important and legitimate constituents of a bank's capital requirement. Undisclosed reserves relate to capital requirements in the banking industry and are designated as Tier 2 capital. Undisclosed reserves are included as part of Tier 2 capital along with general loan-loss and revaluation reserves.

Undisclosed Reserves

Weighted average cost of equity (WACE) is a way to calculate the cost of a company's equity that gives different weight to different aspects of the equities.

Weighted average cost of equity (WACE) is a way to calculate the cost of a company's equity that gives different weight to different types of equities according to their proportion in the corporate structure. The cost of equity used in most formulas is usually a weighted average cost of equity, even if this is not explicitly stated.
Calculating the weighted average cost of equity isn't as straightforward as calculating the cost of debt. As mentioned, the weighted average cost of equity is commonly combined with the weighted average cost of debt to calculated a firm's weighted average cost of capital (WACC). If the cost of equity was averaged without being weighted, outliers in the cost of equity could cause an overstatement or understatement of the cost. Weighted average cost of equity (WACE) is a way to calculate the cost of a company's equity that gives different weight to different types of equities according to their proportion in the corporate structure.

Weighted Average Cost of Equity (WACE)

Weighted is a description of adjustments to a figure to account for different proportions or "weights" of components that make up that figure.

Weighted is a description of adjustments to a figure to reflect different proportions or "weights" of components that make up that figure. Other weighted metrics include weighted average cost of capital (WACC), weighted average coupon, and time weighted average annual rate of return. Where the DJIA and Nasdaq indexes utilize weighting in their calculation to more closely approximate the effect that changing stock prices will have on the overall market, weighting can also be used to help evaluate the past and current prices of individual instruments through technical analysis. The S&P 500 Index, the most common market index upon which several passive investment vehicles are formed, can become overweighted in certain sectors such as information technology if the market caps of these constituents grow disproportionately relative to the other sectors. The Dow Jones Industrial Average (DJIA) is a price-weighted average that compares each security based on the stock's price relative to the sum of all the stocks' prices.

Weighted

Winsorized mean is an averaging method that involves replacing the smallest and largest values of a data set with the observations closest to them.

Winsorized mean is a method of averaging that initially replaces the smallest and largest values with the observations closest to them. The winsorized mean is not the same as the trimmed mean, which involves removing data points as opposed to replacing them—although the results of the two tend to be close.
Winsorized Mean  \=   x n … x n \+ 1   \+   x n \+ 2 … x n N where: n   \=   The number of largest and smallest data points to be replaced by the observation closest to them N   \=  Total number of data points \\begin{aligned} &\\text{Winsorized Mean}\\ =\\ \\frac{x\_{n}\\dots x\_{n+1}\\ +\\ x\_{n+2}\\dots x\_{n}}{N}\\\\ &\\textbf{where:}\\\\ &\\begin{aligned} n\\ =\\ &\\text{The number of largest and smallest data}\\\\ &\\text{points to be replaced by the observation}\\\\ &\\text{closest to them}\\end{aligned}\\\\ &N\\ =\\ \\text{Total number of data points} \\end{aligned} ​Winsorized Mean \= Nxn​…xn+1​ + xn+2​…xn​​where:n \= ​The number of largest and smallest datapoints to be replaced by the observationclosest to them​N \= Total number of data points​ The winsorized mean is 33.9, or the total of the data (678) divided by the total number of data points (20).
The winsorized mean includes modifying data points, while the trimmed mean involves removing data points. The winsorized mean is achieved by replacing the smallest and largest data points, then summing all the data points and dividing the sum by the total number of data points. The winsorized mean is an averaging method that involves replacing the smallest and largest values of a data set with the observations closest to them.

Winsorized Mean

The Zeta Model is a mathematical formula that estimates the chances of a public company going bankrupt within a two-year time period. 

The Zeta Model is a mathematical model that estimates the chances of a public company going bankrupt within a two-year time period. where: ζ \= score A \= working capital divided by total assets B \= retained earnings divided by total assets C \= earnings before interest and tax divided by total assets D \= market value of equity divided by total liabilities E \= sales divided by total assets \\begin{aligned} &\\zeta = 1.2A + 1.4B + 3.3C + 0.6D + E\\\\ &\\textbf{where:}\\\\ &\\zeta=\\text{score}\\\\ &A = \\text{working capital divided by total assets} \\\\ &B = \\text{retained earnings divided by total assets}\\\\ &C = \\text{earnings before interest and tax divided by total assets}\\\\ &D = \\text{market value of equity divided by total liabilities}\\\\ &E = \\text{sales divided by total assets}\\\\ \\end{aligned} ​ζ\=1.2A+1.4B+3.3C+0.6D+Ewhere:ζ\=scoreA\=working capital divided by total assetsB\=retained earnings divided by total assetsC\=earnings before interest and tax divided by total assetsD\=market value of equity divided by total liabilitiesE\=sales divided by total assets​
The Zeta Model returns a single number, the z-score (or zeta score), to represent the likelihood of a company going bankrupt in the next two years. The lower the z-score, the more likely a company is to go bankrupt. Different z-score formulations and zeta models exist for special cases such as private firms, emerging market risks, and non-manufacturer industrials.
The Zeta Model was developed by New York University professor Edward Altman in 1968. The number produced by the model is referred to as the company's Z-score (or zeta score) and is considered to be a reasonably accurate predictor of future bankruptcy. The Zeta Model is a mathematical model that estimates the chances of a public company going bankrupt within a two-year time period.