Fundamental and Technical Analysis Flashcards

Which technical indicator measures the rate of change in a security's price momentum?

Answer: MACD (Moving Average Convergence Divergence)

MACD measures momentum by showing the relationship between two exponential moving averages, with crossovers signaling potential trend changes.

In fundamental analysis, the quick ratio excludes which current asset?

Answer: Inventory

The quick ratio excludes inventory because it may not be quickly convertible to cash, providing a more conservative liquidity measure than the current ratio.

Fundamental analysts use the DuPont formula to decompose return on equity into which three components?

Answer: Net profit margin, asset turnover, and financial leverage

The DuPont formula breaks ROE into net profit margin × asset turnover × equity multiplier (leverage), revealing drivers of profitability.

In technical analysis, 'volume' is most useful for:

Answer: Confirming the strength or weakness of a price move

Volume confirms price movements — a breakout on high volume is more reliable than one on low volume, as it indicates broader market participation.

Which of the following is an example of a leading economic indicator used in top-down fundamental analysis?

Answer: Building permits issued

Building permits are a leading indicator because they predict future construction activity before it occurs, unlike lagging indicators like unemployment.

A 'double bottom' chart pattern signals:

Answer: A potential bullish reversal

A double bottom forms when price touches a support level twice and then rallies, signaling a potential reversal from a downtrend to an uptrend.

In earnings analysis, 'operating leverage' refers to the degree to which a company relies on:

Answer: Fixed costs versus variable costs in its cost structure

Operating leverage measures how fixed costs amplify the impact of revenue changes on operating income — higher fixed costs mean greater operating leverage.