Summary of Chapters 5-8
By Hannah Williams
2.1 Polls and Surveys
Polls and surveys pepper news reports, enhancing qualitative analysis with quantitative proof; however, not all polls and surveys are created equal – some are more representative and reliable than others.
Polls are generally a gathering of people’s positions on one question or topic while surveys tend to be more extensive.
When using either, it’s important to explain to the reader general background information about the measurement and thus the information presented.
When citing a poll or survey you should include the following information:
-Who conducted it?
-Who paid for it?
-How and when was it conducted?
-How were the questions worded?
-How large was the sample?
-How was the sample selected?
-What is the margin of error?
-Were there any extern factors that might effect the results?
Polls and surveys are more reliable if:
-Those who conducted/paid for it are objective.
-The questions are unbiased.
-The sample size is large and representative.
-The margin of error is small.
-The results are unaffected by outside factors.
Selecting a sample can be done in a variety of ways, all aiming for large representative portions of the population. Selection methods include:
-Census: Sampling the entire population.
-Cluster: Selecting a sample based on geographic or other well-defined areas.
-Multistage: Identifying a specific geographic area, the randomly selecting sub-groups, smaller sub-groups within those, and finally specific blocks.
-Systematic: Selecting every nth person from a comprehensive database or list.
-Quota: Balancing the representation of specific groups within the sample, i.e. men and women, employed and unemployed, Republicans and Democrats, etc.
-Probability (Simple Random): Picking the sample at random with each member having an equal chance of being chose.
When interpreting poll and survey results, it is important to note the margin of error and confidence level. The margin of error indicates how many percentage points must be added and subtracted from each category to accurately convey the spectrum of possible results for each. The margin of error necessary is indicated by the confidence level, or the level at which the pollster is confident in the results, for example, a 95 percent confidence interval means that the results have a 95 percent chance of being accurate and a 5 percent chance of happening by chance.
2.2 Business
In a capitalistic culture, business will often be the subject of news stories, and it’s journalists’ job to help readers understand businesses’ standings by deciphering financial statements and ratios, often released in their financial reports.
When examining any financial records note the following:
-Currency and scale. Figures given are likely in the company’s native currency and given in increments of hundreds, thousands or millions.
-Parentheses. Parenthetical numbers are negative.
Profit and Loss statements are perhaps the most important, as they indicate whether the company is making money.
What you’re looking for is the company’s bottom line, or net income, which is how much money the company made after accounting for the costs of goods, operations, interest, equity and taxes.
Sometimes you’ll want to identify a company’s EBITDA, or “earnings before interest, taxes, depreciation and amortization,” to better depict how much a company made during a single operating cycle, as is doesn’t account for inevitable costs and fees. The EBITDA is also known as the operational cash flow, for this reason.
A company’s balance sheet is a more comprehensive breakdown of assets, liabilities and equity. A company’s assets equal its liabilities plus its equity.
Companies’ financial records are best understood when examined in context, compared with their previous records or with those of competitors.
Ratio analysis is one way to do this, but as a journalist you must explain what each ratio means and what aspects of performance it misses.
Current ratio is a measurement of a company’s liquidity by assessing its ability to cover current liabilities with current assets. Current ratio = current assets ¸ current liabilities.
Current ratio is a gauge of a company’s liquidity by measuring cash on hand in comparison to current liabilities. Quick ratio = cash ¸ current liabilities.
Debt-to-asset ratio is a measurement of a company’s long-term liquidity, comparing its liabilities (debt) with its assets. Debt-to-asset ratio = total debt ¸ total assets.
Debt-to-equity ratio is an indicator of how much of a company owes in comparison to how much it owns. Debt-to-equity ratio = total debt ¸ equity.
Return on assets measures a company’s profitability compared to its investments on assets. Return on assets = net income ¸ total assets.
Return on equity measures a company’s profitability compared to its investments on equity or ownership. Return on equity = net income ¸ equity.
Price-earnings ratio is a value ratio that measures the return on investment based on stock price. Price-earnings ratio = market price per share ¸ earnings per share.
NOTE: These ratios will not be meaningful unless compared to an industry standard.
If business reporting interests you, you’ll want a solid background in calculating, understanding and interpreting business statistics. Introductory courses, at least, in accounting, economics and finance will serve you well as a business journalist.
2.3 Stocks and Bonds
Stocks are sold by companies to raise cash and bought by people as investments. Owning stock means owning a small part of a company.
Stock tables are some of the most daunting lists of numbers in a newspaper. A typical stock table includes the following columns:
-52-week High/Low: the highest and lowest selling price within the last year.
-Stock: symbol of the stock, usually an abbreviated version of the company’s name.
-Div: the most recent dividend paid to shareholders per share.
-PE: price-earnings ratio.
-Last: the price of a share of stock at the close of the previous business day.
-Change: how much the price went up or down that day.
Bonds are issued by corporations and governments to raise money and work like loans, where the purchaser earns interest at an annual rate. They are low-risk investments, unlike stocks.
Bonds have a set interest rate, set dates for interest payment, and a set maturity value. The initial owner often pays “face value” for a bond, for example purchasing it for $1000 dollars to earn 5 percent interest at a rate of $50 per year for 30 years at the close of which the bond owner will receive his $1000 back.
Bonds, however, can be sold like stocks, and thus fluctuate in value with supply and demand. Bonds’ fluctuating values are referred to as “current yields.” Current yield = (interest rate ´ face value) ¸ price.
The cost of issuing bonds is also important, especially when issued by municipalities where taxpayers are ultimately responsible for paying the associated interest costs. Bond costs (interest) = amount ´ rate ´ years.
Market indexes, such as Dow Jones Industrial Average and NASDAQ, provide a snapshot of the overarching market conditions by collectively monitoring and analyzing a set of stocks.
The Dow Jones Industrial average monitors the value of 30 key stocks and divides their values by the divisor (a key figure that accounts for compounding factors like dividends, splits, spinoffs and mergers) to give a broad view of how the market is performing overall.
The NASDAQ issues and automated quotation of over 5,000 companies listed with the Securities and Exchange Commission amongst numerous other requirements.
2.4 Property Taxes
The latter of the two inevitables does not have to be inexplicably frightening. Property taxes comprise the majority of income for local governments, school districts and municipal organizations.
Local governments determine the property tax rate by calculating the total amount of money needed and dividing that among property owners in the district. Property owners pay taxes relative to the assessed value of their property.
Property taxes are measured in mills, units equivalent to 1/10 of a cent. A mill levy is proposed by the governing body to distribute the costs of its activities amongst property owners. Mill levy = amount of tax money needed ¸ assessed valuation of all property in the taxing district.
Property is appraised by professionals according to use, characteristics (location, space, age, amenities, etc.), market conditions and inspection. The taxable property value is a percentage of its appraised value, as figured by local policies, and is called its assessed value.
Tax owed = tax rate ´ (assessed property value ¸ incremental taxation rate [usually $100 or $1,000]).
Problems
2.1 If a poll indicated that 52 percent of voters support Obama and 48 percent support McCain with a 3.1 margin of error at 95 percent confidence, who lead the poll?
a. Obama’s support = 48.9 percent to 55.1 percent. McCain’s support = 44.9 percent to 51.1 percent.
b. Since there’s overlap, neither candidate led the poll.
If ABC company nets Current ratio is a measurement of a company’s liquidity by assessing its ability to cover current liabilities with current assets. Current ratio = current assets ¸ current liabilities.
2.2 How well is ABC, Inc. utilizing its assets to make a profit if it nets $1.5 million in profit while investing half a million in its assets? [Note: The industrial average return on assets ratio is 2.5.]
a. Return on assets = net income ¸ total assets = $ 1.5 million ¸ $0.5 million = 3.
b. ABC, Inc. is seeing a greater return on its asset investment than the industrial average, which indicates that its investments have been profitable.
2.3 If Bobby Bonds buys a bond with a face value of $1,000 and an interest rate of 5 percent for $800 from Debbie Downer who is selling it before maturity to cover medical expenses, what is the bond’s current yield?
a. Current yield = (interest rate ´ face value) ¸ price = (5 percent ´ $1000) ¸ $800 = 6.25 percent
2.4 Sally Homemaker owns a house that has been appraised at $400 thousand in a tax district that assesses residential property at 25 percent and just passed a 1.5 mill levy to fund a local playground. How much will Sally pay if the area taxes per $100 of assessed value?
a. Tax owed = tax rate ´ (assessed property value ¸ incremental taxation rate) = 1.5 mills ´ ([$400 thousand ´ 25 percent] ¸ $100) = $0.15 ´ ($100 thousand ¸ $100) = $150
