Deck 7: Fundamental Stock Analysis

Question 1

Someone who believes that securities are priced in a rational manner based on macroeconomic information, industry news, and a firm's financial statements is a

A) technical analyst.
B) economist.
C) fundamental analyst.
D) chartist.

Answer 1

fundamental analyst.

Question 2

Most investment research deals with _____ earnings.

A) future
B) past unexpected
C) past expected
D) industry

Answer 2

future

Question 3

A value investor is especially interested in

A) the price/book ratio.
B) volume trends.
C) the dividend yield.
D) the stock price moving average.

Answer 3

the price/book ratio.

Question 4

_____ traders seek to profit from information differentials.

A) Growth
B) Value
C) True
D) Information

Question 5

A_____ investor focuses on companies that are currently in favor in the financial community.

A) true growth
B) value
C) information
D) risk averse

Question 6

The price/earnings ratio is computed by dividing the_____ by the firm's _____ .

A) book value, net income
B) stock price, dividend payout
C) stock price, earnings per share
D) market value, return on assets

Question 7

Historic growth rates should normally be figured by computing the

A) yearly average.
B) arithmetic mean.
C) geometric mean.
D) harmonic mean.

Question 8

A firm's _____ added to its _____ equals 1.0.

A) earnings per share, PE ratio
B) ROA, ROE
C) growth rate, net income
D) payout ratio, plowback ratio

Question 9

Apparent growth due solely to a merger is termed

A) accounting growth.
B) horizontal growth.
C) false growth.
D) PE growth.

Question 10

Cash flow from_____ is a firm's lifeblood.

A) sales
B) investing
C) financing
D) operations

Question 11

A(n)_____ is a primary market sale of securities to the general public.

A) BOST
B) OTC
C) IPO
D) HUF

Question 12

Which group of stocks has had unusually good historic performance relative to the others?

A) small-cap
B) mid-cap
C) large-cap
D) medium priced

Question 13

Dividing the current market price by the company's earnings per share from the past year gives the

A) payout ratio.
B) plowback ratio.
C) trailing PE ratio.
D) price/book ratio.

Question 14

Corporate management likes their PE to be _____ , while value investors like stocks with _____ P/Es.

A) low, low
B) low, high
C) high, low
D) high, high

Question 15

The shareholders' required rate of return is the sum of the expected dividend yield and the expected

A) prime interest rate.
B) PE ratio.
C) stock price appreciation.
D) option premium.

Question 16

The concept value investors believe that says securities have long-term expected returns consistent with their level of risk is most related to the concept of

A) regression to the mean.
B) relative strength.
C) optimum trading price range.
D) momentum indicators.

Question 17

_____ is an accounting concept measuring what shareholders would receive if all the firm's liabilities and assets could be sold/paid off at the stated balance sheet values.

A) Book value
B) Market value
C) Balance sheet value
D) Accounting value

Question 18

The value of a stock is related to which of the following?

A) the projected cash flows
B) the timing of the projected cash flows
C) the riskiness of the projected cash flows
D) all of the above

Question 19

A fundamental analysis of EIC refers to which of the following?

A) economics, investment, consumption
B) economy, industry, company
C) effective earnings, invested earnings, consistent performance
D) none of the above

Question 20

An analysis of a company that indicates that it has a powerful supplier, many substitutes, high level of competition from competitors with the list of competitors growing every day, would include which component of EIC analysis?

A) economy
B) industry
C) company
D) regulatory

Question 21

A value investor is likely to _____ a stock which has outperformed its competitors over the last few year?

A) buy
B) sell
C) hold
D) none of the above

Question 22

An information trader's focus is_____ as he/she attempts to locate new information coming to the marketplace.

A) very long term
B) long term
C) very short term
D) longer than a "value" investor

Question 23

The true growth investor is likely to pay for _____ earnings of a company.

A) future
B) current
C) past
D) simulated

Question 24

Atol Corp. has a price/book ratio of 1.3, a P/E ratio of 18, and current earnings of $2.00/share. Its current book value/share is:

A) $36.00
B) $27.69
C) $23.40
D) $11.70

Question 25

Amuzon Corp. is currently selling for $30/share and recently reported annual earnings of $2 million, 1 million shares outstanding, and forecasted earnings/share of $2.50 next year. Amuzon Corp.'s trailing P/E ratio is:

A) 15
B) 12
C) 30
D) 6.67%

Question 26

EIC analysis typically begins with

A) an assessment of environmental factors affecting the company of interest
B) an assessment of economic conditions affecting investing
C) eliminating companies from consideration which are not of interest
D) engaging the services of a professional market technician

Question 27

DuPont Analysis incorporate all of the following except

A) profitability
B) efficiency
C) leverage
D) cash flow

Question 28

Technical analysts make extensive use of financial statements.

Question 29

Most investment research deals with the prediction of future dividends.

Question 30

Value investors look for quick returns.

Question 31

Value investors believe in a regression to the mean.

Question 32

A growth trader often focuses on companies that are currently in favor in the financial community.

Question 33

Graham and Dodd are famous market technical analysts.

Question 34

Growth stocks tend to have a high price/earnings ratio.

Question 35

Value stocks tend to have a high price/book ratio.

Question 36

With a listed stock, market value cannot fall below book value.

Question 37

The plowback ratio equals one minus the retention ratio.

Question 38

A firm's growth rate equals the retention ratio times its return on equity.

Question 39

In the dividend discount model, the shareholders' required rate of return equals the expected dividend yield plus the growth rate.

Question 40

False growth occurs when a firm with a high stock price acquires another firm with a lower stock price.

Question 41

On the statement of cash flows, a financial analyst is most concerned about cash flow from investing activities.

Question 42

Financial research indicates large-cap firms tend to perform better than small-cap firms.

Question 43

Brokerage firms encourage the practice of flipping IPO securities.

Question 44

SIC stands for Security Investment Company.

Question 45

Cash flow from operations is often used as a check on the quality of a firm's earnings.

Question 46

The payout ratio is always less than 100%.

Question 47

A trailing PE ratio will be less than a forecasted PE ratio.

Question 48

Pupsico's earnings growth rate is forecasted to be 10%/year for the next five years. Pupsico's earnings in five years will be 50 times what they were this year.

Question 49

With current earnings of $1.60/share the forecasted earnings in three years, assuming a 8% growth rate will be $2.02.

Question 50

Williams Corp. paid a $1 dividend on $3 EPS last year and generated a ROE of 18%. The growth rate of Williams Corp. was 12%.

Question 51

Jasper Ltd. had a growth rate of 16% last year along with a ROE of 20% and a payout ratio of 20%. Jasper Ltd. is known as an income stock.

Question 52

"Whisper numbers"are likely to be under investment analysts' predictions.

Question 53

A value investor is most likely to first focus on a firm's dividend payout ratio.