Deck 5: How the Stock Market Assesses Company Performance

Question 1

Which of the following statements is correct?

A) A low price/earnings ratio might might mean investors are expecting earnings per share to increase in coming years
B) A high price/earnings ratio may signify that the previous years earnings were unusually low
C) A young company that has recently floated on the stock exchange will probably have a low price/earnings ratio
D) All of the above statements are correct

Answer 1

B

Question 2

The following information is available for companies A,B,C and D:
$$\begin{array} { l c r r r } & \text { A } & { \text { B } } & \text { C } & { \text { D } } \\\text { Number of ordinary shares } & 1,000,000 & 1,250,000 & 750,000 & 500,000 \\\text { Current share price } & £ 2.50 & £ 3.00 & £ 1.50 & £ 1.75 \\\text { Total profits after tax } & £ 200,000 & £ 225,000 & £ 150,000 & £ 250,000 \\\text { Total ordinary dividends } & 100,000 & 100,000 & 50,000 & 40,000\end{array}$$

Which company has the highest earnings per share?

A) A
B) B
C) C
D) D

Answer 2

D

Question 3

Total profit divided by dividend is known as:

A) Price earnings ratio
B) Dividend cover
C) Dividend yield
D) Earnings per share

Answer 3

B

Question 4

The following information is available for companies A,B,C and D:
$$\begin{array} { l c r r r } & \text { A } & { \text { B } } & \text { C } & { \text { D } } \\\text { Number of ordinary shares } & 1,000,000 & 1,250,000 & 750,000 & 500,000 \\\text { Current share price } & £ 2.50 & £ 3.00 & £ 1.50 & £ 1.75 \\\text { Total profits after tax } & £ 200,000 & £ 225,000 & £ 150,000 & £ 250,000 \\\text { Total ordinary dividends } & 100,000 & 100,000 & 50,000 & 40,000\end{array}$$
Which company has the largest market capitalization

A) A
B) B
C) C
D) D

Question 5

The "market capitalization" of a company refers to the total market value of a companies shares

Question 6

The following information is available for companies A,B,C and D:
$$\begin{array} { l c r r r } & \text { A } & { \text { B } } & \text { C } & { \text { D } } \\\text { Number of ordinary shares } & 1,000,000 & 1,250,000 & 750,000 & 500,000 \\\text { Current share price } & £ 2.50 & £ 3.00 & £ 1.50 & £ 1.75 \\\text { Total profits after tax } & £ 200,000 & £ 225,000 & £ 150,000 & £ 250,000 \\\text { Total ordinary dividends } & 100,000 & 100,000 & 50,000 & 40,000\end{array}$$
Which company has the lowest price/earnings ratio?

A) A
B) B
C) C
D) D

Question 7

The following information is available for companies A,B,C and D:
$$\begin{array} { l c r r r } & \text { A } & { \text { B } } & \text { C } & { \text { D } } \\\text { Number of ordinary shares } & 1,000,000 & 1,250,000 & 750,000 & 500,000 \\\text { Current share price } & £ 2.50 & £ 3.00 & £ 1.50 & £ 1.75 \\\text { Total profits after tax } & £ 200,000 & £ 225,000 & £ 150,000 & £ 250,000 \\\text { Total ordinary dividends } & 100,000 & 100,000 & 50,000 & 40,000\end{array}$$

Which company has the highest dividend cover?

A) A
B) B
C) C
D) D

Question 8

Systematic risk refers to the risk due to what happens in the market generally

Question 9

Which of the following statements is false?

A) "tracker" investment funds buy shares in the companies that make up an index, such as the FTSE 100
B) The performance of "tracker" funds is often better than funds where the managers use their own expertise to select the best investments
C) Inclusion on the FTSE 100 will not affect demand for a companies shares
D) When a company is about to be removed from the FTSE 100 its share price is likely to fall

Question 10

The following information is available for companies A,B,C and D:
$$\begin{array} { l c c r r } & \mathbf { A } & \mathbf { B } & \mathbf { C } & { \mathbf { D } } \\\text { Number of ordinary shares } & 1,000,000 & 1,250,000 & 750,000 & 500,000 \\\text { Current share price } & £ 2.50 & £ 3.00 & £ 1.50 & £ 1.75 \\\text { Total profits after tax } & £ 200,000 & £ 225,000 & £ 150,000 & £ 250,000 \\\text { Total ordinary dividends } & 100,000 & 100,000 & 50,000 & 40,000\end{array}$$
Which company has the highest dividend per share?

A) A
B) B
C) C
D) D

Question 11

The only factor that influences a companies share price is the profit it has made

Question 12

A balanced portfolio can eliminate unsystematic risk

Question 13

The following information is available for companies A,B,C and D:
$$\begin{array} { l c r r r } & \text { A } & { \text { B } } & \text { C } & { \text { D } } \\\text { Number of ordinary shares } & 1,000,000 & 1,250,000 & 750,000 & 500,000 \\\text { Current share price } & £ 2.50 & £ 3.00 & £ 1.50 & £ 1.75 \\\text { Total profits after tax } & £ 200,000 & £ 225,000 & £ 150,000 & £ 250,000 \\\text { Total ordinary dividends } & 100,000 & 100,000 & 50,000 & 40,000\end{array}$$

Which company would you invest in if you motivated by future share price growth?

A) A
B) B
C) C
D) D

Question 14

The following information is available for companies A,B,C and D:
$$\begin{array} { l c r r r } & \text { A } & { \text { B } } & \text { C } & { \text { D } } \\\text { Number of ordinary shares } & 1,000,000 & 1,250,000 & 750,000 & 500,000 \\\text { Current share price } & £ 2.50 & £ 3.00 & £ 1.50 & £ 1.75 \\\text { Total profits after tax } & £ 200,000 & £ 225,000 & £ 150,000 & £ 250,000 \\\text { Total ordinary dividends } & 100,000 & 100,000 & 50,000 & 40,000\end{array}$$

If you are interested in obtaining a regular income from your investment,which company would you invest in?

A) A
B) B
C) C
D) D

Question 15

Which of the following can influence a companies share price?

A) Other companies in the same sector reporting poor results
B) Scandal and gossip
C) Financial journalist offering share tips to readers
D) All of the above

Question 16

The following information is available for companies A,B,C and D:
$$\begin{array} { l r r r r } & \text { A } & { \text { B } } &{ \text { C } } &{ \text { D } } \\\text { Number of ordinary shares } & 1,000,000 & 1,250,000 & 750,000 & { 500,000 } \\\text { Current share price } & £ 2.50 & £ 3.00 & £ 1.50 & £ 1.75 \\\text { Total profits after tax } & £ 200,000 & £ 225,000 & £ 150,000 & £ 250,000 \\\text { Total ordinary dividends } & 100,000 & 100,000 & 50,000 & 40,000\end{array}$$
Which company has the lowest dividend yield?

A) A
B) B
C) C
D) D

Question 17

Total profits divided by number of ordinary shares is known as:

A) Dividend cover
B) Price/earnings ratio
C) Earnings per share
D) Dividend yield

Question 18

A high price/earnings (P/E)ratio indicates that a company is profitable

Question 19

Dividend per share expressed as a % of current share price is known as:

A) Dividend cover
B) Price/earnings ratio
C) Dividend yield
D) Earnings per share

Question 20

Current share price divided by earnings per share is known as:

A) Price/earnings ratio
B) Dividend yield
C) Dividend cover
D) Market capitalization

Question 21

Which of the following statements is correct?

A) A bull market is when share prices are rising
B) A bull market is when share prices are falling
C) A bear market is when share prices are rising
D) Statements B and C are both correct

Question 22

Which of the following statements is false?

A) On a cash flow statement, investors expect to see a positive figure for cash generated from operating activities
B) On a cash flow statement, investors expect to see a positive figure for cash generated from investing activities
C) On a cash flow statement, investors expect to see a negative figure for cash generated from investing activities
D) On a cash flow statement, investors are interested in whether a company has increased/decreased borrowings

Question 23

Which of the following statements is correct?

A) A company which is expected to deliver rapid growth will have a high price earnings ratio and low dividend yield
B) A company which is expected to deliver rapid growth will have a high price earnings ratio and high dividend yield
C) A company which is expected to deliver rapid growth will have a low price earnings ratio and low dividend yield
D) A company which is expected to deliver rapid growth will have a low price earnings ratio and high dividend yield

Question 24

Which of the following statements is correct?

A) You can buy shares by directly contacting the company you want to buy shares in
B) It is usually quite difficult to buy the shares of unlisted companies
C) It is difficult for investors to make profits when share prices are rising
D) All of the above statements are correct

Question 25

Which of the following statements is false?

A) When the price of a company's shares is too high, demand for those shares will fall
B) The price of a company's shares is determined by the company itself
C) If a company's shares are not in demand, the share price will fall until some investors decide the shares are good value
D) All of the above statements are false