Question 1

Which of the following is NOT a way that managers of most companies could improve their communication to investors?&#10;A)Increase their understanding of their investor base.&#10;B)Respond more actively to analysts' comments and the changing P/E ratio of the firm.&#10;C)Tailor communications to the investors that matter most in determining share price.&#10;D)Engage in a systematic analysis to determine if there really is a material discrepancy between their company's intrinsic value and its market value.

Accepted Answer

Responding more actively to analysts' comments and the changing P/E ratio of the firm is actually a way that managers could improve their communication to investors, so it is not the correct answer. A, C, and D are all valid ways that managers could improve their communication to investors.

Question 2

Which of the following is true with respect to earnings guidance?&#10;A)There is usually a change in total returns to shareholders in the first year that managers begin to offer earnings guidance.&#10;B)It has been proven that earnings guidance can increase liquidity.&#10;C)Firms that engage in earnings guidance have higher multiples such as enterprise value/EBITA.&#10;D)When a company begins to issue earnings guidance,it does not change the likelihood of higher or lower volatility in its share price relative to companies that do not issue earnings guidance.

Accepted Answer

Research shows that firms that engage in earnings guidance do not experience lower volatility in their share prices relative to firms that do not offer earnings guidance. Therefore, option D is the correct choice. Option A is incorrect as research indicates that there is no change in total returns to shareholders when firms begin to offer earnings guidance. Option B is incorrect as there is mixed evidence on whether earnings guidance increases liquidity. Option C is incorrect as there is no clear relationship between firms that offer earnings guidance and their multiples such as enterprise value/EBITA.

Question 3

In most industries,there is a fairly standardized level of transparency across firms.

Accepted Answer

Transparency levels can vary significantly across different firms in the same industry. Factors such as company culture, leadership style, regulatory requirements, and other business practices can all impact the level of transparency a company chooses to employ.

Question 4

In comparing growth versus value stocks,which of the following is NOT true?&#10;A)Most stocks labeled as growth stocks have higher ROICs.&#10;B)Most managers would like their firms to be growth stocks.&#10;C)Growth stocks are usually stocks that have higher book and earnings multiples.&#10;D)Most stocks labeled as growth stocks grow earnings and revenues faster than value stocks.

Accepted Answer

The answer of In comparing growth versus value stocks,which of...

Question 5

Executives would do a better service to investors by providing guidance at the start of the financial year on the real short-,medium-,and long-term value drivers of their businesses,as opposed to guidance on earnings per share (EPS).

Accepted Answer

Providing guidance on the real value drivers of a business would give investors a more comprehensive understanding of the company's performance and potential, as opposed to just focusing on EPS which may not accurately reflect the underlying health and growth potential of the business.

Question 6

With respect to the type of information managers should reveal,which of the following is/are true?
I.Managers should provide specific point goals rather than ranges.
II.Multinational companies should discuss their targets using constant currency rates.
III.Managers across industries should strive to provide information on a common set of value drivers.
IV.Managers of conglomerates should reveal aggregate numbers rather than business-by-business numbers.

A)I and II only.
B)II and III only.
C)II only.
D)III and IV only.

Accepted Answer

The answer of With respect to the type of information...

Question 7

Describe the basic goal of good investor communications.

Accepted Answer

The answer of Describe the basic goal of good investor...

Question 8

Do managers respond to increases in transparency by other firms and/or increases in the demands for transparency from investors?&#10;A)No,managers do not respond to either.&#10;B)Yes,managers respond positively to both.&#10;C)Managers respond only to demands from investors but not to increases in the transparency of other firms.&#10;D)Managers respond only to increases in the transparency of other firms but not to demands from investors.

Accepted Answer

Managers are likely to respond positively to both increased transparency by other firms and increased demands for transparency from investors. This is because transparency is becoming increasingly important in the business world, and managers who fail to meet investor expectations regarding transparency are likely to suffer negative consequences in terms of reputation, stock prices, and access to capital. By contrast, managers who are transparent about their company's financials, governance, and sustainability practices are more likely to earn the trust and confidence of investors, which can in turn lead to better financial performance, lower risk, and other benefits.

Question 9

Which of the following are true about intrinsic investors?
I.They are sophisticated.
II.They want transparency about results.
III.They want management's candid assessment of the company's performance.
IV.Their role in determining stock prices is not important enough for management to accommodate their preferences.

A)I and II only.
B)I and III only.
C)I,II,and III only.
D)II,III,and IV only.

Accepted Answer

Intrinsic investors are indeed sophisticated, seeking transparency about results and valuing management's honest assessment of the company's performance. Their role in determining stock prices is significant, making it important for management to consider their preferences.

Question 10

The objective of investor relations should be the alignment of share price and intrinsic value.It should not focus on trying to maximize the share price.

Accepted Answer

The primary goal of investor relations should be to ensure that the share price reflects the true intrinsic value of the company, rather than simply maximizing the share price through superficial methods. This helps to build long-term trust and confidence in the company among stakeholders.

Deck 30: Investor Communications