Q&A Hero

Q: The short interest ratio is found by dividing the number of shares sold short by the average:a. number of shares outstanding in the market.b. daily volume of trading on the exchange.c. number of stocks reaching new lows.d. daily number of stocks bought long.

Q: Which of the following is not a contrary trading rule?a. Relative strength ratiob. Investment advisory opinionsc. Mutual fund liquidity positionsd. Put/call ratio

Q: A daily accumulation of stocks advancing or declining is used in:a. volume of trading analysis.b. relative strength analysis.c. breadth of market analysis.d. short interest analysis.

Q: A high short interest ratio is generally interpreted as:a. a bullish signal.b. evidence of a downside breakout.c. a bearish signal.d. evidence of the presence of odd-lot individual investors.

Q: The breadth of the market is typically measured by which of the following:a. 200-day moving average.b. 50-day moving average.c. the put-call ratio.d. the advance-decline line.

Q: Which of the following is a characteristic of the short interest ratio: It is:a. calculated daily as well as weekly.b. often interpreted without any additional information.c. between 2 and 3 in recent times.d. considered to be a measure of investor sentiment.

Q: What is usually shown at the bottom of a bar chart? a. a point and figure chart b. advance/decline line c. closing price d. volume

Q: The oldest approach to common stock selection is:a. technical analysisb. fundamental analysisc. stochastic analysisd. value analysis

Q: Find the P/E ratio of a stock with a ROE of 15 percent, a book value per share of $5. 00, and a current stock price of $30. 00.

Q: Given the following for Mighty Manufacturing Company: Operating efficiency = 0. 1 Net income = $50,000,000 Net income margin = 0. 05 Total asset turnover = 3 Leverage = 1. 5 Retention rate = 0. 3 (a)Calculate ROA. (b)Calculate ROE. (c)Find the growth rate of dividends.

Q: Upon analyzing the financial statements of Jain Industries, you discover that it is currently retaining 60 percent of its earnings (which were $6 this past year), and is experiencing a ROE of almost 20 percent. Assuming a risk-free rate of 4 percent and a risk-premium of 8 percent, how much would you be willing to pay for Jain Industries stock on the basis of the P/E ratio approach?

Q: A company has sales of $220 million. These are expected to increase by 15 percent next year and 12 percent in the year after that. Over each of the next two years, the company expects to have a net profit margin of 8 percent, a payout ratio of 60 percent, and a constant 3 million shares of common stock outstanding. If the stock is expected to trade at a P/E ratio of 14 at the end of the second year and if the investor requires a 14 percent rate of return, what should the justified price of the stock be today?

Q: Calculate the required rate of return on DCM Corporation's stock if its current price is $35 per share, next year's expected dividend is $2. 00 per share, its return on equity is 12 percent, and its dividend payout ratio is 55 percent.

Q: = 81 x $2. 59= $1 05

Q: The risk-free rate of return is 10 percent, and the expected return for the stock market is 16 percent. Evergreen Industries has a beta of 1. 1, and investors expect dividends and earnings to grow at an 8 percent rate per year. The current dividend is $1.20, and the payout ratio is 50 percent. (a)Calculate the P/E ratio for Evergreen Industries. (b)Estimate the price of the stock for the next year using the multiplier model.

Q: Internet Industries expects to earn $5. 00 for the coming year, and pay a $ 00 dividend. Its ROA is 13 percent, while its leverage factor is 1.7 (a) Calculate the expected growth rate in dividends. (b) Given a required rate of return of 17 percent, determine the estimated price for High Tech, Inc. , common stock. (c)Calculate the expected dollar dividend two periods from now.

Q: Don Jorge Shipping Inc. has net income of $40 million, total assets of $300 million, and sales of $800 million. Its equity is $190 million. (a)Calculate ROA. (b)Calculate ROE. (c)If the book value per share is $7. 00, what is EPS?

Q: In the model P/E = (D1/E1)/(k - g), the P/E should increase if the dividend payout rate increases, other things the same. If the payout rate was intentionally increased by the board of directors, other things are likely not to stay the same. What is likely to happen to the dividend growth rate and the required return?

Q: What is meant by "quality of earnings," and how does it affect the equity analyst's job?

Q: How could unexpected inflation affect the P/E ratio?

Q: Should an investor seek companies with low P/Es or high P/Es?

Q: What three variables affect the P/E ratio? How does each affect it?

Q: Can an investor that wants to use the approach of projected earnings and P/Es find help in Value Line?

Q: What are "earnings surprises?" How do they affect stock prices?

Q: How accurate are professional earnings estimates? Do purely mechanical models give better results than analysts who add subjective assessment to the data?

Q: What is the internal (sustainable) growth rate? How is it calculated?

Q: When an investor buys a share of common stock he/she buys a claim of ownership. How is this claim represented on the balance sheet?

Q: What is the relationship of the Financial Accounting Standards Board and the Securities and Exchange Commission?

Q: Regardless of how closely a company adheres to good accounting practices and auditors do their job, investors need to examine "Notes to the Financial Statements" on 10-K and 10-Q Reports to understand the company's financial situation.

Q: According to Peter Lynch, the P/E ratio of a company that is fairly valued will equal its expected growth rate.

Q: Other things being equal, as k rises, the P/E ratio will also rise.

Q: The P/E ratio can be expected to change as the expected dividend payout ratio changes.

Q: A positive earnings surprise occurs when the forecasted earnings are greater than the actual earnings of a company.

Q: Some companies, for example Apple, tend to provide low guidance, contributing toward consistently positive earnings surprises.

Q: Investors interested in buying stocks that report bad news and suffer a sharp decline should buy the first day bad news is reported.

Q: A company may maintain its ROA if the net income margin decreases by increasing its asset turnover.

Q: Leverage can magnify returns to the stockholders but also increase potential losses to the stockholders.

Q: Free cash flow represents money left after all the bills are paid and dividend payments are made.

Q: EBITDA, sometimes called operating profit, is often emphasized by telecommunications companies because of their lack of real profitability.

Q: International Financial Reporting Standards (IFRS) are now used by most countries.

Q: To estimate the intrinsic value of a company, investors could use the dividend discount model to estimate intrinsic value, or an earnings multiplier model based on a forecast of next year's EPS and what is thought to be an appropriate P/E ratio.

Q: The auditor's report guarantees the accuracy of the earnings reported in the financial statements.

Q: Since extraordinary items affecting earnings are typically non-recurring, investors should disregard their impact on earnings when evaluating the stock.

Q: It is necessary to determine a point estimate of the intrinsic value of a stock when using relative valuation techniques.

Q: The cash flow statement consists of the following parts: a. cash holdings from revenue, operations, investing, and financing activities. b. cash flows from revenue, operations, investing, and financing activities. c. cash holdings from operations, investing, and financing activities. d. cash flows from operations, investing, and financing activities.

Q: The income statement is more frequently used than the balance sheet by investors to: a. assess current management performance over an accounting period. b. as a guide to company future profitability at a moment in time. c. assess current management performance and as a guide to company future profitability at a moment in time. d. assess current management performance and as a guide to company future profitability over an accounting period.

Q: The balance sheet shows: a. the portfolio of assets for a corporation, as well as its liabilities, over an accounting period. b. the portfolio of assets for a corporation, as well as its labilities, over an accounting period. c. the portfolio of assets for a corporation, as well as its liabilities and owner's equity, over an accounting period. d. the portfolio of assets for a corporation, as well as its liabilities and owner's equity, at a moment in time.

Q: _______ use a computer program in an attempt to imitate the brain in analyzing securities. a. Decision trees b. Program trading c. Day traders d. Neural networks

Q: The investment advisory service best known for evaluating mutual funds in the United States is: a. Standard & Poor's b. Moody's Industrial Manuals c. Morningstar d. Value Line Investment Survey

Q: In modern investment analysis, the market risk of a stock is measured byits: a. beta. b. standard deviation. c. leverage. d. coefficient of variation.

Q: Low P/E stocks are generally associated with a. mature companies. b. cyclical companies. c. young fast-growing companies. d. defensive companies.

Q: Other things equal, a. the higher the expected growth rate, the lower the P/E ratio. b. if the risk-free rate rises, the required rate will decline. c. as the required rate rises, the P/E ratio declines. d. if the risk premium rises, the required rate will fall.

Q: Other things equal, if the a. required rate of return increases, the P/E ratio will rise. b. risk premium increases, the P/E ratio will rise. c. risk-free rate rises, the P/E ratio will fall. d. dividend payout increases, the P/E ratio will fall.

Q: If business risk decreases for Megabucks, Inc. , the P/E will __________, other things the same. a. increase b. stay the same c. decrease d. increase or decrease but not stay the same

Q: How would you explain P/E ratio differences among companies? By investor a. expectations about the future growth of the market. b. estimates of the recent growth of earnings. c. expectations about the future growth of earnings. d. estimates about the recent growth of dividends.

Q: If the dividend growth rate increases for a firm, its P/E will ---------, other things the same. a. increase b. stay the same c. decrease d. increase or decrease but not stay the same

Q: Which of the following is not true regarding earnings estimates? a. Some companies provide guidance on forthcoming earnings announcements. b. The guidance number plays a major role in the consensus estimate. c. The variance of actual reported earnings from the consensus had typically constituted the "whisper" forecast. d. All of the above are true.

Q: Which of the following is true regarding earnings forecasts made by analysts versus forecasts made by statistical models? a. The evidence tends to support analysts' forecasts in terms of accuracy over statistical models. b. The evidence tends to support statistical models' forecasts in terms of accuracy over statistical models. c. The evidence tends to support both types of forecasts equally. d. The evidence does not support either type of forecast in terms of accuracy.

Q: Which of the following is true regarding earnings estimates? a. management at most firms will update estimates monthly b. analysts typically rely on the estimates provided by management c. some firms have chosen not to provide estimates of earnings d. most analysts arrive at similar estimates of earnings

Q: If a firm's ROA and ROE are equal, it can be concluded that the firm is a. losing money. b. liquid enough to pay some extra dividends. c. financed by all equity. d. financed by a high proportion of debt.

Q: The sustainable growth rate of a firm can be calculated as the product of the a. return on assets and the return on equity. b. dividend payout ratio and leverage. c. retention rate and the return on equity. d. net profit margin and total sales.

Q: Which of the following statements is true? a. Turnover is not related to ROA. b. Leverage affects EPS. c. ROA is a function of turnover and leverage. d. EPS is solely a function of ROE

Q: ROA is the product of a. net income margin and turnover. b. book value and turnover. c. leverage and book value. d. net income margin and leverage.

Q: The two components of ROE are a. ROA and book value per share. b. ROA and leverage. c. ROA and profit margin. d. leverage and book value.

Q: The two components of EPS are a. ROA and leverage. b. book value per share and leverage. c. ROE and book value per share. d. leverage and profit margin.

Q: One way to calculate EPS is: a. ROA x Book value per share. b. ROE x Book value per share. c. ROA/ Book value per share. d. ROE/ Book value per share.

Q: Which statement about the quality of reported EPS is FALSE? a. Earnings quality assessments are difficult to make and require considerable expertise in accounting and financial analysis. b. Reported EPS is not the precise figure that it first appears to be. c. It is necessary to make adjustments to reported EPS figures when making cross-sectional comparisons. d. Quality of earnings is generally consistent among companies in the same industry.

Q: Which of the following represents the rate at which a company can grow from internal sources? a. return on assets b. sustainable growth rate c. adjusted EPS d. return on equity

Q: Which of the following mandated that companies, starting in 2004, must submit an annual report to the SEC outlining the effectiveness of their internal accounting controls? a. SEC Amendments Act b. SIPC c. Glass-Stegall Act d. Sarbanes-Oxley Act

Q: Which of the following is not one of the parts of the cashflow statement? a. cashflow from operating activities. b. cashflow from sales activities. c. cashflow from investing activities.d. cashflow from financing activities.

Q: Earnings derived under GAAP and shown on the income statement are known as: a. reported earnings. b. certified earnings. c. audited earnings. d. verified earnings.

Q: The generally accepted accounting principles (GAAP) require that the EPS be calculated using a a. conservative treatment. b. liberal treatment. c. standard set of rules developed by the accounting profession. d. standard set of rules developed by the SEC.

Q: The key item for investors on the income statement is: a. sales. b. gross profit. c. operating expenses. d. after-tax net income.

Q: How is EPS computed? After-tax net income divided bycurrent common shares outstanding.previous years common shares outstanding.treasury shares outstanding.average common shares outstanding.

Q: Fixed assets generally consist of? a. Cash and marketable securities b. Property, plant and equipment, at cost c. Intangible assets, like goodwill d. Shareholders' Equity

Q: On a company's balance sheet, shareholder's equity is nearly always described by its? a. Book value b. Market value c. Current value d. Stock value

Q: The auditor's report: a. guarantees accuracy. b. guarantees the quality of the earnings. c. attests that the statements are a fair presentation of financial position. d. all of the above are true

Q: Which of the following statements regarding retained earnings is not true? a. It is part of stockholders' equity. b. It represents spendable funds for a company. c. It designates that part of previous earnings not paid out as dividends. d. It is irrelevant in security valuation. .

Q: Which of the following are shown on the balance sheet on a lower of cost or market value basis? a. cash b. stockholders'equity c. marketable securities d. fixed assets

Q: EPS are of higher quality if: a. the company is a blue chip. b. the auditor's reputation is high. c. they were derived using conservative principles. d. FASB has approved them.