CPT Fundamental Analysis & Valuation 2

Question 1

A company has an EV/EBITDA of 6x while its industry peers average 10x. What does this most likely suggest?

Accepted Answer

The company may be undervalued or facing operational challenges

Answer

A below-average EV/EBITDA multiple can signal undervaluation or reflect concerns such as slower growth, higher risk, or deteriorating fundamentals.

Question 2

Which component of the DuPont analysis measures how efficiently a company uses its assets to generate sales?

Accepted Answer

Asset turnover

Answer

Asset turnover (Sales / Total Assets) is the DuPont component that reflects operational efficiency in using assets to produce revenue.

Question 3

When performing a DCF valuation, the terminal value typically represents what proportion of total estimated value for a mature company?

Accepted Answer

60–80%

Answer

For most mature companies, terminal value accounts for 60–80% of total DCF value, making terminal growth rate assumptions critically important.

Question 4

A stock trades at a P/B ratio of 0.7. Which interpretation is most accurate?

Accepted Answer

The market values the stock below its net asset value

Answer

A P/B ratio below 1.0 means the stock is priced below the company's net book value, often seen in distressed sectors or when assets are overstated.

Question 5

Which earnings metric best adjusts for differences in capital structure when comparing companies across an industry?

Accepted Answer

EBIT (Earnings Before Interest and Taxes)

Answer

EBIT excludes interest expense, making it capital-structure neutral and suitable for comparing operating performance across companies with different debt levels.

(CPT) Certified Pro Trader Practice Test

(CPT) Certified Pro Trader Practice Test

CPT Fundamental Analysis & Valuation 2