CSC Fundamental and Technical Analysis 2 — Questions and Answers
Question 1: Which ratio measures how efficiently a company uses its assets to generate sales?
- Price-to-earnings ratio
- Asset turnover ratio (Correct answer)
- Current ratio
- Debt-to-equity ratio
Correct answer: Asset turnover ratio
Asset turnover ratio (sales divided by total assets) measures how efficiently management uses assets to generate revenue.
Question 2: In technical analysis, a 'death cross' occurs when:
- A stock hits a new 52-week low
- The 50-day moving average crosses below the 200-day moving average (Correct answer)
- Trading volume drops to zero
- The RSI falls below 30
Correct answer: The 50-day moving average crosses below the 200-day moving average
A death cross is a bearish signal where the shorter-term 50-day moving average crosses below the longer-term 200-day moving average.
Question 3: The Gordon Growth Model is used to value a stock based on:
- Expected capital gains only
- A constant growth rate of dividends in perpetuity (Correct answer)
- Book value adjusted for inflation
- Price-to-earnings relative to industry peers
Correct answer: A constant growth rate of dividends in perpetuity
The Gordon Growth Model values a stock as the next dividend divided by the difference between the required return and the constant dividend growth rate.
Question 4: Which of the following best describes 'support' in technical analysis?
- A price level where selling pressure overcomes buying pressure
- A price level where buying interest is strong enough to prevent further decline (Correct answer)
- The average of a stock's high and low prices
- A government-mandated minimum stock price
Correct answer: A price level where buying interest is strong enough to prevent further decline
Support is a price level at which demand is strong enough to prevent the price from falling further, acting as a floor.
Question 5: Enterprise Value (EV) is calculated as market capitalization plus:
- Retained earnings minus dividends paid
- Total debt minus cash and cash equivalents (Correct answer)
- Gross profit minus operating expenses
- Total assets minus intangible assets
Correct answer: Total debt minus cash and cash equivalents
EV = Market Cap + Total Debt − Cash and Cash Equivalents, representing the theoretical takeover price of a company.
Question 6: In fundamental analysis, a high inventory turnover ratio generally indicates:
- The company is hoarding cash
- Efficient inventory management or strong sales (Correct answer)
- The company has too much debt
- Poor accounts receivable collection
Correct answer: Efficient inventory management or strong sales
A high inventory turnover ratio indicates that goods are selling quickly and inventory is being managed efficiently.
Question 7: The 'flag' pattern in technical analysis is considered a:
- Long-term reversal pattern
- Short-term continuation pattern (Correct answer)
- Volatility compression signal
- Volume exhaustion signal
Correct answer: Short-term continuation pattern
A flag is a short-term continuation pattern where price consolidates in a narrow channel against the prior trend before resuming in the original direction.
CSC Fundamental and Technical Analysis 2
Which ratio measures how efficiently a company uses its assets to generate sales?