Investment Market Analysis and Valuation 3

Question 1

What is the Price-to-Sales (P/S) ratio?

Accepted Answer

The ratio of a company's stock price to its annual revenue per share

Answer

The P/S ratio compares a company's stock price to its revenue per share, commonly used to value companies that are not yet profitable and have no meaningful earnings.

Question 2

What does a high P/E ratio generally suggest about investor sentiment?

Accepted Answer

Investors expect strong future earnings growth and are willing to pay a premium for current earnings

Answer

A high P/E ratio typically indicates investors expect significant future earnings growth, justifying the premium price — though it can also signal overvaluation.

Question 3

What is the Discounted Cash Flow (DCF) valuation method?

Accepted Answer

A valuation technique that estimates a company's value by projecting future cash flows and discounting them to present value

Answer

DCF analysis estimates an investment's value by forecasting future cash flows and discounting them back to the present using a required rate of return, reflecting the time value of money.

Question 4

What does 'support level' mean in technical analysis?

Accepted Answer

A price floor where a stock has historically found buying interest and stopped declining

Answer

A support level is a price point where demand for a stock is strong enough to prevent it from falling further, as buyers consistently step in at or near that price.

Question 5

What is the meaning of 'return on equity' (ROE)?

Accepted Answer

A measure of profitability showing how much net income a company generates for each dollar of shareholder equity

Answer

ROE measures a company's efficiency at generating profits from shareholders' equity, calculated as net income divided by total shareholders' equity — a higher ROE generally indicates more effective management.

Investment Practice Test

Investment Practice Test

Investment Market Analysis and Valuation 3