Investment Market Analysis and Valuation 1

Question 1

What does the Price-to-Earnings (P/E) ratio measure?

Accepted Answer

The market price of a stock relative to its earnings per share, indicating how much investors pay for each dollar of earnings

Answer

The P/E ratio divides a company's stock price by its earnings per share, showing how much investors are willing to pay for each dollar of earnings — a higher P/E may indicate growth expectations or overvaluation.

Question 2

What is fundamental analysis?

Accepted Answer

Evaluating a company's intrinsic value by analyzing financial statements, management, competitive position, and economic factors

Answer

Fundamental analysis involves studying a company's financial health, earnings, revenue, assets, liabilities, management quality, and industry conditions to determine its true intrinsic value.

Question 3

What is technical analysis?

Accepted Answer

Using historical price movements, charts, and trading volume to forecast future stock price direction

Answer

Technical analysis uses price charts, trading volume, and statistical indicators to identify patterns and trends that may predict future stock price movements.

Question 4

What is the Price-to-Book (P/B) ratio?

Accepted Answer

A stock's market price compared to the company's book value per share (assets minus liabilities)

Answer

The P/B ratio compares a company's market value to its book value, helping investors identify whether a stock may be undervalued (below 1) or overvalued relative to its net assets.

Question 5

What is earnings per share (EPS)?

Accepted Answer

A company's net profit divided by the number of outstanding shares, showing profit attributed to each share

Answer

EPS is calculated by dividing a company's net income by its total outstanding shares, providing a per-share measure of profitability used widely in stock valuation.

Investment Practice Test

Investment Practice Test

Investment Market Analysis and Valuation 1