Valuation & Analysis Flashcards
6 cards from real RIA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Valuation & Analysis flashcards as text
The Dividend Discount Model (DDM) values a stock based on:
Answer: The present value of expected future dividends
The DDM calculates stock intrinsic value as the present value of all expected future dividends, discounted at the required rate of return.
Beta of 1.5 for a stock means:
Answer: The stock is 50% more volatile than the market (1.5x market sensitivity)
Beta measures systematic risk—a beta of 1.5 means the stock tends to move 1.5% for every 1% market move (more volatile than market).
Credit rating agencies (Moody's, S&P) evaluate bonds based on:
Answer: The issuer's ability to repay principal and interest (credit risk)
Credit ratings assess the issuer's financial strength and ability to meet debt obligations—measuring default risk.
Working capital is calculated as:
Answer: Current assets minus current liabilities
Working capital = Current Assets - Current Liabilities, measuring a company's short-term liquidity and operational efficiency.
Relative valuation (comparable company analysis) determines value by:
Answer: Comparing valuation multiples (P/E, EV/EBITDA) to similar companies or transactions
Comparable analysis ('comps') values a company by applying peer group valuation multiples (P/E, EV/EBITDA) to the target company's metrics.
The debt-to-equity (D/E) ratio measures:
Answer: The proportion of financing from debt versus equity
D/E ratio = Total Debt / Total Equity, measuring the extent to which a company finances operations with debt versus shareholder equity.
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