Stock Advisor Stock Analysis Fundamentals 2 — Questions and Answers
Question 1: What does a company's 'moat' refer to in stock advisor terminology?
- Its cash reserves
- Its sustainable competitive advantage over rivals (Correct answer)
- Its dividend history
- Its debt level
Correct answer: Its sustainable competitive advantage over rivals
A company's 'moat' refers to its durable competitive advantage that protects it from competitors and preserves long-term profitability.
Question 2: What is 'technical analysis' primarily based on?
- A company's quarterly earnings reports
- Historical price movements and trading volume patterns (Correct answer)
- Macroeconomic indicators
- Management quality assessments
Correct answer: Historical price movements and trading volume patterns
Technical analysis studies historical price and volume data to forecast future stock price movements.
Question 3: What does the debt-to-equity (D/E) ratio indicate about a company?
- Profitability relative to total equity
- How much debt a company uses to finance assets relative to equity (Correct answer)
- Total liabilities compared to revenue
- Dividend payout relative to earnings
Correct answer: How much debt a company uses to finance assets relative to equity
The D/E ratio shows how much debt a company uses relative to its shareholder equity, indicating its financial leverage.
Question 4: Which of the following is considered a 'growth stock'?
- A utility company with stable dividends
- A company expected to grow faster than average and reinvests profits (Correct answer)
- A large-cap blue-chip stock with consistent dividends
- A stock trading below its book value
Correct answer: A company expected to grow faster than average and reinvests profits
Growth stocks are companies expected to grow at an above-average rate compared to peers, typically reinvesting profits rather than paying dividends.
Question 5: What is 'free cash flow' (FCF) in stock analysis?
- Cash held in checking accounts
- Cash generated from operations minus capital expenditures (Correct answer)
- Total revenue minus total costs
- Dividends distributed to shareholders
Correct answer: Cash generated from operations minus capital expenditures
Free cash flow is the cash a company generates from operations after subtracting capital expenditures, representing money available for dividends, buybacks, or reinvestment.
Question 6: What does 'beta' measure in stock analysis?
- A stock's dividend yield relative to the market
- A stock's price volatility relative to the overall market (Correct answer)
- A company's debt level
- The ratio of earnings to price
Correct answer: A stock's price volatility relative to the overall market
Beta measures a stock's price volatility relative to the overall market — a beta above 1 means the stock is more volatile than the market.
Stock Advisor Stock Analysis Fundamentals 2
What does a company's 'moat' refer to in stock advisor terminology?