Stock Advisor Stock Analysis Fundamentals 1 — Questions and Answers
Question 1: What does EPS (Earnings Per Share) measure in stock analysis?
- Total revenue divided by shares outstanding
- Net profit allocated to each outstanding share of common stock (Correct answer)
- Dividend paid per share per year
- Market capitalization divided by total earnings
Correct answer: Net profit allocated to each outstanding share of common stock
EPS measures the portion of a company's net profit allocated to each outstanding share of common stock.
Question 2: Which financial statement shows a company's revenues and expenses over a specific period?
- Balance sheet
- Cash flow statement
- Income statement (Correct answer)
- Statement of retained earnings
Correct answer: Income statement
The income statement reports revenues, expenses, and profits or losses over a specific accounting period.
Question 3: What is the Price-to-Earnings (P/E) ratio used for in stock analysis?
- Measuring dividend yield
- Comparing a stock's price to its earnings to assess valuation (Correct answer)
- Calculating total return on investment
- Determining book value per share
Correct answer: Comparing a stock's price to its earnings to assess valuation
The P/E ratio compares a company's stock price to its earnings per share to help investors assess whether a stock is overvalued or undervalued.
Question 4: What does 'fundamental analysis' primarily focus on when evaluating stocks?
- Chart patterns and price history
- Trading volume trends
- A company's financial health, earnings, and intrinsic value (Correct answer)
- Short-term price momentum
Correct answer: A company's financial health, earnings, and intrinsic value
Fundamental analysis examines a company's financial statements, management, competitive position, and economic factors to determine its intrinsic value.
Question 5: What is EBITDA an acronym for in financial analysis?
- Earnings Before Interest, Taxes, Depreciation, and Amortization (Correct answer)
- Equity Bought In Total Divided Annually
- Estimated Base Income Tax Deduction Amount
- Earnings Based on Investments, Taxes, and Dividends Applied
Correct answer: Earnings Before Interest, Taxes, Depreciation, and Amortization
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, and is used to evaluate a company's core operational profitability.
Question 6: Which ratio measures how efficiently a company uses its assets to generate profit?
- Current ratio
- Debt-to-equity ratio
- Return on Assets (ROA) (Correct answer)
- Price-to-book ratio
Correct answer: Return on Assets (ROA)
Return on Assets (ROA) measures how effectively a company uses its assets to generate net income.
Stock Advisor Stock Analysis Fundamentals 1
What does EPS (Earnings Per Share) measure in stock analysis?