Stock Jobs Investment Analysis and Valuation 2

Question 1

What does the 'debt-to-equity ratio' indicate about a company?

Accepted Answer

The proportion of financing from debt versus shareholder equity

Answer

The debt-to-equity ratio measures financial leverage by comparing total debt to shareholders' equity, with higher ratios indicating greater financial risk.

Question 2

What is 'free cash flow' (FCF) and why does it matter?

Accepted Answer

Cash remaining after subtracting capital expenditures from operating cash flow

Answer

Free cash flow is operating cash flow minus capital expenditures, representing cash available for dividends, debt repayment, buybacks, or reinvestment.

Question 3

What does a company's 'gross margin' reveal?

Accepted Answer

The percentage of revenue remaining after subtracting cost of goods sold

Answer

Gross margin shows what percentage of revenue is retained after direct production costs, indicating pricing power and efficiency in core operations.

Question 4

What is 'comparable company analysis' (comps)?

Accepted Answer

Valuing a company by comparing financial metrics to similar publicly traded companies

Answer

Comparable company analysis values a target company by comparing its financial multiples (like P/E or EV/EBITDA) to those of similar publicly traded companies.

Question 5

What does 'return on equity' (ROE) measure?

Accepted Answer

How efficiently a company uses shareholder equity to generate profit

Answer

ROE measures how effectively management uses shareholders' equity to generate net income, calculated as net income divided by average shareholders' equity.

Stock Jobs Practice Test

Stock Jobs Practice Test

Stock Jobs Investment Analysis and Valuation 2