Stock Trading Stock Trading Fundamental Analysis & Valuation 2

Question 1

What does the Discounted Cash Flow (DCF) model primarily use to value a stock?

Accepted Answer

Future cash flows discounted to present value

Answer

DCF valuation projects a company's future free cash flows and discounts them back to the present using a required rate of return.

Question 2

What is the significance of the current ratio in fundamental analysis?

Accepted Answer

It assesses a company's ability to pay short-term obligations

Answer

The current ratio (current assets ÷ current liabilities) measures short-term liquidity, with a ratio above 1 generally indicating the company can cover near-term debts.

Question 3

Which of the following best describes 'earnings per share' (EPS)?

Accepted Answer

Net income divided by shares outstanding

Answer

EPS is calculated by dividing a company's net income by its number of outstanding shares, indicating profitability on a per-share basis.

Question 4

What does a high Debt-to-Equity (D/E) ratio generally suggest about a company?

Accepted Answer

The company uses more debt than equity to finance operations

Answer

A high D/E ratio means the company relies heavily on borrowed money relative to shareholder equity, which increases financial risk.

Question 5

In fundamental analysis, what is the purpose of a SWOT analysis?

Accepted Answer

To evaluate strengths, weaknesses, opportunities, and threats

Answer

SWOT analysis is a qualitative tool that evaluates a company's internal strengths and weaknesses alongside external opportunities and threats.

Stock Trading Practice Test

Stock Trading Practice Test

Stock Trading Stock Trading Fundamental Analysis & Valuation 2