Stock Trading Stock Trading Fundamental Analysis & Valuation

Question 1

What does the Price-to-Earnings (P/E) ratio measure?

Accepted Answer

How much investors pay per dollar of earnings

Answer

The P/E ratio divides share price by earnings per share, showing how much investors are willing to pay for each dollar of profit.

Question 2

Which financial statement shows a company's revenues and expenses over a period?

Accepted Answer

Income statement

Answer

The income statement (profit and loss statement) reports a company's revenues, expenses, and net profit or loss over a specific period.

Question 3

What is EBITDA an acronym for?

Accepted Answer

Earnings Before Interest, Taxes, Depreciation, and Amortization

Answer

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, commonly used to assess operational profitability.

Question 4

What does a Price-to-Book (P/B) ratio below 1.0 typically indicate?

Accepted Answer

The stock may be trading below its net asset value

Answer

A P/B ratio below 1.0 suggests the stock price is less than the company's book value per share, potentially indicating undervaluation.

Question 5

Which metric best represents the cash a company generates after capital expenditures?

Accepted Answer

Free cash flow

Answer

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

Stock Trading Practice Test