Choose wisely. There is only one correct answer to each question.
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1.
Which generally takes more time and expertise to calculate?
Future cash flows. These require a lot of financial statements, facts, and projections to calculate.
2.
Which Uncertainty Rating requires the largest discount (margin of safety) for a stock to become rated 5 stars?
Very high. Stocks with an Uncertainty Rating of Very High require the largest discount to Morningstar's Fair Value Estimate before they become rated 5 stars.
3.
An estimate of a company's fair value involves determining how much one would pay today for all the sales generated by the company in the future.
False. Rather than sales, the estimate uses streams of excess cash.
4.
The Morningstar Rating for a stock can change for which of the following reasons?
A combination of any of these factors. Any one or several of these factors can cause a change in the rating.
5.
What does Morningstar prefer to use to value stocks?
Future profits. Using future profits is easier to understand and requires less context than using ratios.
