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1.
After finding a great business, determining the company's valuation is _______.
Fundamental. Valuing a stock is a fundamental component of the investing process. Even the greatest company in the world might not be an attractive investment if the stock is priced too high.
2.
You should determine a company's valuation before buying its stock because doing so will help you see whether its stock is overpriced or underpriced
True. Valuation should be standard procedure for all investors. Buying an overpriced stock is ultimately not very profitable.
3.
Which stock valuation approach is more straightforward?
Intrinsic value. Intrinsic value does not require much context to understand, as the ratio-based approaches do.
4.
If Acme Company has $5 million in cash and long-term debt of $12 million and a market capitalization of $300 million, what is the firm's enterprise value?
$307 million. Enterprise value is equal to market cap plus long-term debt, minus cash. In Acme's case, that's $300 million + $12 million - $5 million, which yields $307 million.
5.
What are the two parts to the value of a business?
The current value of the business's assets and liabilities, and the value of the business's expected future profits. Investors take both into account when valuing a company.
