Choose wisely. There is only one correct answer to each question.
0%
Keep studying!
Review your answers below to learn more.
1.
What form of capital does market capitalization not include?
Debt. Because of this limitation, some investors turn to enterprise value, which does include debt, among other factors.
2.
When valuing a business, which is easier to measure?
Actual assets and liabilities. These can be gleaned in current time from financial statements.
3.
Acme Company's shares trade at $15 and the firm has a total of 20 million shares outstanding. What is Acme's market capitalization?
$300 million. Acme's market capitalization is $300 million. Recall that market capitalization is calculated by multiplying a company's share price by its number of shares outstanding.
4.
Suppose you have found an incredibly good company to invest in, but its stock price on the market is much higher than its valuation suggests it should be. Is this a good investment, financially speaking?
Probably not. Generally, any stock that is priced higher than its valuation suggests is probably not a good investment.
5.
With a P/E of 35, Acme Corp. is which of the following?
It can't be determined with the information provided. Simply knowing that Acme has a P/E of 35 does not provide you with enough context to determine much about its valuation. To use a ratio-based valuation method, you would need other data points such as the P/E of the market as a whole, the P/Es of the company's main competitors, and the company's historical P/Es.
