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1.
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.
2.
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.
3.
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.
4.
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.
5.
Which stock valuation approach is more straightforward?
Intrinsic value. Intrinsic value does not require much context to understand, as the ratio-based approaches do.
