Analysis Beginner: Tools and Tips to Evaluate Investments

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1.
Poor dividend payment on a company's part indicates that it will perform poorly in the future.
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False. In many cases, companies reinvest their earnings to finance future growth. Such companies may actually do quite well in the future.
2.
If a company with a beta of 3.0 is expected to get a return of 15 percent, what can we expect the return of the overall market to be?
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5 percent. A beta of three indicates three times the earnings possibility of the overall market. Thus, the overall market's return would be only one-third that of our company.
3.
Profit margin is a widely used measure in business. It measures earnings compared to _______.
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Sales. Profit margin compares earnings to sales, where the earnings are either before taxes or after.
4.
There are reasons why a low price-to-book ratio may not be a good thing for investors. Which of the following is not one of those reasons?
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The company is earning a high return on its assets. This is actually a good thing for investors.
5.
Taxes are among the expenditures on an income statement.
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True. Taxes are subtracted from income.
6.
If a stock's market price at the moment is $100 per share, and its net earnings for the past 12 months are $5 per share, what is the stock's price/earnings ratio?
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$20. Divide market price ($100) by net earnings ($5) to get the price/earnings ratio (20).
7.
Fixed asset turnover measures _______.
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The amount of sales a company generates from its fixed assets. It is used as a measure of sales success.