Analysis Beginner: Tools and Tips to Evaluate Investments

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1.
Profit margin is a widely used measure in business. It measures earnings compared to _______.
Choose wisely. There is only one correct answer.
Sales. Profit margin compares earnings to sales, where the earnings are either before taxes or after.
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?
Choose wisely. There is only one correct answer.
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.
A company's book value is _______.
Choose wisely. There is only one correct answer.
The value of its assets minus liabilites. Book value is the value of a company's assets.
4.
Asset utilization ratios are used to _______.
Choose wisely. There is only one correct answer.
Determine how a company manages its assets. Ultimately, asset utilization ratios help to measure a company's efficiency.
5.
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?
Choose wisely. There is only one correct answer.
$20. Divide market price ($100) by net earnings ($5) to get the price/earnings ratio (20).
6.
Poor dividend payment on a company's part indicates that it will perform poorly in the future.
Choose wisely. There is only one correct answer.
False. In many cases, companies reinvest their earnings to finance future growth. Such companies may actually do quite well in the future.
7.
Which of the following is not included in a company's statement of cash flow?
Choose wisely. There is only one correct answer.
Managing activities. The statement of cash flow does not include this.