Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
Stock valuation ratios compare a company's market value with what?
Any of the above. Valuation ratios compare market value with any of several figures about the company's finances.
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.
Which of the following would not be part of a business's assets and liabilities?
Future cash flow. Future cash flow is not a part of assets and liabilities; it is the value of future expected profits.
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.