BBMF3304 Chapter 9 Company Analysis

Analyze the difference between growth stocks and growth companies.

• Growth companies consistently experience above-average increases in sales and earnings.
• Growth stocks always outperform growth companies.
• Growth companies have lower risk than growth stocks.
• Growth stocks are the same as defensive stocks.

Evaluate why stock of a great company may not be a good investment.

• Great companies always have a lower risk.
• It is always undervalued in the market.
• It yields a higher return than other stocks.
• It may be overpriced compared to its intrinsic value.

Identify the key characteristic of speculative stocks.

• Low risk and high stability.
• High probability of low or negative returns.
• Consistent earnings growth.
• Defensive against economic downturns.

Understand why defensive companies perform well during economic downturns.

• They rely on speculative investments.
• They focus only on growth industries.
• They have low business and financial risk.
• They have high beta values.

Apply the concept of P/E ratio in company analysis.

• P/E ratio measures company liquidity.
• P/E ratio compares a company’s market price to its earnings per share.
• P/E ratio evaluates a company’s cash flow.
• P/E ratio is used for defensive stocks only.

Analyze why value stocks may appear undervalued.

• They experience higher-than-average growth.
• They are immune to market risks.
• They always generate above-average returns.
• They have low P/E or price-to-book ratios.

Explain why cyclical companies’ performance is tied to the economy.

• They are protected from economic cycles.
• They rely on speculative investments.
• Their sales and earnings are heavily influenced by aggregate business activity.
• They perform better in economic downturns.

Determine which firms are examples of defensive companies.

• Public utilities and grocery chains.
• Oil exploration firms.
• Steel and auto manufacturers.
• High-tech startups.

Classify a firm involved in oil exploration as a type of company.

• Defensive company.
• Speculative company.
• Growth company.
• Cyclical company.

Understand the purpose of SWOT analysis in company analysis.

• To calculate a company’s cash flow.
• To estimate future stock returns.
• To identify a company’s strengths, weaknesses, opportunities, and threats.
• To compare a company’s P/E ratio with industry peers.