Stock Valuation Quiz

What is the primary focus of stock valuation?

• Calculating dividends only

• Comparing market price to intrinsic value

• Determining past performance

• Assessing company size

Which approach assumes that sales will grow as they have in the past?

• Trend analysis

• Market approach

• Historical approach

• Naïve approach

What does a common-size income statement help investors identify?

• Total revenue

• Market trends

• Stock prices

• Changes in profit margins

What is the first step in forecasting future earnings?

• Determining share price

• Calculating net profit margin

• Forecasting sales

• Estimating future dividends

Which of the following is NOT a component needed to forecast dividends?

• Number of shares outstanding

• Future dividend payout ratios

• Recent experience of the firm

• Historical sales data

What does a higher P/E ratio generally indicate?

• Lower growth expectations

• Higher rates of growth in earnings

• Increased debt levels

• Decreased market optimism

What is the average market multiple used for?

• To calculate dividends

• To assess company size

• To evaluate a stock’s P/E performance

• To determine intrinsic value

What does the required rate of return compensate for?

• Investment risk

• Market volatility

• Historical performance

• Company size

Which model assumes dividends will not grow over time?

• Constant-growth model

• Variable-growth model

• Growth model

• Zero-growth model

What is the primary function of the Dividend Valuation Model (DVM)?

• To assess market trends

• To value a share of stock based on future dividends

• To determine future cash flows

• To calculate historical earnings