Fundamental Analysis Flashcards
What is the Price-to-Earnings (P/E) ratio?
The P/E ratio is a valuation metric calculated by dividing the current share price by the earnings per share (EPS).
True or False: A higher P/E ratio indicates that a stock is undervalued.
False
Fill in the blank: The formula for the Price-to-Book (P/B) ratio is ________.
Price per Share divided by Book Value per Share
What does a P/B ratio less than 1 indicate?
It may indicate that the stock is undervalued compared to its book value.
What is the Dividend Yield formula?
Dividend Yield = Annual Dividends per Share / Price per Share
True or False: A high Dividend Yield always means a good investment.
False
What does the Debt-to-Equity (D/E) ratio measure?
It measures a company’s financial leverage by comparing its total liabilities to its shareholder equity.
What is considered a safe D/E ratio?
Typically, a D/E ratio below 1 is considered safe.
What is the current ratio?
The current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations, calculated as Current Assets divided by Current Liabilities.
Fill in the blank: A current ratio of ________ is generally considered healthy.
1.5 or higher
What does the Return on Equity (ROE) ratio indicate?
ROE measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.
True or False: A higher ROE indicates a more efficient company in generating profit.
True
What is the formula for calculating the Return on Assets (ROA)?
ROA = Net Income / Total Assets
What does the Earnings Before Interest and Taxes (EBIT) margin measure?
It measures a company’s operating profitability as a percentage of its total revenue.
What is the formula for calculating the Gross Margin?
Gross Margin = (Revenue - Cost of Goods Sold) / Revenue
Fill in the blank: The Quick Ratio is also known as the ________ ratio.
Acid-Test
What is the formula for the Price-to-Sales (P/S) ratio?
P/S = Market Capitalization / Total Sales or Revenue
True or False: A lower P/S ratio is generally more favorable.
True
What does the Operating Margin indicate?
Operating Margin indicates how much profit a company makes from its operations for each dollar of sales.
What is the formula for calculating the Interest Coverage Ratio?
Interest Coverage Ratio = EBIT / Interest Expense
What does a high Interest Coverage Ratio signify?
It signifies that a company has a strong ability to pay interest on its debt.
What is the formula for the Cash Flow to Debt ratio?
Cash Flow to Debt = Operating Cash Flow / Total Debt
Fill in the blank: A higher Cash Flow to Debt ratio indicates ________.
better financial health
What is the significance of the PEG ratio?
The PEG ratio compares the P/E ratio to the company’s growth rate, helping to evaluate the stock’s value relative to its earnings growth.
True or False: A PEG ratio less than 1 typically indicates a stock is overvalued.
False
What does the Asset Turnover ratio measure?
It measures how efficiently a company uses its assets to generate sales.
What is the formula for calculating the Dividend Payout Ratio?
Dividend Payout Ratio = Dividends per Share / Earnings per Share
Fill in the blank: A Dividend Payout Ratio above ________ may indicate a company is not reinvesting enough in its growth.
60%
What does the Return on Investment (ROI) measure?
ROI measures the gain or loss generated relative to the investment cost.
What is the formula for calculating the Net Profit Margin?
Net Profit Margin = Net Income / Revenue
True or False: A higher Net Profit Margin indicates better profitability.
True
