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Accounting Practices and Stock Valuation Ratios Quiz

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Accounting Practices and Stock Valuation Ratios Quiz

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Questions and Answers

What does the P/E ratio represent?

The ratio of a company's debt to its equity

The ratio of a company's total assets to its liabilities

The ratio of a company's market capitalization to its revenue

The ratio of a company's stock price to its earnings per share (correct)

Why are earnings multiples considered more important than revenue multiples for investors?

Revenue multiples are less widely used and understood by investors

Earnings multiples are easier to calculate and interpret

Earnings multiples provide a better measure of a company's ability to generate positive cash flows (correct)

Revenue multiples are more volatile and subject to accounting manipulations

What is the Price-to-Book (P/B) ratio?

The ratio of a company's stock price to its book value per share (correct)

The ratio of a company's earnings to its book value

The ratio of a company's market capitalization to its total assets

The ratio of a company's revenue to its book value

What is a potential advantage of using the P/E ratio for valuation?

It provides a direct comparison of a company's performance to its peers Signup and view all the answers

What is a potential disadvantage of using the P/E ratio for valuation?

It is subject to accounting manipulations and non-recurring items Signup and view all the answers

What is a potential advantage of using the Price-to-Book (P/B) ratio for valuation?

It is less subject to accounting manipulation than other metrics Signup and view all the answers

What is the PEG ratio?

The ratio of a company's stock price to its earnings per share divided by its growth rate Signup and view all the answers

What does the EV/EBITDA ratio represent?

The ratio of a company's enterprise value to its earnings before interest, taxes, depreciation, and amortization Signup and view all the answers

Which of the following statements is true about the Price-to-Book (P/B) ratio?

The P/B ratio is less subject to accounting manipulation than the P/E ratio Signup and view all the answers

What is a potential limitation of using the EV/EBITDA ratio for valuation?

It does not consider a company's growth potential and future earnings Signup and view all the answers