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?

<p>It provides a direct comparison of a company's performance to its peers (A)</p> Signup and view all the answers

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

<p>It is subject to accounting manipulations and non-recurring items (D)</p> Signup and view all the answers

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

<p>It is less subject to accounting manipulation than other metrics (D)</p> Signup and view all the answers

What is the PEG ratio?

<p>The ratio of a company's stock price to its earnings per share divided by its growth rate (C)</p> Signup and view all the answers

What does the EV/EBITDA ratio represent?

<p>The ratio of a company's enterprise value to its earnings before interest, taxes, depreciation, and amortization (A)</p> Signup and view all the answers

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

<p>The P/B ratio is less subject to accounting manipulation than the P/E ratio (D)</p> Signup and view all the answers

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

<p>It does not consider a company's growth potential and future earnings (C)</p> Signup and view all the answers

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