Valuation Techniques: Comparable Company Analysis and Earnings per Share Quiz

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Questions and Answers

What do Selling, General, and Administrative (SG&A) expenses include?

Indirect selling costs only

Direct selling costs only

Rent, utilities, legal fees, and insurance (correct)

Operational overhead costs only

What does Earnings per Share (EPS) measure?

The market value per share of the company

The dividend per share paid to shareholders

The company's total profit

Each common share's profit allocation (correct)

How is Stockholders Equity calculated?

Liabilities / Assets

Assets + Liabilities

Assets - Liabilities (correct)

Liabilities - Assets

In events of liquidation, who receives payments first?

Debt holders Signup and view all the answers

What is the purpose of Comparable Company Analysis (Public Comps)?

To compare a company's financials with similar public companies Signup and view all the answers

What is the key metric used to determine the common shareholder's portion of the company's profit?

Earnings per Share (EPS) Signup and view all the answers

What does EV/Revenue stand for in valuation analysis?

Enterprise Value to Revenue Signup and view all the answers

In the EV/EBITDA ratio, what does EBITDA represent?

Earnings Before Interest, Taxes, Depreciation & Amortization Signup and view all the answers

What is the main purpose of using P/E ratio in comparable company analysis?

To compare a company's market price per share with its earnings per share. Signup and view all the answers

What does the P/B ratio represent in financial analysis?

Price to Book Signup and view all the answers

How is EV calculated in the EV/Revenue multiple formula?

Equity Value + All Debt + Preferred Shares – Cash and Equivalents Signup and view all the answers

What role does the EV/EBITDA ratio play in valuation?

Compares the relative value of different businesses based on EBITDA. Signup and view all the answers

What does the Price Earnings Ratio (P/E Ratio) measure?

The relationship between a company's stock price and earnings per share Signup and view all the answers

Which type of companies are often considered growth stocks based on their Price Earnings Ratio (P/E Ratio)?

Companies with high P/E Ratios Signup and view all the answers

What is the Price Earnings Ratio (P/E Ratio) formula?

$Stock Price Per Share / Earnings Per Share$ Signup and view all the answers

What do low Price Earnings Ratios typically indicate about a company's stock?

They are undervalued Signup and view all the answers

Which financial metric does the EV/EBITDA ratio focus on?

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Signup and view all the answers

What conclusion can be drawn from a company having the highest EV/EBITDA multiple according to the text?

It has the highest growth rate Signup and view all the answers

Study Notes

Financial Analysis

Selling, General, and Administrative (SG&A) expenses include costs related to selling, general, and administrative activities.

EPS measures a company's profit, or earnings, per outstanding share of common stock.

Stockholders Equity

Stockholders Equity is calculated by subtracting Total Liabilities from Total Assets.

Liquidation

In events of liquidation, creditors receive payments first, followed by preferred stockholders, and finally common stockholders.

Comparable Company Analysis (Public Comps)

The purpose of Comparable Company Analysis is to evaluate a company's value by comparing it to similar publicly traded companies.

Profit Allocation

The key metric used to determine the common shareholder's portion of the company's profit is Earnings per Share (EPS).

Valuation Analysis

EV/Revenue stands for Enterprise Value to Revenue, a ratio used in valuation analysis.
In the EV/EBITDA ratio, EBITDA represents Earnings Before Interest, Taxes, Depreciation, and Amortization.
EV is calculated by adding Total Debt, Minority Interest, and Preferred Stock to the company's Market Capitalization, and then subtracting Total Cash and Cash Equivalents.

Financial Ratios

The P/E Ratio measures a company's current stock price relative to its EPS.
The P/E Ratio is used in comparable company analysis to compare companies with similar characteristics.
The P/B Ratio represents the Price to Book Value Ratio, which compares a company's market value to its book value.

EV/EBITDA Ratio

The EV/EBITDA ratio is used to determine a company's valuation multiple.
The EV/EBITDA ratio plays a key role in valuation by providing a more accurate picture of a company's profitability.

Growth Stocks

Companies with high P/E Ratios are often considered growth stocks, as investors are willing to pay more for each dollar of earnings.
Low P/E Ratios typically indicate that a company's stock is undervalued or has lower growth prospects.

Financial Metrics

The EV/EBITDA ratio focuses on EBITDA as a metric to evaluate a company's profitability.
A company with the highest EV/EBITDA multiple typically has a higher valuation relative to its peers, indicating higher expected growth rates and profitability.

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Description

Test your knowledge on Valuation Techniques with a focus on Comparable Company Analysis and Earnings per Share. Learn about SG&A expenses and how EPS is calculated to assess common shareholder value.