Value Investing Basics Quiz

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| By Valueinvestor

Valueinvestor

Community Contributor

Quizzes Created: 1 | Total Attempts: 484

Questions: 10 | Attempts: 486 | Updated: Mar 21, 2023

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This quiz tests for a basic understanding and knowledge of investing and stock markets

Questions and Answers

1.

When calculating P/E ratio, which type of earnings is generally used
- A.
  
  Operating Earnings Per Share
- B.
  
  Basic Earnings Per Share
- C.
  
  Diluted Earnings Per Share
- D.
  
  Earnings Before Interest and Taxes
Correct Answer
B. Basic Earnings Per Share

Explanation
The P/E ratio is a commonly used valuation metric that compares a company's stock price to its earnings per share (EPS). The basic earnings per share is generally used when calculating the P/E ratio. This is because basic EPS represents the earnings available to common shareholders, excluding any potential dilution from convertible securities or other complex financial instruments. By using basic EPS, the P/E ratio provides a more accurate measure of the company's profitability and potential return on investment for common shareholders.

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2.

Information about Total Assets and Total Liabilities can be found in the
- A.
  
  Income Statement
- B.
  
  Proxy Statement
- C.
  
  Cash Flow Statement
- D.
  
  Balance Sheet
Correct Answer
D. Balance Sheet

Explanation
The correct answer is Balance Sheet. The Balance Sheet provides information about a company's total assets and total liabilities. It is a financial statement that shows the financial position of a company at a specific point in time. The total assets represent the value of all the resources owned by the company, while the total liabilities represent the company's debts and obligations. By comparing the total assets and total liabilities, investors and analysts can assess the company's financial health and its ability to meet its obligations.

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1
0
3.

P/B Ratio generally stands for
- A.
  
  Price to Book Ratio
- B.
  
  Price to Basic Earnings Per Share Ratio
- C.
  
  Price to Bond Yield Ratio
- D.
  
  Price to Tangible Book Value ratio
Correct Answer
A. Price to Book Ratio

Explanation
The correct answer is Price to Book Ratio. The Price to Book Ratio is a financial metric used to compare a company's market value to its book value. It is calculated by dividing the market price per share by the book value per share. This ratio helps investors determine whether a stock is overvalued or undervalued by comparing the market price to the company's net assets. A higher ratio indicates that the stock may be overvalued, while a lower ratio suggests that the stock may be undervalued.

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4.

Company A earned 1 million in net income on a share holder's equity of 5 million and total assets of 10 million, Company A 's Return On Equity (ROE) was
- A.
  
  10%
- B.
  
  20%
- C.
  
  50%
- D.
  
  6.67%
Correct Answer
B. 20%

Explanation
The Return on Equity (ROE) is calculated by dividing the net income by the shareholders' equity. In this case, the net income is 1 million and the shareholders' equity is 5 million. Therefore, the ROE is 1 million divided by 5 million, which equals 0.2 or 20%. This means that for every dollar of shareholders' equity, the company generated a return of 20 cents.

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5.

The DCF method is often used by value investors to calculate the fair value of a stock or business. DCF stands for
- A.
  
  Discounted Cash Flow
- B.
  
  Distributed Cash Flow
- C.
  
  Deferred Cash Flow
- D.
  
  Diluted Cash Flow
Correct Answer
A. Discounted Cash Flow

Explanation
The correct answer is Discounted Cash Flow. The DCF method is commonly used by value investors to determine the fair value of a stock or business. It involves estimating the future cash flows generated by the investment and then discounting them back to their present value using a predetermined discount rate. This allows investors to assess the intrinsic value of an investment and make informed decisions about buying or selling.

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6.

Which of these is *NOT* considered a derivative
- A.
  
  Options
- B.
  
  Futures
- C.
  
  Treasury Bonds
- D.
  
  Swaps
Correct Answer
C. Treasury Bonds

Explanation
Treasury Bonds are not considered a derivative because they are a type of fixed-income security issued by the government to raise funds, and their value is not derived from an underlying asset or financial instrument. Derivatives, on the other hand, are financial contracts whose value is derived from an underlying asset, index, or reference rate. Futures and swaps are examples of derivatives as their value is derived from the underlying assets or reference rates they are based on.

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7.

The author of the book "The Intellient Investor" is
- A.
  
  Peter Lynch
- B.
  
  Warren Buffett
- C.
  
  Seth Klarman
- D.
  
  Benjamin Graham
Correct Answer
D. Benjamin Graham

Explanation
Benjamin Graham is the correct answer as he is the author of the book "The Intelligent Investor." This book is considered a classic in the field of investing and is highly regarded for its principles and strategies. Benjamin Graham is known as the father of value investing and his teachings have greatly influenced many successful investors, including Warren Buffett. Peter Lynch, Seth Klarman, and Warren Buffett are all notable investors, but they are not the authors of this particular book.

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8.

A concept popularized by many noted value investors, in which an investor considers purchasing securities only when the market price is significantly below its intrinsic value is called
- A.
  
  Safety First
- B.
  
  Margin of Safety
- C.
  
  Margin of Error
- D.
  
  Margin of Price
Correct Answer
B. Margin of Safety

Explanation
Margin of Safety is a concept popularized by many noted value investors. It refers to the practice of purchasing securities only when their market price is significantly below their intrinsic value. By doing so, investors aim to protect themselves against potential losses and increase the potential for future gains. The margin of safety allows investors to buy assets at a discount, reducing the risk of overpaying and increasing the chances of achieving a favorable return on investment.

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9.

Which of these is *NOT* commonly used as an inventory-costing method
- A.
  
  FIFO
- B.
  
  Cost of Goods Sold
- C.
  
  Average Cost
- D.
  
  LIFO
Correct Answer
B. Cost of Goods Sold

Explanation
The correct answer is Cost of Goods Sold. Cost of Goods Sold is not commonly used as an inventory-costing method. It is a financial statement that represents the cost of goods that have been sold during a specific period of time. It is used to calculate the gross profit of a business by subtracting the cost of goods sold from the total revenue. However, it is not a method of valuing inventory. Common inventory-costing methods include FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and Average Cost.

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10.

One of Benjamin Graham's strategies for finding undervalued stocks was
- A.
  
  NCAV Strategy
- B.
  
  Relative Strength Strategy
- C.
  
  50-Day Moving Average Strategy
- D.
  
  MACD Divergence Strategy
Correct Answer
A. NCAV Strategy

Explanation
Benjamin Graham's NCAV (Net Current Asset Value) strategy involves identifying stocks that are trading at a price below their net current asset value per share. This strategy focuses on finding stocks that are potentially undervalued and can provide a margin of safety for investors. By comparing the market price to the company's net current assets, Graham believed that investors could identify stocks with a significant discount to their intrinsic value. This strategy is based on the principle of buying stocks at a price lower than their liquidation value, providing a potential opportunity for capital appreciation.

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Current Version
Mar 21, 2023

Quiz Edited by
ProProfs Editorial Team
Apr 18, 2011

Quiz Created by
Valueinvestor

Value Investing Basics Quiz

When calculating P/E ratio, which type of earnings is generally used

Information about Total Assets and Total Liabilities can be found in the

P/B Ratio generally stands for

Company A earned 1 million in net income on a share holder's equity of 5 million and total assets of 10 million, Company A 's Return On Equity (ROE) was

The DCF method is often used by value investors to calculate the fair value of a stock or business. DCF stands for

Which of these is NOT considered a derivative

The author of the book "The Intellient Investor" is

A concept popularized by many noted value investors, in which an investor considers purchasing securities only when the market price is significantly below its intrinsic value is called

Which of these is NOT commonly used as an inventory-costing method

One of Benjamin Graham's strategies for finding undervalued stocks was

Value Investing Basics Quiz

When calculating P/E ratio, which type of earnings is generally used

Information about Total Assets and Total Liabilities can be found in the

P/B Ratio generally stands for

Company A earned 1 million in net income on a share holder's equity of 5 million and total assets of 10 million, Company A 's Return On Equity (ROE) was

The DCF method is often used by value investors to calculate the fair value of a stock or business. DCF stands for

Which of these is *NOT* considered a derivative

The author of the book "The Intellient Investor" is

A concept popularized by many noted value investors, in which an investor considers purchasing securities only when the market price is significantly below its intrinsic value is called

Which of these is *NOT* commonly used as an inventory-costing method

One of Benjamin Graham's strategies for finding undervalued stocks was

Which of these is NOT considered a derivative

Which of these is NOT commonly used as an inventory-costing method