Some fundamental multiple-choice questions derived from this chapter:
1. According to the article, studying the balance sheet can provide all of the following insights EXCEPT:
A) The company's working capital position
B) The validity of reported earnings
C) Management competency
D) The capital structure
2. The article suggests that the book value per share:
A) Is meaningless in today's market
B) Should be the main factor in stock valuation
C) Deserves a brief look but has limitations
D) Is most useful for companies with intangible assets
3. Extremely high price-to-book ratios may suggest:
A) The company has hidden assets not on the balance sheet
B) Investors are speculating well beyond business fundamentals
C) The company has superior intangible assets
D) The company is underpriced based on potential future growth
4. The article advocates maintaining a "business mindset" when evaluating stocks. This means:
A) Projecting future earnings growth
B) Focusing only on quantitative factors
C) Considering the valuation of the whole company implied by the share price
D) Evaluating qualitative aspects like management strength
5. The article suggests book value should be:
A) The primary factor driving investment decisions
B) Considered along with other factors in a balanced analysis
C) Ignored as an outdated metric
D) Viewed as a ceiling for reasonable valuation
Answers: CCBCB