Exam 9: The Top-Down Approach to Market, Industry, and Company Analysis

The economy and the stock market have a strong, consistent relationship, but the stock market generally turns before the economy does.

Evidence that a firm has high business risk would be provided by its volatile ____.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 9.17. What is the Left-Aid Corporation's return on equity (ROE)?

The price/cash flow ratio has grown in prominence and use for valuing firms because many analysts contend that a firm's cash flow is less subject to manipulation than the firm's earnings per share.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 9.14. What are the ROE's for Wal-Blue and its industry?

Returns from the overall market (or an individual stock) can be thought of as a combination of three factors: earnings growth, multiple expansion (or contraction), and dividend yield.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume that the dividend payout ratio will be 65 percent when the rate on long-term government bonds falls to 8 percent. Because investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 15 percent return. The return on equity will be 12 percent. -Refer to Exhibit 9.1. What is your expectation of the market P/E ratio?

Price-to-sales ratio is still considered the predominant firm valuation technique.

_____ tend to move in anticipation of the business cycle, turning up in anticipation of recovery and turning down at signs of economic weakness.

A major advantage of the cyclical indicator approach is that it spans all important major economic sectors, including the service sector and import-exports.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information that you propose to use to obtain an estimate of year 2004 EPS for the MacLog Company. In addition, a regression analysis indicates the following relationship between growth in sales per share for MacLog, and GDP growth is % $\Delta$ Sales per share = 0.015 + 0.75(% $\Delta$ GDP) -Refer to Exhibit 9.6. Calculate GDP for the year 2020.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) An analyst wishes to estimate the share price for Ashley Corporation. The following information is made available: Estimated profit margin = 15% Total asset turnover = 2 Financial leverage = 1.2 Estimated dividend payout ratio = 75% Required rate of return = 14% Estimated EPS = $2.50 -Refer to Exhibit 9.5. Calculate the P/E multiple.

When estimating a major stock market value using the earnings multiplier approach, near-term estimates of the required rate of return and growth rate are essential due to the impact of near-term events on cash flows.

As the market's return on equity increases so will the P/E ratio.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 9.10. In the listing above, which three factors influence the earnings multiple for a stock?

In a(n) ____ strategy, a firm seeks to identify itself as unique within its industry.