FIN 466 - Quiz 4
FIN 466 - Quiz 4: Safe and Cheap Investing
Test your knowledge on the principles of "safe and cheap" investing with this comprehensive quiz designed for finance enthusiasts and students alike. Dive deep into concepts such as financial positioning, DCF analysis, and the dynamics of wealth generation.
Key Topics Covered:
- Understanding financial metrics
- Evaluating book value growth
- Examining shareholder value
- Analyzing Starbucks case study
The basic premise of "safe and cheap" investing is that minority investors ought to adopt the valuation methods used by
Sell side Wall Street analysts
Control investors and insiders.
People that give earnings per share a primacy in the analysis.
None of the above.
A strong יִnancial position is measure by:
Relative absence of liabilities.
The quality of assets (i.e. How readily convertible into cash they are).
Cash flows from operations.
All of the above.
Of the several factors involved in "safe and cheap" investing, a strong יִnancial position tends to give: (think about everything you learned about capitalization structure when answering this questions)
Lower return on equity to common stock investors.
Managements the option to be opportunistic
Signiיִcant reductions in יִnancial risk, I.e. Substantially increases the survivability of the business through business cycles.
All of the above
Using the image of Starbucks DCF analysis, what is the "leverage ratio"?
28%
4.8%
2.10x
None of the above
The above DCF analysis is done on an unadjusted EBITDA basis
True
False
Take a look at the "Going Concern, Resource Conversion" wealth generation dynamics analysis below. What is the relevant growth יִgure you would use to plug into a DCF analysis?
9.1%
22.8%
9.4%
23.1%
On a yearly basis, growth in book value per share plus dividends was highly positively correlated to share price plus dividend growth.
True
False
In a nine year period, average growth of book value per share plus dividends and average growth of share price plus dividends was highly correlated.
True
B. False
Safe and Cheap investors use the same methods of analysis that Control Investors use
True
False
What is the total book value growth (in %) for Starbuck's business since the beginning of 2009 to the end of 2017? Use the numbers on the spreadsheet to make the calculation.
78.94%
93.19%
118.8%
136.22%
What are the major "detractors" to book value growth? Answer all that apply.
Exercise of options
Share repurchases
Dividend payments
Stock compensation
Starbucks has been able to generate impressive levels of ROE over the 2009-2017 time period. It seems that post 2013, SBUX ROE has increased materially. See sheet below. What can you attribute the large increase post 2013? Answer all that may apply.
Increased proיִtability
Increased leverage
Increased "efficiency"
Decreased return on assets
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