MCQs- CHAPTER 10: VALUATION PRINCIPLES

BCG Matrix is a portfolio analysis model developed by Boston Consulting Group.

Agency risk refers to the risk that the management may prioritize their personal interests over the interests of the company and its shareholders.

Suppliers’ bargaining power would be high if the products/services do not have threat of substitutes.

The first step in the marketing research process is problem identification, which involves identifying and defining the marketing problem that the research is intended to solve.

The performance analysis of SCP analysis involves studying the financials of the industry and the key performance indicators (KPIs) that are specific to that industry.

Weaknesses in SWOT analysis refer to internal issues that make the company vulnerable to external events or prevent it from exploiting opportunities. Weaknesses can include vulnerability to external events, lack of financial strength, high fixed costs, and high customer concentration.

While financial performance is an important aspect of company analysis, it is not directly evaluated under the ESG framework. The ESG framework primarily focuses on environmental impact, social development activities, and corporate governance standards.

In an industry where rivalry is high, the competition among the players increases, leading to lower pricing power and lower incomes for the industry participants. Therefore, option is the correct answer.

PESTLE Analysis is an analysis done more from the perspective of a business which is looking to set up a unit offshore and analyzing several countries to choose from. This model primarily analyzes the external environmental factors that will act as influencers for a business.

Corporate Governance takes into account all aspects of management, including integrity, profitability, efficiency, and other factors that ensure ethical conduct, transparency, and accountability within the organization.

Stars are segments in a business where the market is growing rapidly and the company is having a large market share.

Pricing power refers to a company’s ability to independently determine and charge the price of its products. Companies with strong pricing power would be able to pass on any escalation in input cost to its customers. They can also increase their prices when demand is strong and thus grow their margins.

While social media platforms may provide insights into public sentiment, they are not typically considered reliable or consistent sources of information for detailed company analysis. Analysts commonly rely on annual/quarterly reports, conference call transcripts, and research reports from reputable sources.

The overall size of the tyre market in the country can be estimated as: Rs 24,000 crore / (1 - 0.20) = Rs 30,000 crore. Therefore, option is the closest estimate to the fair size of the tyre market in that country for the year 2019.

Assessing the history of credit rating helps equity investors determine the level of financial risk, understand how the management responds to external feedback, and set return expectations based on the company's creditworthiness.

True. Companies are required to inform the exchanges about their shareholding pattern and any changes in it periodically to ensure transparency and provide relevant information to the stakeholders.

Entry barriers in an industry would be high if patents and copyrights prevent new entrants.

A mission statement defines a company's goals, objectives, and approach to achieve them, while a vision statement describes a company's future aspirations and its desired future state.

Structure Conduct Performance (SCP) analysis is a framework that examines the structure, conduct, and performance of an industry. The "structure" in SCP analysis refers to the relationship among the various players in the industry, such as the number and size of firms, entry and exit barriers, and degree of product differentiation. Therefore, option is the correct answer.

True. Strong financial performance is often an indication of a good business quality, as it reflects profitability, efficiency, and financial stability.

Certain disruption may create new competitive advantage for one company or may remove a competitive advantage enjoyed by an existing player. This may result is value migrating from one company to another. Before

Companies following the ESG framework and practicing strong corporate governance are perceived as having reduced risk, leading to a lower cost of capital for the organization.

Understanding a company's business model is important because it helps investors evaluate the company's competitive advantage compared to its peers, assess its capability to exploit opportunities and withstand threats, and understand the efficiency with which products and services are produced and delivered to customers.

Dr. Garry Hamel's perspective on competition in the market place is that it is between the business models of competing companies, highlighting the importance of understanding a company's business model in fundamental research.

Company analysis helps investors evaluate external and internal factors that drive a company's performance, including macro-economic and industry-specific factors, as well as company-specific factors such as its business model, competitive advantage, capability to exploit opportunities and withstand threats, management competence, vision for the future, and governance structure.

In a market where there are a large number of sellers with similar products or services, consumers have more bargaining power and can exert pressure on the sellers to lower prices. Therefore, option is the correct answer.

If an analyst cannot address what a company does with preciseness and clarity, they should try to obtain the necessary data to substantiate their findings.

The six factors included in PESTLE Analysis are Political, Economic, Sociocultural, Technological, Legal and Environmental.

Governments use direct taxes as a tool for promoting or discouraging certain activities. For instance, in India, companies are allowed to claim an expense that is 1.5 times of actual expenditure incurred on certain scientific research activity to promote research and development.

Pricing power is often driven by industry factors that affect all companies in the industry. These factors include the competition intensity in the industry, the price elasticity of the product, and the level of commoditization of the product. However, there are also company-specific factors that position a company differently from its peers. These factors include its natural leadership position in the industry, brand affinity among customers, and its cost base.

Strengths in SWOT analysis refer to the internal capabilities of the company that enable it to exploit opportunities and withstand threats. Examples of strengths include strong financial position, valuable intellectual properties, low customer concentration, and strong execution capability.

Some phenomenon can result in industries at the down end of value chain gain at the cost of those at the upper end or vice vers High competition intensity in the Indian telecommunication space resulted in significant fall in price of mobile services, which in turn led to significant decline in shareholder value for telecom companies. However, this resulted in increased consumption of digital products and thus more traction for digital content providers.

To evaluate management competency, analysts should consider factors such as educational qualification, years of experience, company's performance during their tenure, vision on long-term goals, strategic direction, and delegation in decision-making.

The structure analysis of SCP analysis involves studying the competitive intensity in the industry, the concentration of business, the relationship among various players, and the market size, growth rate, dominance of few players in the industry, and other related factors.

An industry that has low competition would have strong pricing power and high profit margins, which is attractive to investors.

Cash Cows are segments in a business which require low cash infusion for investment to maintain market shares because of low growth prospects but at the same time, generate a significant amount of cash for the business.

Excise duty is an example of an indirect tax, whereas income tax, corporate tax, and wealth tax are examples of direct taxes.

The differentiating factors for a company compared to its competitors can be categorized into three areas: differentiation in product features, competitive pricing driven by operational efficiency, and better execution.

SCP analysis is a method of analyzing industries based on their structure, conduct, and performance.

An analyst needs to compare the products of a company with those of its competitors to see if they have offered better features. It is important for the analyst to look at the data that can substantiate the advantage and not get carried away by superficial marketing claims.

The government of Kerala introduced a fat tax in 2017 to discourage the junk food industry by levying 14.5% additional tax on junk foods.

Cess is an additional levy charged on the taxes plus surcharge, and it is meant to be used for specific purposes for which it is levie

The conduct analysis of SCP analysis involves studying the factors that define the conduct of businesses such as pricing and product innovation.

Small changes in regulatory framework can have a big impact on businesses, and therefore, analysts should pay enough attention to the regulatory aspects of businesses

PESTLE analysis is a tool used to analyze the external macro-environmental factors that affect an organization. Economic factors, such as forex reserves, monetary policies of the RBI, and a country's dependence on other countries for natural resources, are important economic factors that impact an organization. Therefore, option is the correct answer.

STEEPLED stands for Sociological, Technological, Environmental, Economic, Political, Legal, Ethical and Demographi Some models extend PESTLE to include these factors, thus modifying the acronym to STEEPLE

Threats in SWOT analysis refer to risks that come from the external environment. These can include economic recession, regulatory headwinds, technological disruptions, and other factors that pose risks to the company's operations and profitability.

The ESG framework in company analysis primarily focuses on evaluating companies based on their impact on the environment, social development factors, and corporate governance standards.

SCP analysis involves considering the key constraining factors such as demand side constraints, supply side constraints, and regulatory constraints while analyzing the industry.

Opportunities in SWOT analysis can arise from events leading to faster growth, technological advancements, opportunities for geographic expansion, and adverse market conditions that allow for consolidation. These are external factors that can create avenues for business growth and development.

The first step in the marketing research process is problem identification, which involves identifying and defining the marketing problem that the research is intended to solve.

SWOT Analysis is a strategic planning tool used to analyze the external factors that could impact a company's growth and success.

Political factors are important to consider as countries can have different political structures. For example, communist countries would have social objectives above anything else while capitalist ones would not necessarily have all responsibilities of a welfare state. Political stability, minimal corruption, bureaucracy, communal tensions and violence, and maximum freedom of press, ease of doing business and quick turnaround time are some of the factors which investors would look at in a country.

The objective of good corporate governance standards is to ensure that the company is managed in a way that takes care of all stakeholders, including shareholders, lenders, employees, suppliers, and customers.

According to SEBI's regulation on corporate governance, at least 33% of the board should comprise independent directors.

Each sector has its own unique parameters for evaluation, and it is important for analysts to possess in-depth knowledge of the sectors while researching companies.

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. It is a framework used to evaluate a company's internal strengths and weaknesses, as well as external opportunities and threats.

The Ministry of Corporate Affairs website often provides information on a company's corporate governance practices, including details about the board of directors, independent directors, and compliance with regulations. Annual/quarterly reports may also contain information on corporate governance practices, but the Ministry of Corporate Affairs website is specifically focused on such matters.

Understanding a company's execution capabilities can provide insight into how it is likely to perform compared to its competitors in the industry. Strong execution capabilities can allow a company to gain market share, grow its revenue, and increase profitability. On the other hand, weak execution capabilities can hinder a company's growth and put it at a disadvantage compared to its competitors. Therefore, it is important for investors and analysts to study a company's execution capabilities when evaluating its

Suppliers’ bargaining power would be high if the number of suppliers are limited and buyers are many.

True. A good analyst should monitor and track the disclosures, commitments, and deliveries of an organization regularly to assess its performance, financial health, and adherence to commitments made to stakeholders.