Q. One concern when screening for stocks with low price-to-earnings ratios is that companies with low P/Es may be financially weak. What criterion might an analyst include to avoid inadvertently selecting weak companies?
- Net income less than zero
- Debt-to-total assets ratio below a certain cutoff point
- Current-year sales growth lower than prior-year sales growth
Solution
B is correct. A lower value of debt/total assets indicates greater financial strength. Requiring that a company’s debt/total assets be below a certain cutoff point would allow the analyst to screen out highly leveraged and, therefore, potentially financially weak companies.
老师,这道题何解? 谢谢!
