1. Why is the price/earnings ratio considered a gauge of future earning power?
2. Why does a relatively new firm often have a low dividend payout ratio? Why does a firm with a substantial growth record and/or substantial growth prospects often have a low dividend payout ratio?
3. Why would an investor ever buy stock in a firm with a low dividend yield?
4. Why is book value often meaningless? What improvements to financial statements would make it more meaningful?
5. Why should an investor read the note concerning stock options? How might stock options affect profitability?
6. Why can a relatively small number of stock appreciation rights prove to be a material drain on future earnings and cash of a company?
7. Explain how outstanding stock appreciation rights could increase reported income in a particular year.