🧩 Chapter 10: Company Analysis — Mock Questions

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Q1. Company analysis begins with understanding:

A. Share price movement
B. Business model and revenue drivers
C. Dividend history
D. Stock volatility

Answer: B
✔ Core of analysis = understanding how the company makes money.

Q2. Which of the following is a key element of a business model?

A. Promoter age
B. Customer value proposition
C. Bonus issue history
D. Stock beta

Answer: B
✔ Value proposition tells why customers choose the product.

Q3. A company’s competitive advantage (moat) is best reflected by:

A. High debt
B. Consistent high ROE
C. Frequent rights issues
D. Low promoter holding

Answer: B
✔ Strong moats produce sustained high returns.

Q4. Which is NOT a part of company strategy analysis?

A. Pricing policy
B. Cost structure
C. Product differentiation
D. Intraday price movement

Answer: D
✔ Day-to-day stock price is irrelevant in company analysis.

Q5. Operating leverage refers to:

A. Sensitivity of EPS to interest expense
B. Proportion of fixed costs in operations
C. Ability to raise debt
D. Dividend payout behaviour

Answer: B
✔ High fixed costs → higher operating leverage.

Q6. High operating leverage means profit is:

A. Less sensitive to sales
B. More sensitive to sales
C. Unaffected by sales
D. Independent of costs

Answer: B
✔ Small change in revenue → large change in profit.

Q7. A company with strong pricing power can:

A. Raise prices without losing customers
B. Reduce costs always
C. Control inflation
D. Avoid competition

Answer: A
✔ Pricing power = major indicator of moat strength.

Q8. In Porter’s Five Forces, supplier power increases when:

A. Many suppliers exist
B. Switching costs are low
C. Few suppliers dominate
D. Raw materials are easily available

Answer: C
✔ Supplier concentration increases bargaining power.

Q9. A company with high receivable days may face:

A. Strong cash flows
B. Lower working capital needs
C. Liquidity issues
D. Reduced sales

Answer: C
✔ High receivables → cash stuck → liquidity pressure.

Q10. If a company frequently issues equity to fund operations, it indicates:

A. Strong free cash flows
B. Weak internal cash generation
C. Low dilution risk
D. High profitability

Answer: B
✔ Frequent equity raising = weak cash generation.

Q11. Management quality is best assessed by:

A. Stock price chart
B. Promoter interviews, governance track record
C. Company’s logo
D. Employee count

Answer: B
✔ Governance, integrity, capital allocation skill = core qualitative assessment.

Q12. A company showing rapid revenue growth but declining margins suggests:

A. High efficiency
B. Strong moat
C. Profitability under pressure
D. Lower competition

Answer: C
✔ Declining margins = rising costs or weak pricing power.

Q13. Capital allocation refers to how management:

A. Designs products
B. Selects marketing agencies
C. Deploys financial resources (Capex, buybacks, dividends)
D. Trades derivatives

Answer: C
✔ Capital allocation decides long-term shareholder value creation.

Q14. A red flag in company analysis is:

A. Zero debt
B. Consistent dividends
C. Aggressive revenue recognition
D. Increasing R&D spend

Answer: C
✔ Aggressive accounting inflates profits artificially.

Q15. A company with a high cash conversion cycle (CCC) likely faces:

A. Strong liquidity
B. High working capital intensity
C. Low inventory
D. Negative cash flow always

Answer: B
✔ High CCC means cash is tied up longer → high working capital needs.

Q16. Which of the following strengthens a company’s moat?

A. Commodity-like product
B. Unique intellectual property
C. Frequent management turnover
D. Price wars

Answer: B
✔ Patents and IP = strong competitive advantage.

Q17. Which type of risk increases when a company relies heavily on a single supplier?

A. Currency risk
B. Technology risk
C. Concentration risk
D. Liquidity risk

Answer: C
✔ Supplier concentration creates operational vulnerability.

Q18. A company with high ROE but high debt likely has:

A. High quality earnings
B. Risky leveraged returns
C. Safe capital structure
D. Declining business

Answer: B
✔ High ROE artificially boosted by leverage → risky.

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