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15 Sep 2015, 11:47
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Report: For the most recent quarter, TechCo announced earnings of $1.10 per share, an extremely strong result. This indicates the company has strong profitability and has delivered on its plan to launch new products and gain market share. Shares of the company fell 5% after announcing these results.
Which of the following helps explain why TechCo’s stock price fell after its strong earnings report?
A. In its earnings report, TechCo announced a new partnership with a producer of a commodity used to manufacture its products
B. Prior to the announcement of earnings, it was expected that earnings would be $1.00 per share
C. The company’s operating margins increased when compared to the same quarter in the previous year
D. Investors believe that the company’s strong results cannot continue for much longer in the future
E. Several new startup companies have recently launched with the intention of competing with TechCo in its main business line
Which of the following helps explain why TechCo’s stock price fell after its strong earnings report?
A. In its earnings report, TechCo announced a new partnership with a producer of a commodity used to manufacture its products
B. Prior to the announcement of earnings, it was expected that earnings would be $1.00 per share
C. The company’s operating margins increased when compared to the same quarter in the previous year
D. Investors believe that the company’s strong results cannot continue for much longer in the future
E. Several new startup companies have recently launched with the intention of competing with TechCo in its main business line
15 Sep 2015, 11:47
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Official Solution:
Report: For the most recent quarter, TechCo announced earnings of $1.10 per share, an extremely strong result. This indicates the company has strong profitability and has delivered on its plan to launch new products and gain market share. Shares of the company fell 5% after announcing these results.
Which of the following helps explain why TechCo’s stock price fell after its strong earnings report?
A. In its earnings report, TechCo announced a new partnership with a producer of a commodity used to manufacture its products
B. Prior to the announcement of earnings, it was expected that earnings would be $1.00 per share
C. The company’s operating margins increased when compared to the same quarter in the previous year
D. Investors believe that the company’s strong results cannot continue for much longer in the future
E. Several new startup companies have recently launched with the intention of competing with TechCo in its main business line
(A) If TechCo formed a new partnership with a key commodity supplier, this would provide the company a more stable source of the commodity, and likely lower their costs. This could lead to greater earnings in the future so it would not be expected to cause the stock price to decrease.
(B) If the company’s earnings exceeded expectations, the stock price would be expected to rise, not fall.
(C) This answer choice only reinforces the statement that the company has strong profitability. If margins are rising, the stock price would be expected to increase, not decrease.
(D) Correct. If investors do not expect the company’s strong result to continue, it could explain why the stock price decreased.
(E) While new competitors may be a concern for TechCo, the answer choice does not state that the startup companies have launched products or gained market share. Thus, they are not likely to have an effect on TechCo’s earnings or cause a drop in TechCo’s stock price.
Answer: D
Report: For the most recent quarter, TechCo announced earnings of $1.10 per share, an extremely strong result. This indicates the company has strong profitability and has delivered on its plan to launch new products and gain market share. Shares of the company fell 5% after announcing these results.
Which of the following helps explain why TechCo’s stock price fell after its strong earnings report?
A. In its earnings report, TechCo announced a new partnership with a producer of a commodity used to manufacture its products
B. Prior to the announcement of earnings, it was expected that earnings would be $1.00 per share
C. The company’s operating margins increased when compared to the same quarter in the previous year
D. Investors believe that the company’s strong results cannot continue for much longer in the future
E. Several new startup companies have recently launched with the intention of competing with TechCo in its main business line
(A) If TechCo formed a new partnership with a key commodity supplier, this would provide the company a more stable source of the commodity, and likely lower their costs. This could lead to greater earnings in the future so it would not be expected to cause the stock price to decrease.
(B) If the company’s earnings exceeded expectations, the stock price would be expected to rise, not fall.
(C) This answer choice only reinforces the statement that the company has strong profitability. If margins are rising, the stock price would be expected to increase, not decrease.
(D) Correct. If investors do not expect the company’s strong result to continue, it could explain why the stock price decreased.
(E) While new competitors may be a concern for TechCo, the answer choice does not state that the startup companies have launched products or gained market share. Thus, they are not likely to have an effect on TechCo’s earnings or cause a drop in TechCo’s stock price.
Answer: D
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Official Solution:
Report: For the most recent quarter, TechCo announced earnings of $1.10 per share, an extremely strong result. This indicates the company has strong profitability and has delivered on its plan to launch new products and gain market share. Shares of the company fell 5% after announcing these results.
Which of the following helps explain why TechCo’s stock price fell after its strong earnings report?
A. In its earnings report, TechCo announced a new partnership with a producer of a commodity used to manufacture its products
B. Prior to the announcement of earnings, it was expected that earnings would be $1.00 per share
C. The company’s operating margins increased when compared to the same quarter in the previous year
D. Investors believe that the company’s strong results cannot continue for much longer in the future
E. Several new startup companies have recently launched with the intention of competing with TechCo in its main business line
Answer: D
Report: For the most recent quarter, TechCo announced earnings of $1.10 per share, an extremely strong result. This indicates the company has strong profitability and has delivered on its plan to launch new products and gain market share. Shares of the company fell 5% after announcing these results.
Which of the following helps explain why TechCo’s stock price fell after its strong earnings report?
A. In its earnings report, TechCo announced a new partnership with a producer of a commodity used to manufacture its products
B. Prior to the announcement of earnings, it was expected that earnings would be $1.00 per share
C. The company’s operating margins increased when compared to the same quarter in the previous year
D. Investors believe that the company’s strong results cannot continue for much longer in the future
E. Several new startup companies have recently launched with the intention of competing with TechCo in its main business line
Answer: D
(D) Correct. If investors do not expect the company’s strong result to continue, it could explain why the stock price decreased.
A belief or expectation (of Investors) cannot be related as an explanations for a decline in the stock prices.
It could be correct if there is conclusive evidence - "Experts/Stock analysts forecast that the company's strong results ..."
(E) While new competitors may be a concern for TechCo, the answer choice does not state that the startup companies have launched products or gained market share. Thus, they are not likely to have an effect on TechCo’s earnings or cause a drop in TechCo’s stock price.
Irrespective of the new competitors gain in market share/ launch of new products. Their entry may influence the stock prices of the that segment. Moreover option (E) says "competing with TechCo in its main business line"
I am not convinced with either answers.
sayantanc2k
