NISM XV Valuation & Ratios — Practice Questions
Master valuation and financial ratios for the NISM Series XV Research Analyst exam — DCF, relative valuation, P/E, P/B, EV/EBITDA, ROE, CAGR and more, with worked explanations.
172 questions on Valuation & Ratios in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- DCF & intrinsic value
- Relative valuation (P/E, P/B, EV/EBITDA)
- Profitability & leverage ratios
- CAGR, ROE, ROCE
Free sample questions
1. The Return on Capital Employed (ROCE) of company M/s. Hightech Industries Ltd. is 8% and the cost of debt is 10%. What will be the most likely Return on Equity (ROE)?
- A. ROE is likely to be below 8% ✅
- B. ROE is likely to be above 10%
- C. ROE will be 2%
- D. ROE will be between 8 to 10%
Answer: A — ROE is likely to be below 8%
Why: ROCE is 8% but the cost of debt is 10%. Since the company earns less on its capital than it pays on borrowings, debt reduces overall returns. This drags down shareholder returns, so the ROE will end up below 8%. In other words : ROCE shows how efficiently the company earns on total capital, while cost of debt is what it pays on borrowings. Here, the company earns 8% but pays 10% on debt, so borrowing is costlier than returns. This creates negative leverage, which reduces returns for equity shareholders (ROE). Hence, the ROE will be lower than 8%.
💡 If ROCE < cost of debt -> leverage HURTS -> ROE falls BELOW ROCE.
2. As per the rules of SEBI, the chairman of the Remuneration Committee should be _______ .
- A. An Independent director ✅
- B. An Executive director
- C. The Chairman of the Board
- D. A Non Executive director
Answer: A — An Independent director
Why: The remuneration committee decides the remuneration of directors and senior management. Ideally, the committee should comprise entirely of independent directors. SEBI regulation currently stipulates that all members should be non-executive directors and the chairman of the committee should be independent director .
💡 Remuneration Committee chair = INDEPENDENT director. (Remuneration -> Reliable -> Independent).
3. Find out the Cost of Equity if the risk free rate is 7%, the market risk premium is 9% and the Beta is 0.60.
- A. 8.1%
- B. 13.8%
- C. 10.5%
- D. 12.4% ✅
Answer: D — 12.4%
Why: To find the Cost of Equity, we use the Capital Asset Pricing Model (CAPM) formula: Cost of Equity = Rf + β × (Rm−Rf) Where: Rf = Risk-free rate = 7% Rm − Rf = Market risk premium = 9% (Note : ' Rm − Rf' ie. the Market risk premium, is directly given as 9%) β = Beta = 0.60 Substituting the value : Cost of Equity = 7% + ( 0.60 × 9% ) = 7% + 5.4% = 12.4%
💡 Market risk = losses from overall market/price falls (systematic).
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