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1.
The three types of a business's profit margins are gross margin, net margin, and _______.
Operating margin.
2.
Imagine that your company has 20 million shares of stock outstanding, the stock is currently trading at $10 per share, the price/earnings ratio is 20, and your sales this year are $5 million. As the chief financial officer, you must calculate your company's market capitalization. What is it?
$200 million. Market cap is stock price multiplied by number of shares outstanding, so the figure is $200 million. Price/earnings ratio and sales do not factor into market cap.
3.
A company's price/sales ratio is its stock price divided by _______.
Sales per share. Since we are using stock price, we must also use sales per share.
4.
If a company's P/E is 30, its earnings yield is _______.
3.3%. The earnings yield is calculated by inverting the P/E ratio. In this case the earnings yield is 1/30 or 3.3%.
5.
Company X pays an annual dividend of $1.00 per share, and its stock trades for $25. What is its dividend yield?
4%. The dividend yield is found by dividing annual dividend per share by stock price per share. Therefore, 1/25 equals 4%.
6.
Price/book ratio compares what with what?
A stock's market value with its book value. The 'price' part of the formula refers to the stock's market value.
7.
Earnings per share (EPS) is a company's net income divided by its number of shares outstanding.
True. As such, EPS can give you a quick idea of a company's profitability, though it has its limits.
8.
A stock's price/cash flow ratio is calculated by dividing the stock price by the total operating cash flow.
False. The ratio uses operating cash flow per share, not total operating cash flow.
