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1.
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%.
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 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.
4.
An advantage to using the price/sales ratio over the price/earnings ratio is that sales are harder to manipulate than earnings.
True. Sales are more straightforward. Also, there are fewer accounting estimates involved than with earnings.
5.
A stock's price/earnings ratio is its price divided by its _______.
Earnings per share. The formula uses earnings per share.
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.
The three types of a business's profit margins are gross margin, net margin, and _______.
Operating margin.
8.
Earnings per share (EPS) is a metric that should not be used in isolation.
True. As with other financial ratios, you should use EPS along with other metrics.
