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1.
The three types of a business's profit margins are gross margin, net margin, and _______.
Operating margin.
2.
A stock's price/cash flow ratio is calculated by dividing the stock price by the _______.
Operating cash flow per share.
3.
Companies in which of the following industries would likely have the highest price/book ratios?
Pharmaceuticals. The highest P/B ratios are in fields such as pharmaceuticals and consumer products, where intangibles are more important.
4.
If two companies both have the same level of revenue, but company A turns more of every sales dollar into profit than company B, which will probably have a higher price/sales ratio?
Company A. Company A is generating more earnings per dollar of sales than Company B. This means Company A needs fewer sales to generate the same level of earnings, and the market is likely to reward Company A with a higher P/S ratio.
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.
A company's market capitalization is calculated by _______.
Multiplying its stock price by the number of shares outstanding. For example, if there are a million shares of stock trading at $10 per share, the market capitalization is $10 million.
7.
A stock's price/earnings ratio is its price divided by its _______.
Earnings per share. The formula uses earnings per share.
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.
