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1.
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.
2.
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.
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.
All else equal, what does a rising dividend yield mean for a stock?
The stock is becoming less expensive. A rising dividend yield means that the stock is becoming less expensive because a higher percentage of the stock price is being paid out in annual dividends.
5.
If a company has earned $1.50 per share and its share price is $30, what is its P/E?
20. The P/E is determined by dividing the price per share ($30) by the earnings per share ($1.50), yielding a P/E of 20 in this case.
6.
Companies in which of the following industries would likely have the lowest price/book ratios?
Utilities. The lowest price/book ratios are found in capital-intensive industries, such as utilities.
7.
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.
8.
The three types of a business's profit margins are gross margin, net margin, and operating margin.
