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1.
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.
2.
A stock's price/earnings ratio is its price divided by its _______.
Earnings per share. The formula uses earnings per share.
3.
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.
4.
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.
5.
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.
6.
The three types of a business's profit margins are gross margin, net margin, and operating margin.
True.
7.
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.
8.
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.
