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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?
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4%. The dividend yield is found by dividing annual dividend per share by stock price per share. Therefore, 1/25 equals 4%.
2.
The three types of a business's profit margins are gross margin, net margin, and _______.
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Operating margin.
3.
Earnings per share (EPS) is a metric that should not be used in isolation.
Choose wisely. There is only one correct answer.
True. As with other financial ratios, you should use EPS along with other metrics.
4.
An advantage to using the price/sales ratio over the price/earnings ratio is that sales are harder to manipulate than earnings.
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True. Sales are more straightforward. Also, there are fewer accounting estimates involved than with earnings.
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?
Choose wisely. There is only one correct answer.
$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.
If a company has earned $1.50 per share and its share price is $30, what is its P/E?
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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.
7.
The price/cash flow ratio measures cash rather than paper profits.
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True. For this reason, the ratio has a certain reliability that management likes.
8.
Companies in which of the following industries would likely have the lowest price/book ratios?
Choose wisely. There is only one correct answer.
Utilities. The lowest price/book ratios are found in capital-intensive industries, such as utilities.