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1.
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.
2.
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.
3.
A stock's price/cash flow ratio is calculated by dividing the stock price by the _______.
Operating cash flow per share.
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.
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.
A company's dividend yield is calculated by _______.
Dividing annual dividend per share by stock price per share.
7.
A company's gross margin is calculated by dividing _______.
Gross profits by revenues.
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.
