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1.
How would you turn a price/earnings ratio into an earnings yield?
Invert it. Earnings yield can be gotten by inverting the price/earnings ratio.
2.
A company's price/earnings ratio is most meaningful when it is compared with which of the following?
Its historical P/E ratio. A company's P/E ratio is most meaningful when it is compared with its historical P/E ratio. The most useful way to use a P/E ratio is to compare it with a certain benchmark. Good benchmarks are the P/E of another company in the same industry, the P/E of the entire market, or the P/E of the same company at a different point in time. It would not be very meaningful to compare a company's P/E ratio with its P/S ratio or historical P/B ratio, because the latter two metrics are used to measure different aspects of the company's performance (sales and book value) relative to its stock price.
3.
What would a stock dividend yield of 0% tell you?
The company is not paying any dividend at all. If you have a zero on the top half the formula, where the annual dividends per share go, then no dividend is being paid.
4.
In a typical price/book ratio, what exactly is the book value part of it?
The total equity divided by the number of shares outstanding. Altogether, this is the "book value" that purports to show what a share of stock is objectively worth.
5.
Why should you be wary of using the cash return measurement for evaluating foreign companies?
They may have different definitions of cash flow. In other words, what they call cash flow and what we call cash flow may be two different things, thus skewing the usefulness of the measurement.
6.
An advantage to using the price/sales ratio is that sales are cut-and-dried.
True. Sales are more straightforward and harder to manipulate than earnings.
7.
In a nutshell, the price/earnings growth ratio of a company provides a quick and easy way to estimate the price you're paying for _______.
Its future growth. This is because the ratio uses future estimates. Many investors want to know what a company's prospects will be.
