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1.
Company Z pays an annual dividend of $2.00 per share, and its stock trades for $25. What is its dividend yield?
8%. The dividend yield is found by dividing annual dividend per share by stock price per share. Therefore, 2/25 equals 8%.
2.
The value of a stock's price/earnings ratio could be described as _______.
How much you are willing to pay for the company's earnings. This is what P/E boils down to, practically speaking. The higher the P/E ratio, the more that you are generally willing to pay for the earnings that the company generates.
3.
The price/book ratio would be most useful for valuing which of the following?
A utility company. The price/book ratio is most useful for valuing a utility company. A utility firm has mostly tangible assets that are accurately measured by its book value. On the other hand, a pharmaceutical or software company has a lot of intangible assets, such as patents, that are not accurately reflected in its book value.
4.
A company has an enterprise value of $225 million, free cash flow of $15 million, and zero net interest expense. What is its cash return?
6.7%. Cash return is equal to free cash flow divided by enterprise value. In this case, that's $15 million/$225 million, or 6.7%.
5.
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.
6.
What does a company's price/sales ratio measure?
Its stock's market price divided by its sales per share. As such, it is a very useful ratio for businesses.
7.
One advantage of earnings yields over price/earnings ratios is that we can use them to compare investments in other classes.
True. This way, we can compare the returns that the different types of investments offer.
