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1.
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.
2.
A company's price/earnings growth ratio uses its stock's current price in the calculation.
False. The ratio uses forward price/earnings ratio, which is a future estimate.
3.
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.
4.
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.
5.
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%.
6.
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.
7.
A stock with a high dividend yield is a good bargain for an income investor to buy.
Maybe. A dividend yield can be high for many reasons, either good or bad. On the bad side, the stock price might be dropping deeply due to financial troubles; that could proportionately raise the dividend yield. Caution is always key.
