Choose wisely. There is only one correct answer to each question.
0%
Keep studying!
Review your answers below to learn more.
1.
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.
2.
The formula for cash return is free cash flow plus net interest expense, the sum of which is then divided by _______.
Enterprise value. Enterprise value is the figure that goes into the denominator.
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.
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.
5.
A firm's price/sales ratio is found by dividing its stock price by its _______.
Sales per share. Since we are using stock price, we must also use sales per share.
6.
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.
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.
