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1.
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.
2.
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.
3.
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.
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.
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.
6.
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%.
7.
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.
