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1.
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.
2.
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.
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.
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.
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.
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.
7.
A price/earnings ratio that uses future earnings estimates to calculate the ratio is normally called _______.
A forward price/earnings ratio. As opposed to a trailing price/earnings ratio, which looks at past earnings, the forward one uses estimates of future earnings.
