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Stocks 108: Learn the Lingo--Basic Ratios

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1.
A company's dividend yield is calculated by _______.
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Dividing annual dividend per share by stock price per share.
2.
Earnings per share (EPS) is a company's _______.
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Net income divided by its number of shares outstanding. EPS uses net income.
3.
An advantage to using the price/sales ratio over the price/earnings ratio is that sales are harder to manipulate than earnings.
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True. Sales are more straightforward. Also, there are fewer accounting estimates involved than with earnings.
4.
The three types of a business's profit margins are gross margin, net margin, and _______.
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Operating margin.
5.
If a company's market capitalization is $100 million and there are 5 million shares of stock outstanding, what is the stock price right now?
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$20. Market cap is stock price multiplied by number of shares outstanding.
6.
Companies in which of the following industries would likely have the lowest price/book ratios?
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Utilities. The lowest price/book ratios are found in capital-intensive industries, such as utilities.
7.
If a company has earned $1.50 per share and its share price is $30, what is its P/E?
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20. The P/E is determined by dividing the price per share ($30) by the earnings per share ($1.50), yielding a P/E of 20 in this case.
8.
The price/cash flow ratio measures cash rather than paper profits.
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True. For this reason, the ratio has a certain reliability that management likes.