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Stocks 108: Learn the Lingo--Basic Ratios

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1.
A company's market capitalization is calculated by _______.
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Multiplying its stock price by the number of shares outstanding. For example, if there are a million shares of stock trading at $10 per share, the market capitalization is $10 million.
2.
The three types of a business's profit margins are gross margin, net margin, and _______.
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Operating margin.
3.
A company's dividend yield is calculated by _______.
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Dividing annual dividend per share by stock price per share.
4.
Earnings per share (EPS) is a metric that should not be used in isolation.
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True. As with other financial ratios, you should use EPS along with other metrics.
5.
Companies in which of the following industries would likely have the highest price/book ratios?
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Pharmaceuticals. The highest P/B ratios are in fields such as pharmaceuticals and consumer products, where intangibles are more important.
6.
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.
7.
If a company's P/E is 30, its earnings yield is _______.
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3.3%. The earnings yield is calculated by inverting the P/E ratio. In this case the earnings yield is 1/30 or 3.3%.
8.
A stock's price/cash flow ratio is calculated by dividing the stock price by the _______.
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Operating cash flow per share.