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Stocks 108: Learn the Lingo--Basic Ratios

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1.
A stock's price/earnings ratio is its price divided by its _______.
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Earnings per share. The formula uses earnings per share.
2.
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.
3.
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.
4.
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.
5.
The three types of a business's profit margins are gross margin, net margin, and _______.
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Operating margin.
6.
Earnings per share (EPS) is a company's net income divided by its number of shares outstanding.
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True. As such, EPS can give you a quick idea of a company's profitability, though it has its limits.
7.
All else equal, what does a rising dividend yield mean for a stock?
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The stock is becoming less expensive. A rising dividend yield means that the stock is becoming less expensive because a higher percentage of the stock price is being paid out in annual dividends.
8.
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.