Analysis Beginner: Tools and Tips to Evaluate Investments

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1.
A low price-to-book (P/B) ratio means _______.
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Less than 1. Mathematically, it means less than 1.
2.
Balance sheets balance _______.
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Assets with liabilities. Equity, debt, taxes, and income are all included in assets and liabilities.
3.
If a stock's market price at the moment is $100 per share, and its net earnings for the past 12 months are $5 per share, what is the stock's price/earnings ratio?
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$20. Divide market price ($100) by net earnings ($5) to get the price/earnings ratio (20).
4.
Poor dividend payment on a company's part indicates that it will perform poorly in the future.
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False. In many cases, companies reinvest their earnings to finance future growth. Such companies may actually do quite well in the future.
5.
Which of the following can beta do for you as a stockholder?
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Help you pick stocks with the volatilities that are best for you. Although beta can help you with many other issues down the road, its most important role is to help you pick stocks on the basis of volatility.
6.
If Wilma's Widgets, Inc., earns $5 million after taxes and makes $10 million in sales, what is its net profit margin?
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50 percent. Net profit margin is earnings after taxes divided by sales. In the case of Wilma's Widgets, Inc., that amounts to 0.5, or 50 percent.
7.
Fixed asset turnover measures _______.
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The amount of sales a company generates from its fixed assets. It is used as a measure of sales success.