Stocks Beginner: Learn the Lingo--Basic Ratios

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1.
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.
2.
A company's price/sales ratio is its stock price divided by _______.
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Sales per share. Since we are using stock price, we must also use sales per share.
3.
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.
4.
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.
5.
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%.
6.
A stock's price/cash flow ratio is calculated by dividing the stock price by the total operating cash flow.
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False. The ratio uses operating cash flow per share, not total operating cash flow.
7.
The three types of a business's profit margins are gross margin, net margin, and operating margin.
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True.
8.
Price/book ratio compares what with what?
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A stock's market value with its book value. The 'price' part of the formula refers to the stock's market value.