Stocks Beginner: Learn the Lingo--Basic Ratios

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1.
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.
2.
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.
3.
Company X pays an annual dividend of $1.00 per share, and its stock trades for $25. What is its dividend yield?
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4%. The dividend yield is found by dividing annual dividend per share by stock price per share. Therefore, 1/25 equals 4%.
4.
If two companies both have the same level of revenue, but company A turns more of every sales dollar into profit than company B, which will probably have a higher price/sales ratio?
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Company A. Company A is generating more earnings per dollar of sales than Company B. This means Company A needs fewer sales to generate the same level of earnings, and the market is likely to reward Company A with a higher P/S ratio.
5.
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.
6.
The three types of a business's profit margins are gross margin, net margin, and _______.
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Operating margin.
7.
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.
8.
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%.