Stocks Beginner: Learn the Lingo--Basic Ratios

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1.
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.
2.
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.
3.
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.
4.
If a company has earned $1.50 per share and its share price is $30, what is its P/E?
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20. The P/E is determined by dividing the price per share ($30) by the earnings per share ($1.50), yielding a P/E of 20 in this case.
5.
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.
6.
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.
7.
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.
8.
The three types of a business's profit margins are gross margin, net margin, and _______.
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Operating margin.