Stocks Beginner: Learn the Lingo--Basic Ratios

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1.
Earnings per share (EPS) is a metric that should not be used in isolation.
Choose wisely. There is only one correct answer.
True. As with other financial ratios, you should use EPS along with other metrics.
2.
If a company's market capitalization is $100 million and there are 5 million shares of stock outstanding, what is the stock price right now?
Choose wisely. There is only one correct answer.
$20. Market cap is stock price multiplied by number of shares outstanding.
3.
A company's gross margin is calculated by dividing _______.
Choose wisely. There is only one correct answer.
Gross profits by revenues.
4.
Companies in which of the following industries would likely have the lowest price/book ratios?
Choose wisely. There is only one correct answer.
Utilities. The lowest price/book ratios are found in capital-intensive industries, such as utilities.
5.
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.
6.
A company's dividend yield is calculated by _______.
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Dividing annual dividend per share by stock price per share.
7.
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?
Choose wisely. There is only one correct answer.
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.
8.
If a company's P/E is 30, its earnings yield is _______.
Choose wisely. There is only one correct answer.
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%.