Stocks Beginner: Learn the Lingo--Basic Ratios

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1.
Earnings per share (EPS) is a company's _______.
Choose wisely. There is only one correct answer.
Net income divided by its number of shares outstanding. EPS uses net income.
2.
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.
3.
A company's gross margin is calculated by dividing _______.
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Gross profits by revenues.
4.
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.
5.
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%.
6.
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.
7.
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.
8.
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?
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$20. Market cap is stock price multiplied by number of shares outstanding.