Stocks Beginner: Learn the Lingo--Basic Ratios

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1.
A stock's price/cash flow ratio is calculated by dividing the stock price by the _______.
Choose wisely. There is only one correct answer.
Operating cash flow per share.
2.
The three types of a business's profit margins are gross margin, net margin, and operating margin.
Choose wisely. There is only one correct answer.
True.
3.
A company's market capitalization is calculated by _______.
Choose wisely. There is only one correct answer.
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.
4.
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%.
5.
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.
6.
Company X pays an annual dividend of $1.00 per share, and its stock trades for $25. What is its dividend yield?
Choose wisely. There is only one correct answer.
4%. The dividend yield is found by dividing annual dividend per share by stock price per share. Therefore, 1/25 equals 4%.
7.
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.
8.
An advantage to using the price/sales ratio over the price/earnings ratio is that sales are harder to manipulate than earnings.
Choose wisely. There is only one correct answer.
True. Sales are more straightforward. Also, there are fewer accounting estimates involved than with earnings.