Stocks Beginner: Learn the Lingo--Basic Ratios

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1.
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%.
2.
Earnings per share (EPS) is a company's net income divided by its number of shares outstanding.
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True. As such, EPS can give you a quick idea of a company's profitability, though it has its limits.
3.
A company's dividend yield is calculated by _______.
Choose wisely. There is only one correct answer.
Dividing annual dividend per share by stock price per share.
4.
Companies in which of the following industries would likely have the highest price/book ratios?
Choose wisely. There is only one correct answer.
Pharmaceuticals. The highest P/B ratios are in fields such as pharmaceuticals and consumer products, where intangibles are more important.
5.
A company's gross margin is calculated by dividing _______.
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Gross profits by revenues.
6.
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.
7.
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.
8.
A company's price/sales ratio is its stock price divided by _______.
Choose wisely. There is only one correct answer.
Sales per share. Since we are using stock price, we must also use sales per share.