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?
Choose wisely. There is only one correct answer.
Utilities. The lowest price/book ratios are found in capital-intensive industries, such as utilities.
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?
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$20. Market cap is stock price multiplied by number of shares outstanding.
3.
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%.
4.
An advantage to using the price/sales ratio over the price/earnings ratio is that sales are harder to manipulate than earnings.
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True. Sales are more straightforward. Also, there are fewer accounting estimates involved than with earnings.
5.
The three types of a business's profit margins are gross margin, net margin, and _______.
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Operating margin.
6.
If a company's P/E is 30, its earnings yield is _______.
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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%.
7.
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.
8.
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.