Evaluating Stock as an Investment

Question 1

Price/Earnings Ratio

Answer 1

-Stock as Investment
M. the value the stock market gives on company earnings

= Market price per share of common stock / EPS

EPS: (net income - preferred dividend) / common shares outstanding

Question 2

Dividend Yield

Answer 2

-Stock as Investment
M. % of stock value returned to (usually preferred) stockholders

= annual dividend per share / market price per share

Question 3

Dividend Payout

Answer 3

-Stock as Investment
M. % of earnings paid annually to common stockholders in cash

= annual dividend per share / EPS

EPS: (net income - preferred dividend) / common shares outstanding