Investing Vocab
Basics:
Security: a tradable financial asset (includes both stocks and bonds)
Stock: a tradable financial asset that gives the holder ownership over the percent of the company
Bond: a loan agreement that the company has to pay a specific percent interest on a set amount to the holder after a specific amount of time; companies issue these to raise capital
Capital: financial assets
Asset: anything that can earn money
Liability: anything that has to be paid off
Shareholder: owner of stock
Broker: middleman who buys and sells assets for others
Exchange: place in market where securities are traded (i.e. New York Stock Exchange)
Index Fund: a group of securities in one portfolio that act as a benchmark for the broad market
Shorting: Borrow a stock - selling it with the prediction that it will fall - when it falls, buy it back at a lower price - give the stock back to the broker - pocket the difference.
Risk/Reward: the prospective reward an investor can earn for every dollar they risk on an investment.
ROE: return on equity; a measurement of a company’s performance → calculation = net income/shareholder’s equity
Free Cash Flow: a measurement of the cash a company has after subtracting expenses
Earnings: the company’s profit after subtracting expenses from their total revenue
P/E: Price to Earnings ratio; compares the price per share of a company to its net income/earnings
Balance Sheet: shows assets, liabilities, and equity of company
Income statement: shows the progression from revenue to profit
Cash Flow Statement: shows flow of money into and out of company
Shareholders Equity: the amount left for company/stock owners to have after subtracting liabilities from assets
Marketable Securities: Securities that will be paid back within a year
Accounts receivable: money owed to company
Fixed Assets: Assets that are not going to be liquidated in the foreseeable future.
Intangible Assets: non-physical assets (ie brand name)
Retained Earnings: money kept by company after subtracting all liabilities
Treasury stock: When the company buys back a stock from its shareholders.
Dividend: Money a company pays its shareholders based on their profit.
Common Stock: Dividend amount will vary based on how well the company does.
Preferred stock: Stock that will give its holder dividend priorities over common stockholders.
Depreciation: Value in an asset lost due to wear and tear.
Revenue: total money company earns from sales
Profit: money company retains after subtracting all expenses from revenue (net income)
Gross Profit: money made after subtracting cost of producing goods from revenue
Operating Expenses: How much it costs to normally run the company (Ex: Employee Salaries)
Operating Income: money made after subtracting operating expenses from gross profit
Net Income: total money left after subtracting all expenses (costs of goods sold, operating expenses, taxes, etc) from revenue; profit that the company makes
Accounts Payable: money company owes to lenders
Cash From Operations: cash flow from products/services
Cash From Investing: cash flow through investment activity
Cash Flow From Financing: cash flow through banks, investors, or marketing activity (ie issuing bonds)