Terms of the Trade
Asset Allocation:
Spreading your money among several different types of investments, such as stocks, bonds,
and mutual funds rather than just stocks, to increase returns and reduce your risk. Also
referred to as portfolio diversification.
Balance sheet: A summary
of a company’s financial condition, including assets, liabilities, and
shareholders’ stake.
Bonds: Certificates of
corporate or government debt that pay interest. You receive the certificate amount when
the investments mature.
Earnings: Net income for a
company during a specific period.
Equities or Stocks:
Ownership interest in companies that can grow or shrink in value.
Market Capitalization: The
current market value of a company, calculated as the share price multiplied by the number
of share outstanding.
Net Profit Margin:
Earnings divided by revenue.
Price/Earnings Ratio (P/E):
Current stock price divided by annual earnings per share, usually for the preceding 12
months or projected earnings for the next 12 months.
Price/Sales Ratio (P/S):
Determined by dividing current stock price by revenue per share, often used in evaluating
companies in rapidly growing industries with low earnings.
Revenue: Sales for a
company during a specified period.
S&P 500 Stock Index: A
benchmark that tracks large US companies.
Total Return: The
percentage change in the value of a stock or portfolio over a given period of time,
including any distributions made during that period.
Valuation: Estimating the
value or worth of an investment using measures such as P/E ratios and earnings growth.
Yield: The percentage rate
of return paid on a stock in the form of annual dividends, or the effective rate of
interest paid on a bond or note.
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