Finance

Private Corporation

corporation whose shares are owned by a small group of people and aren't traded openly on the stock markets

Public Corporation

A business whose stock is widely held and available for sale to the general public.

IPO

Initial Public Offering - occurs when a company sells stock to the general public for the first time

Primary Market

market in which investors purchase securities issues from a corporation through an investment bank or some other representative of the corporation

New York Stock Exchange

Physical ecxhange/listed exchange, only stocks listed with the exchange may be traded with a hybrid market for placing orders both electronically and manually on trading floor

NASDAQ

National Association of Securites Dealers Automated Quotations is a virtual listed exchange, where all trading is done overa computer network

Stockbroker

An account executive that is a licensed individual who buys or sells securities, or stocks, for clients and usually works for brokerages

Trading Floor

physical area where securities are exchanged

Portfolio

A collection of all securities held by an investor

Online Brokerage Firm

online company will buy or sell securities to you for free.

Full service brokerage firm

A company that offers personalized service and free research information yet charges the highest commissions when they buy or sell your securities for you

Inflation Risk

If you wait to buy a car until next year, you accept the possibility that the price many increase.

Interest Rate Risk

Interest rates go up or down, you may affect the cost of borrowing or the profits you earn when you save or invest.

Income Risk

You may lose your job due to unexpected health problems, family problems, an accident or changes in your field of work.

Liquidity Risk

Liquidity is the ability to easily convert financial assets into cash without loss in value. Some long-term investments, such as a house, can be difficult to convert quickly.

Personal Opportunity Cost

- Making choices about how you spend your personal resources

Financial Opportunity Cost

making choices on how you spend your money

expenses

An amount of money spent to buy something or do something.

income

A gain measured in money that derives from capital or labor; also the amount of such gain received by an individual in a given period of time.

fixed expenses

Expenditures that are the same from week to week or month to month, such as mortgage or rent payment and car payments.

variable expenses

Expenditures that are the change from week to week or month to month, such as food, clothing, recreation, and entertainment.

credit report

A report on a person's creditworthiness that includes identifying information, credit cards, late payments, bankruptcies, and savings balances.

assets

Anything of value that is owned.

liquid assets

Cash and items that can be quickly converted to cash.

real estate

The land and all those items which are attached to the land. It is the physical, tangible entity, together with all the additions or improvements on, above or below the ground

market value

Most probable price a property would bring in an arm's length transaction under normal market conditions on the open market; market price is what is actually paid

budget

A plan for managing money during a given period of time and consists of savings and spending

liabilities

Amounts owed to creditors

credit card

A card used to make purchases; must be repaid later with interest unless full payment is made monthly

debit card

A bank card that automatically deducts the amount of a purchase from the checking account of the cardholder

credit

An arrangement to receive cash, goods, or services now and pay for them in the future.

interest

A sum paid or charged for the use of money or for borrowing money.

short term liabilities

also known as current liabilities, obligations a company is responsible for paying within a year or less and are listed first on the balance sheet

long term liabilities

Recorded on the balance sheet, a company's liabilities for leases, bond repayments and other items due in more than one year.

As demand for a certain compnay's stock increases, what happens to the price?

The price increases

When investors buy shares of stock in a company in the primary market, what does the company use the money for

to expand their operations, fund new projects, etc

difference between short/intermediate/long term goal

short-less than one year
intermediate-1-5 years
long term-more than 5 years

Blue chip stock

Stocks of a reputable company that is well established in the market in terms of stable earnings and growing dividends

Bond

A debt investment where an investor loans money to either the government or corporation for a period of time at a fixed interest

Bond Fund

A group of investors that invests in bonds and other debt securities. Allows for better investing due to a financial manager and a greater diversification of investments.

Bond principal

The initial amount of bond that the issuer of a bond gives out to the lender.

Capital gain

Profit made from the sale of an investment

Capital loss

Loss made from the sale on an investment

Collectibles

An item that has high value due to its rarity and demand

Diversification

Having a variety of invesments to reduce exposure to risk

Diversified portfolio

A portfolio that has various invesments with different characteristics ie: stocks and bond

Do not put all your eggs in one basket

Do not invest all your money in ONE type of investment!

Dow Jones Idustrial Average

an index of figures that indicate the price of shares on the New York Stock Exchange

Financial Consultant

a professional who gives financial services to individuals; can be financial advisers, planners, or brokers

Income

Amount of money received by the investor from dividends

Insured Bonds

A bond with interest and principle payments insured by a third party

Money Market Account

A deposit account offered by the bank for larger than normal deposits with competitive rates of interest; have more restrictions

Mutual Fund

An investment program by a group of holders who pool money to purchase securities and is managed by a professional

NASDAQ Market

National Association of Securities Dealers Automate Quotations, computerized system for trading securities

Financial Industry Regulatory Authority (FINRA)

Largest non-governmental regulator for all securities firms

Preferred Stock

Stocks that gives the shareholder a fixed dividend and takes priority over common stockholders

Rate of Return

The gain or loss on an investment over a specific period, expressed as a percentage

Risk

The probability that an actual return on an investment will be lower than the expected return

Risk Tolerance

The degree of change (mostly in losses) investment return that an individual is willing to withstand.

S&P 500

Standard and Poor's 500; A stock market index based on the 500 leading companies publicly traded in the US

Secondary Market

A market where investors purchase securities and assets from other investors, rather than the issuing company themselves

Securities

a financial instrument that indicates an ownership in a publicly traded corporation (stock); a creditor relationship with the government or corporation (bond)

Securities Exchange Commission

A federal agency that regulates the securities within the markets and protects investors

Speculative

Involving high risk of loss

Speculator

A person who trades securities and assets at a higher than average risk in return for a higher than average profit potential

Stock Exchanges

A market where securities are bought sold

Stock Fund

A fund that invests in stocks

Stock Market

A stock exchange

Stock portfolio

Look at Portfolio, same thing

Stock symbol

Letters used to identify listed companies on the securities exchange

Stockholder

Shareholder of a stock

Stockholders' Rights

1) Right to vote
2) Right to share in profits when dividends are declared
3) Pre-empitve right- Share in new issues of stock
4) Right to share in distribution of assets in liqiudation

Volatility

a measure of the variation of price of a financial asset or security over time.

Appreciation

A general increase in the value of property or investment that occurs over time.

Capital Gain

A stock that increases in value and is then sold for more than its original cost.

Capital Loss

A stock decreases in value and is then sold for less than its original cost.

Certificate of Deposit

A savings plan that requires funds to be left on deposit for a specific period of time; higher interest rate than savings accounts; penalties for early withdrawal.

Common Stock

General ownership in a corporation and a right to share in its profits; one vote per share owned; able to attend shareholders meeting.

Compound Interest

Interest computed on the amount saved plus the interest previously earned.

Dividends

Profits paid to stockholders as a return on their investment.

Face Value

The amount being borrowed by the corporation issuing the bond.

Investing

The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit.

Liquidity

The ease with which an investment can be turned into cash without losing its value.

Market Value

The price at which a share of stock can be bought and sold in the stock market.

Maturity Date

due date for a bond

Mutual Funds

Money from many investors is used to invest in a variety of companies; allows investors to spread out their risk among many investments.

Securities

Stocks, bonds and mutual funds; sold by corporations and governments to raise money.

Stock Exchange

A business organization that accommodates the buying and selling of securities.

Dow Jones Industrial Average

A measure of stock market prices based on thirty leading companies of the New York Stock Exchange and NASDAQ. Comprised of 30 stocks.

Blue Chip Stock

Stock of a large, well-established and financially sound company that has operated for many years. This stock typically has a market capitalization in the billions, is generally the market leader or among the top three companies in its sector, and is more

Growth Stock

Shares in a company whose earnings are expected to grow at an above-average rate relative to the market. Growing companies, more risk & higher PE ratio.

Bond Principal

The face value of a bond.

York Stock Exchange (NYSE)

A stock exchange based in New York City, which is considered the largest equities-based exchange in the world based on total market capitalization of its listed securities.

website for investing info

investing.rutgers.edu

reasons people invest:
1. preserve ______ power
2. growth of _____
3. achieve _____ goals
4. increase current _____
5. gain ____ & ____ ______
7. __________
8. Tax ______

- purchasing power
- money
- financial
- income
- wealth and financial security
- retirement
- break

before investing have a good financial situation. how do you do that?
1. Live within ______
2. Savings program and meet ______ & _____ _____ goals
3. No _______
4. Adequate _________
5. establish _______ goals
6. Know emotional _________

- live within means
- saving program and meet emergencies and short term goals
- no outstanding debts
- adequate insurance
- establish investment goals
- know emotional temp

- safety of capital
- risk
- cash flow
- appreciation
- management time and ability
- liquidity
- tax consequences

concerns of investors
- impossible to be excellent in all

most investors tend to seek _________ which provides a good return and capital gains that can be liquidated quickly but there is no such thing

safe inflation resistant

nondeductible after tax ira that grows on tax deferred basis withdrawals not subject to taxation

roth ira

stock market declines = ___ ____risk

market volatility

have to see asset quickly = ___ risk

marketability

investment doesn't keep up with inflation = ___ or _____ ______risk

inflation or purchasing power

Technical Analysis

look at charts to determine future prices some analysts believe it is stupid

Line chart

close to close lines

Bar chart

highs, lows, and close together

Point and Figure

significant price moves only

Candlestick chart

weird, look like candlesticks

Support

price of stock won't go below

Resistance

price stock won't go over

Breakout

stock "breaks through" a range

Bullish

means up. over resistance level

Bearish

means down, below support level

Short interest

number of shares sold at anytime eventually the stock must be covered (bought)

Smart Money Indicator

based on well informed investors

Contrarary Opinion

do the opposite of everyone

Margin buying

borrow money to buy stocks (very risky)

Mutual fund money position

billions of dollars good (bullish sign)

Confidence Index

great bonds vs. risky bonds (risky bonds higher percentage than great bonds)

Advance-decline line

shows net advances

Relative Strength Ratio

compare one statistic to a benchmark statistic

Moving averages

a smoothed presentation of data

Super bowl indicator

stock market advances the year after a win by an original NFL team (no cause and effect)

Hemline indicator

when skirts get short-markets go up
when skirts get long-markets go down
depression- long skirts, and low market
1960's- mini skirts, market goes up
1990's- markets flat
2000-2002-markets all over

Fibonnacci numbers

a series of numbers that mysteriously show up often enough to wonder to make people notice

DOW theory

DJIA (Dow Jones Industrial Average)- make stuff
DJT (Dow Jones Transports)-ship the stuff

Neutral Networks

own tons of data to find patterns or relationships to use in the future

Efficient market hypothesis

market prices are fair

operational efficiency

how fast and good are trades executed

informational efficiency

how fast do markets react to news

degree of informational efficiency- weak form

can't predict future prices by analyzing the past

degree of informational efficiency- semistrong efficiency

security prices reflect all relevant public information

degree of informational efficiency-strong form of efficiency

security prices reflect all public and private information

degree of informational efficiency-semi-efficient

some stocks are priced more fairly than others

degree of informational efficiency-random walk

expected news-earnings
unexpected news-President shot
over the "long run"-markets behave as expected
in the "short run"- markets zig-zag

anomalies

unexpected stuff

Low PE

low PE may provide high returns than high PE

Low Price Stocks

tend to go up faster than higher price

Small Firm Effect

smaller firms provide greater returns

Neglected Firm

big investors can analyze a few stocks and the rest . . . ignored

Market overreaction

markets typically overreact

January effect

stocks do well in January

Weekend effect

stocks down on Mondays up during the week

Persistence of Technical Analysis

author hates technical analysis

Behavior finance

psychology of investing

representative heuristic

take one characteristic of a firm and extend it to other areas (look at the whole thing)

loss aversion

people hate to lose and play mind games to lessen the pain when they do

Disposition effect

people sell winners, faster than losers

Fear of regret

people don't like to make errors

Myopic loss aversion

assign too much importance to normal (neo-sighted)

Herding

look around, see what others do, then you do it (Fear & greed)

Anchoring

incorporate information that isn't important into decisions

Illusion of control

belief you can control something when you can't

Prospect Theory

abnormal behavior from a rational person

Asset segregation

look at individuals rather than the group

hindsight bias

remember good outcomes and forget the bad

Overconfidence

you think you are better than you really are

Framing

react differently to situations based on whether you view them as positive or negative

Illusion of truth

believe what is simple rather than complex

Biased expectations

take situations we experienced and apply to situations we shouldn't

round numbers

investors like them (stop order- 25, 2.50)

Extrapolation

assume the past will repeat itself

FINRA

Financial Industry Regulatory Authority. Self imposed regulation agency of NYSE NASDAQ and CFTC

NYSE

the largest securities exchange in the United States. After its 2007 merger with a large european exchange, it is formally known as NYSE Euronext

Stock Portfolio

Holdings of stock, bonds and other investments by individual investors, banks, insurance companies and brokerages., A collection of investments all owned by the same individual or organization; often include stocks, bonds, and mutual funds, etc

Preferred stock

stock whose holders are guaranteed priority in the payment of dividends but whose holders have no voting rights

Rate of return

the ratio of money gained or lost on an investment relative to the amount of money invested. (usually stated in percentage form)

Primary market

market in which new stocks and bonds are bought and sold by firms and governments

Risk

a venture undertaken without regard to possible loss or injury

S&P 500

index that shows the price changes of different stocks.

Securities

All of the investments, including stocks, bonds, mutual funds, options, and commodities, that are traded.

SEC (Securities and Exchange Commission)

an independent federal agency that oversees the exchange of securities to protect investors

Speculative

risky; based on guesswork rather than knowledge

Speculator

someone who risks losses for the possibility of considerable gains

Big Board

the large display board at the New York Stock Exchange that reports on stocks traded on the exchange

Stock Fund

Mutual funds that sell shares to individuals and invest the proceeds in stocks

Stock symbol

the abbreviated letters used to identify listed companies on the securities exchanges where they are traded

Stockholder

someone who holds shares of stock in a corporation

Stocks

shares of ownership in a company

Volatility

How easily the interest or cash value of an investment can change

American Stock Exchange

a stock exchange in New York City (one of 12). Most of the stocks on this exchange are relatively small companies

Stock Exchange

A place where shares in a company or business enterprise are bought and sold.

Bear Market

occurs when investors are pessimistic about the economy and sell stocks; stock prices are falling

Blue Chip Stock

Stock form nationally recognized companies that are extremley popular and make lots of money.

Brokers

independent firms or individuals whose principal function is to bring buyers and sellers together to make sales

Bull Market

Stock market experiences a general rise in prices and stock trading volume for shares over a period of time.

Dow Jones Industrial Average

Measure of average of stock prices of major industries

Dividends

a part of a company's profit that is divided among the people with shares in the company

Mutual Fund

a fund that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets, fund that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial a

Diversified Portfolio

an investor who has holdings in several different industries; Don't put all your eggs in one basket.

Equities

stocks that represent ownership shares in corporations

401K

A retirement savings plan that allows employees to set aside taxed-deferred income for retirement programs.

403 B

A retirement savings plan offered by a non-profit organizations

Annual Report

a yearly audited record summarizing the financial condition of a corporation that must be distributed to shareholders

Asset Allocation

The process of dividing investments among different kinds of assets to optimize the risk/reward trade off based on one's situation and goals

Back-end Load

A commission usually decreases in value the longer you have the investment for.

Balanced Sheet

A summary of a company's financial condition at a specific point in time, including assets, liabilities and net worth.

BETA

A measure pf the volatility of a stock, mutual fund, or portfolio, relative to the overall market

compounding

the payment of interest upon interest

Clean

records art in good conditions

Dow Jones Industrial Average (DOW)

DJIA- most widely indicator of the overall condition of the NYSE. Its the weighted average of 30 actively traded NYSE stocks

EPS

Company's net income divided by the number of shares

Educational IRA

A trust/account that lets your make non-deductible(grows tax-free) contributions on behalf of a beneficiary in order to save for future high education expenses. A savings plan for education

financial statements

Heart of the annual report, includes the balance sheet, income statement, gives details how the numbers were obtained

financial highlights

A brief summary of numbers

FED

Federal reserve

FDIC

A federal agency that insures deposits in member banks and thrifts up to $250,000

Full-service brokerage

A type of brokerage firm that is more involved but more expensive.

Fee/Penalty

a 10% penalty is given to those who withdraw from their retirement plans early. Traditional: 59.5 Roth: none 401K: 59

Fundamental analysis

A method of security valuation which involves examining the company's financials and operations (sales, earning, growth potential, assets, debt, management, products and competition)

Government bonds

A bond issued by the government. SS is invested in government bonds

Growth Mutual funds

A category of funds thats good for the investor who seeks capital gains

Index fund

mirror the performance of the Dow/index so you make money by following the DOW

Income Statement

Within the annual report, reports on financial info over a certain time period, composed of 9 parts

Income Mutual fund

Good for people who need money now

Intrest

How banks get money

Length of service

Combine with your salary, determines what you get in your pension

Front load

commission is charged when you purchase the fund

Limit

setting a limit either to buy/sell

Margin

Buying on credit

Mutual fund

A fund operated by an investment company which raises money from shareholders and invests in a group of assets, in accordance with a a stated set of objectives

Market

When you are trying to figure out what to invest in, first look at the market: look at the NYSE, NASDQ, and ASE

NYSE

the Big Board, the oldest and largest stock exchange in the US

Odd lot

Not buying in hundreds

Over-the-Counter

A market where brokers and dealers negotiate directly with one another over computer networks and by phone. EX: NASDAQ

Prospectus

An annual report for mutual funds

Pension Plan

Pays a set amount while im in retirement, can be contributory or non-contributory

P/E ratio

price/earning ratio, shows the relationship between the price of stock and company earnings

qualified

not good records

ROE

this measures how well the company has reinvested funds to generate additional earnings

Round lot

buying by hundreds

rule of 72

based on compounding, how long it will take to double your money by dividing 72 by the interest rate

return on investment

money you make form investing

self-directed

an IRA that lets you choose what yo invest in

S and P 500

an indicator of the overall condition of the sock market. It uses a market value weighted index of 500 blue chip stocks

social security

provides general welfare by establishing a system of federal old age benefits

stock

signifies ownership in a corporation

SEC

a federal agency that regulates the stock markets to insure honest practice are followed, protect them from fraudulent, and accurate info is provided to the buyer

technical analysis

an analysis of a company's stock to predict their prices by examining their market data, charts, volume, and open interest

Tax deferred

Income that will be taxed later

Taxpayer Relief Act

established the ROTH IRA

turnover rate

rate at which a fund manager buys and sells commodities

value fund

a type of fund that looks for small companies, invest in them when they are low, and hope the companies names become big and they grow thus stocks raise in price

Yield

this measures the relationship between the annual dividend and the current price of stock

investing

process of setting money aside to increase to increase wealth over time for long-term financial goals such as retirement

risk

degree of uncertainty of return on an asset

Inflation

the value of money goes down

Purchasing Power

the value of money measured in the amount of goods and services it can buy

Certificate of Deposit

Certificate issued by a bank to a person depositing money for a specified length of time

Money Market

the trade in short-term loans between banks and other financial institutions

Stocks

type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings

Common "Ordinary" Stock

A security that represents ownership in a corporation

Preferred Stock

greater claim to a company's assets and earnings

Blue Chip Stock

stock in a corporation with a national reputation for quality, reliability, and the ability to operate profitably

Bonds

A debt investment in which an investor loans money to an entity that borrows the funds for a period of time at a fixed interest rate

Mutual Funds

an investment program funded by shareholders that trades in diversified holdings and is professionally managed

International Fund

A mutual fund that can invest in companies located anywhere outside of its investors' country of residence

Global Fund

A mutual fund investing in stocks or bonds throughout the world, including the U.S

Aggressive Growth Fund

A mutual fund that attempts to achieve the highest capital gains.

Growth (small/ medium cap) Funds

a mutual fund that invests primarily in stocks that are expected to increase in capital value rather than yield high income
of small of medium market capitalization

Growth & Income Fund

A mutual fund or ETF that has a dual strategy of capital appreciation (growth) and current income generation through dividends or interest payments

Real Estate

Property consisting of land or buildings

Annuities

a fixed sum of money paid to someone each year, typically for the rest of life

Commodities and Futures

An agreement to buy or sell a set amount of a commodity at a predetermined price and date.

Capitalization

A company's outstanding shares multiplied by its share price

P/E Ratio

The price-to-earnings ratio is an equity valuation multiple. It is defined as market price per share divided by annual earnings per share.

Dividend

a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits

Market Index

a metric that tracks the performance of a group of stocks

Blue Chip Stock

Stock issued by well-known, respected companies with a good record of earning and dividend payment.

Capital Gain

The profit made on the sale of property or securities.

Capital Loss

The loss taken on the sale of property or securities.

Certificate of Deposit

An investment instrument that is issued by a bank to pay higher interest rates than a traditional savings account; CD.

Commission

A broker's fee for handling transactions for a client.

Dow Jones Average

A simple stock market index that calculates the stock prices of 30 large companies.

Securities and Exchange Commission

SEC; a government agency responsible for supervising and regulating the securities industry.

Share

A unit of measurement of the equity ownership of a corporation or mutual fund.

Security

A certificate used as evidence of a debt or ownership of property especially stocks and bonds.

Interest

The compensation that a borrower pays a lender for the use of the money borrowed.

Total Return

A measure of investment performance indicating how much an investment has grown.

personal financial planning

spending, saving and investing your money in order to achieve financial security

goals

things you want to accomplish

opportunity cost

what you give up when you make one choice instead of another

liquidity

the ability to easily convert your financial resources to cash

short-term (goals)

goals reached in 1 yr or less

intermediate (goals)

goals reached in 1-5 yrs

long-term (goals)

goals reacged in 5 yrs or more

guidelines for setting goals

must be realistic, be specific, have a clear time frame, and guide your actions

supply

amount of goods and services available for sale

demand

amount of goods and services people are willing to buy

High prices (supply and demand)

when demand is high and supply is low

Low prices (supply and demand)

When supply is high and demand is low

assets (balance sheet)

any items of value that you own

liabilities (balance sheet)

debts you owe

net worth (balance sheet)

assets - liabilities

insolvency (balance sheet)

occurs when liabilities are greater than assets

income (cash flow)

money you recieve

expenses (cash flow)

money you spend

net-cash flow (cash flow)

income - expenses

deficit (cash flow)

occurs when expenses are greater than income

savings

safe storage of funds for future use

FDIC

1. established in 1933 after the depression
2. created to restore faith in the US Banking system
3. Insured deposits in federally charted banks up to $250,000 per account

advantages of credit

if you use credit wisely, you can be viewed as a good credit risk

disadvantages of credit

credit costs money (interest)

closed end credit (installment debt)

1. one time loan
2. paid back over a specific period of time
3. paid back in equal amounts

open end credit (revolving debt

1. renewable loan
2. no payback time period
3. payment amount can very

tenant

a person who pays for the right to live in a residence owned by someone else

landlord

a person who owns the property you rent

advantages of renting

mobility: if you need to move, you can as long as you give proper notice

disadvantages of renting

lifestyles restrictions: can't do whatever you want (party, have pets...) because it's not your home

security deposit

money that the tenant pays the landlord in order to protect against any financial loss the tenant might cause

advantages of owning

stability: sense of permanence

disadvantages of owning

limited mobility: can't move quickly

types of stock investments

1. blue-chip stocks
2. income stocks
3. growth stocks
4. penny stocks

bull market

occurs when investors are optismistic about the economy and buy stocks

bear market

occurs when investors are pessimistic about the economy and sell stocks

types of taxes

1. taxes on purchases
2. taxes on earnings

insurance

is protection against possible financial loss

coverage

the protection provided by the terms of an insurance policy

premium

fee that a policyholder pays the insurance company in exchange for the company taking on the policyholder's risk

risk

a chance of loss or injurt

Foreign Exchange

The process of buying or selling U.S. dollars for foreign currency of equivalent value

Foreign Currency

The form that cash/money takes in another country

Exchange Rate

The rate that reflects the relative value of 2 currencies that is used when using one currency to buy another

Book Value

The total assets less the total liability

Scenario Analysis

The process of estimating the expected value of a portfolio after a given period of time based on the probable outcomes

Real option

An investment alteration or choice that is not a derivative instrument, but an actual option (in the sense of "choice") that a business may gain by undertaking certain endeavors.

Terminal value

The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as interest rate and the current value of an asset, and assuming a stable growth rate.

Stock

Ownership of equity in a firm; a fractional claim on the assets and operations of the firm

Depreciation

A decrease in an asset's value caused by unfavorable market conditions

COGS

The Cost of Goods Sold

Net Earnings

Almost always the last line on the income statement, it is the amount after all expenses are subtracted out of revenues

Earnings/Price Ratio

A valuation ratio of a company's current share price compared to its per-share earnings

Earnings per share

The portion of a company's profit allocated to each outstanding share of common stock

Equity

The value of ownership interest in a property, including the equity of stocks

Net working capital

The current assets minus the current liabilities

Deferred Tax Liability

An account on a company's balance sheet that is a result of temporary differences between the company's accounting and tax carrying values, the anticipated and enacted income tax rate, and estimated tax payable for the current year.

Insider Trading

The buying or selling of a security by someone who has access to material, nonpublic information about the security.

Securities Exchange Commission (SEC)

A government entity created by congress to regulate the securities markets and protect investors.

Retail Broker

Executes trade and keeps track or portfolios on behalf of investors

Foreign Investment

The act of moving money into a project or firm in another country

Blue Chip" Stock

Well established industry leading companies stock

S & P (Standard and poor)

A stock market index of approx. 500 of the largest firms publicly traded in the U.S.

Prime Broker

Manages the bookkeeping aspect on an investors portfolio

PVGO

The present value of future opportunity for a company to grow its earnings

P/E ratio

Calculated by dividing a company's stock value by the expected earnings

Price per share

Calculated by dividing a company's total value (equity) by the number of outstanding shares

Economic Rents

Investment rates of return that are much higher than the cost of capital

Monte Carlo Simulation

A method of analysis that allows you to associate your uncertainty with each cell in your pro forma spreadsheet

Pro Forma Financials

Financial statements created with assumptions about the future that help estimate the future value of a company

SG&A

selling, general and administrative expenses

Comparables

Firms or projects of sufficient similarity as to allow knowledge about one or more of them to be useful in assessing the value of one or more others

Large-Cap stock

The asset class containing a few hundred stocks of the largest firm that are publically traded frequently

Risk Averse

A performance for avoiding the possibility of a bad outcome

Conglomerate

A corporation that is made up of a number of different, seemingly unrelated businesses

EBIT

The operating income of a company

Forward Rate

A rate applicable to a financial transaction that will take place in the future

Standard Deviation

A measure of the variance of outcomes from the average or "normal" outcome

Calibration

A pro formal with a value estimate that fits the actual market value

Market portfolio

A theoretical bundle of investments that includes every type of asset available in the world financial market, with each asset weighted in proportion to its total presence in the market.

Diseconomies of scale

An economical concept referring to a situation in which economies of scale no longer function for a firm

Forex spot rete

The current exchange rate at which a current pair can be bought or sold

EBITDA

The earnings of a company from their income statement before subtracting key non-cash flow expenses and taxes

Synergies

The managerial term for positive externalities between an acquisition target

Sunk Cost

An incurred cost that cannot be altered or reversed

Private Equity

Equity capital that is not quoted on a public exchange; consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity

On the margin

The additional value contribution of a new project to the existing project structure

Hedging

Making an investment to reduce the risk of adverse price movement in an asset

Interest Expense

The cost of interest that is charged on business loans used to operate the business

Straight-line depreciation

Spreads out the cost of an asset equally over its lifetime by dividing the difference between an asset's cost and its expected salvage value by the number of years it is expected to be used

Initial public offering

The first sale of stock by a private company to the public, typically through a stock exchange like the NYSE

Covariance

A statistical calculation of degree to which the value of two stocks follow the same patterns of change over time

Market Beta

A measure of how closely a stock's price follows the risk and fall of the general value of the stock market

Money

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Income

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Savings

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Budget

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Interest

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Debt

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financial plan

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fixed expenses

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variable expenses

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contract

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warranty

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spreadsheet

A program that allows you to use rows and columns of data to manage, predict, and present information.???? ??????

gross profit

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balance sheet

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principal

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real estate

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mortgage

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commercial bank

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collateral

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usury

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bankruptcy

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billing department

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payment transaction

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bank statement

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bid

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Corporate Banking

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Retail Banking

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Payment details

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annual

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payment status

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account overview

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account management

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account

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Liquidity

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cashflow

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Balance

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Available Balance

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budgetary

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Assets on Balance Sheet

Current assets
1. Cash
2. Acc. Rec.
3. Inventory
Total
Fixed Assets
Net Fixed Assets
Total Assets

Liabilities and Equity on Balance Sheet

Current Liabilities
1. Acc. Pay.
2. Notes Pay.
Total Liabilities
Long Term Debt
Owners Equity
1. Common Stock and Paid-in Surplus
2. Retained Earnings
Total
Total Liabilities and Owners Equity

Income Statement

Net Sales
1. Cost of Goods Sold
2. Depreciation
Earnings Before Interest and Taxes (Operating Income)
3. Interest Paid
Earnings Before Taxes (Taxable Income)
4. Taxes
Net Income
Dividends
Addition to Retained Earnings

Taxes

Marginal- Percentage paid on the next dollar earned
Average- The Tax Bill/Taxable Income
We are concerned with Marginal Tax Rate

How Cash Flow From Firm is divided among the Investors that financed the assets

CFFA = Operating Cash Flow - Net Capital Spending - Change in Net Working Capital

Cash Flow From Assets to the firm

CFFA = Cash Flow to Creditors + Cash Flow to Stockholders

Operating Cash Flow

OCF = EBIT (Operating Income) + Depreciation - Taxes

Net Capital Spending

NCS = End FA - Beg. FA + Depreciation
Net Change in Current Assets and Liabilities

Change in Net Working Capital

^NWC = End NWC - Beg NWC
NWC = CA - CL

CF to Creditors

CFC = Interest - Net New Borrowings
Net New Borrowings = End LTD - Beg. LTD

CF to Stakeholders

CFS = Dividends - Net New Equity Raised
NNER = End. CS & PiS - Beg CS & PiS

Sources

Cash Inflow; Occurs when we "Sell" Something
1. Decrease in Asset Acc. (Acc. Rec, Inv, Net FA)
2. Increase in Liability & Equity Acc. (Acc Pay, CL, C/S)

Uses

Cash Outflow; Occurs when we "Buy" Something
1. Increase in Asset Acc. (Cash or CA)
2. Decrease in Liability or Equity Acc. (Notes Payable & LTD)

Statement of Cash Flows

Summarizes the Sources and Uses
Divided into Operating Activity, Investment Activity, Financing Activity

Operating Activity

Includes Net Income and Changes in Most Current Accounts

Investment Activity

Includes Changes in FA
IA = Changes in Net Fixed Assets + Depreciation (If positive, Fixed Assets Acquired. If negative, Sold Fixed Assets)

Financing Activity

Includes Changes in Notes Payable, LTD, Equity as well as Dividends

Liquidity Ratios

1. Current Ratio
2. Quick Ratio
3. Cash Ratio

Current Ratio

CA/CL
Shows how well CA can cover CL

Quick Ratio

(CA - Inventory)/CL

Cash Ratio

Cash/CL

Leverage Ratios

1. Total Debt Ratio
2. Debt/Equity
3. Equity Multiplier

Total Debt Ratio

TDR = (TA - TE)/TA
or
TDR = TL/TA

Debt/Equity

D/E = TL/TE
or
D/E = TDR/(1 - TDR)

Equity Multiplier

EM = TA/TE
or
EM = 1 + D/E
Measure of the firms Financial Leverage

Coverage Ratios

1. Times Interest Earned
2. Cash Coverage

Times Interest Earned

Times Interest Earned = EBIT/Interest
How much Operating Income to cover Interest Payments

Cash Coverage

Cash Coverage = (EBIT + Depreciation)/Interest
Estimate of Cash Flow before Taxes

Turnover Ratios

1. Inventory Turnover
2. Days' Sales in Inventory
3. Recievables Turnover
4. Days' Sales in Receivables

Inventory Turnover

Inventory Turnover = COGS/Inventory

Days' Sales In Inventory

DSI = 365/Inventory Turnover
How long on Avg. a unit of Inventory sits before selling

Receivables Turnover

Recievables Turnover = Sales/Acc Rec
A k A Average Collection Period

Days' Sales in Receivables

DSR = 365/Receivables Turnover
How long it took credit Customers to pay off accounts

Total Asset Turnover

TAT = Sales/TA
1. Measure of Asset-use efficiency
2. Not unusual for TAT<1, especially if a firm has a large ammount of FA

Profitability Measures

1. Profit Margin
2. Return on Assets ROA
3. Return on Equity

Profit Margin

PM = Net Income/Sales
1. Gross PM = (Sales - COGS)/Sales
2. Operating PM = EBIT/Sales
3. How much firm earns for every dollar in Sales
4. How Well a firm Controls Costs

Returns on Assets

ROA = Net Income/Total Assets
A k A Return on Investments

Return on Equity

ROE = Net Income/Total Equity
or
ROE = Profit Margin
Total Asset Turnover
Equity Multiplier
Will always be higher than ROA if the firm is in DEBT

Market Value Ratios

1. EPS
2. PE Ratio

Earnings per Share

EPS = Net Income/# of Shares

PE Ratio

Price per Share/Earnings per Share

Valuation

1. Present Value
2. Future Value
3. Interest Rate

Future Rate

Later Money on Timeline
Can be used as General Growth Formula
FV = Present Value( 1 + Interest Rate)^Time

Present Value

How much do i have to invest today to have X ammount in the future
PV = Future Value/(1 + Interest Rate)^Time
When we talk about "Discounting" we mean finding the present Value of some future point
PV Interest Factor = 1/(1 + r)^Time

Discount Rate

What the Implied Interest Rate is in an Investment
r = (FV/PV)^(1/t)-1

Find Number of Periods

t = ln(FV/PV)/ln(1+r)
Rule of 72 means: # of years to double = 72/r

Net Worth

the amount calculated by subtracting what you owe from what you own

Asset

property owned by an individual that is available to pay off debts

Cash Flow

cash outflows subtracted from cash inflows during a certain period of time

Fixed Expenses

expenses incurred on a regular basis and cannot be avoided; examples
include rent or money for groceries

Flexible Expenses

expenses incurred consistently, but are not a necessity; examples include
ordering a pizza late at night.

Periodic Expenses

expenses incurred randomly throughout the year; examples include a
birthday present for a friend.

Positive Cash Flow

bringing in more cash than you are spending

Negative Cash Flow

spending more money than you are earning

Interest

fee paid to use money; usually expressed as a percentage; can be
thought of as the price "paid" to rent money

Bank Savings Account

account you have with a bank that pays interest on funds

Government Bonds

bonds issued by the government; tax exempt; obtained by loaning
money to the government, which the government then uses to fund itself
and pay off debts; pays back your money after a fixed amount of time,
plus extra payments generated by interest

Money Market Funds

an investment vehicle that pays back principal plus installments of
interest

Principal

the amount invested

Installments

recurring amounts at a specified time, such as annually

Short Term Loans

loans that have to be repaid within less than one year

Annual Percentage Rate

resulting rate when interest rates are expressed in years

Simple Interest

one of the most common types of interest; used to determine interest
earned in savings accounts at banks; determined by the formula
I = P
R
T

Compound Interest

powerful way interest is calculated; involves calculating interest on
money and any interest you have earned up to that point

Annual Percentage Yeild

defined as the interest rate earned over a year taking compound interest
into effect

Risk

the chance of fluctuation in a return; in general, the higher the risk the
higher the rate of return

Power Of 72

quick formula for estimating how long it will take for an investor to double
their money; computed by dividing 72 by the interest rate

Market Interest Rates

interest rates which are charged by the Federal Reserve to banks

Federal Funds Rate

interest rate charged to banks

Education

relating to the process of education

Insurance

a contract in which an individual or entity receives financial protection or
reimbursement, against losses from an insurance company, which pools
client's risks to make payments more affordable, in exchange for a
premium

Taxes

a contribution for the support of a government required of persons,
groups or businesses within the domain of that government

Allowance

an amount that is allowed or granted

Priorities

precedence, especially established by order of importance or urgency

Cultural

of or relating to the arts and manners that a group favors

Demographic

relating to the dynamic balance of a population especially with regard to
density and capacity for expansion or decline

Societal

relating to human society and its members

Traditions

the passing down of elements of a culture from generation to generation,
especially by oral communication

Beliefs

mental acceptance of and conviction in the truth, actuality or validity of
something

Obligations

the act of binding oneself by a social, legal or moral tie

Opportunities

a favorable or suitable occasion or time

What is revenue?

Revenue is the income earned by a business.

How do businesses earn most of their revenue?

By selling their product/service to customers.

How can revenue be calculated?

By mulitplying sales (the number of units sold) by price (the amount the customer pays).

If Britney's Spheres Ltd sell 20,000 tennis balls at �2 each what is their sales revenue?

�40,000

What are costs?

Costs are the expenses paid out to run the business.

What are direct costs?

Costs that can be attributed to making a particular product.

Give some examples of direct costs.

Labour costs, raw materials and operating machinery.

What are indirect costs?

General overheads of running the business.

Give some examples of indirect costs.

Management salaries, telephone bills and office rent.

Costs can also be fixed or variable. What are fixed costs?

Fixed costs do not vary with output, they're mostly indirect and have to be paid even if the firm produces nothing.

What are variable costs?

Variable costs are costs that will increase as the firm expands output. They're mostly direct costs - factory labour, raw materials and machinery.

Some costs are semi-variable. What does this mean?

they only vary a little because they have a fixed element

Give an example of a semi-variable cost.

Most workers receive a basic salary and only part of their pay is linked to output.

Fixed costs are only fixed over a short period of time which means an expanding firm's fixed costs will ........

increase

What is average cost?

How much each product costs to make.

How do you find the average cost?

Divide the total cost by output (number of products made)

To make a profit a firm must charge a higher price than the .......

average cost

Britney's Spheres has an output of 20,000 tennis balls, at a total cost of �30,000. What is the average cost?

�30,000 divided by 20,000 = �1.50 per ball

What usually happens to average costs as a firm gets bigger?

they fall

What are economies of scale?

the reduction in average cost that comes from producing on a large scale

Profit (or loss) is the difference between revenue and costs over a .......................

period of time

Britney's Spheres sells 20,000 tennis balls in a month at �2 each. Over the same month its total costs are �30,000. How much profit did the firm make that month?

Profit = (20,000 x �2) - �30,000 = �10,000
revenue - costs = Profits

When will a firm make a loss?

When costs are higher than revenue.

What are assets?

valuable items owned by the business (e.g. land, buildings, machinery)

Firms need finance for various reasons. Name some

start- up capital
to finance poor initial cash flow
working capital to meet the day-to-day running costs
to provide liquidity if customers delay payment
to fund expansion

What are the five main sources of start-up finance?

grants
trade credit
overdrafts
loans
venture capital

What are grants?

Money given to qualifying new or small businesses in areas of high unemployment by governments or charities - do not need to be repaid. (e.g. the Prince's Trust)

What is trade credit?

rather than paying cash on delivery, a business will issue an invoice with one or two months to pay. This gives the business time to earn the money.

What are overdrafts?

When banks allow firms to take more money out than it has in its account - but interest charges are high while you're overdrawn

Loans are a source of ..................credit because they are repaid over longer periods of time - usually years.

long-term

What are the three types of loan a business may take out?

bank loan - may require collateral
loans from friends and family
mortgages - a loan where a property is used as collateral

What is venture capital?

money invested by individuals or businesses who specialise in giving finance to new or expanding small firms. In return they often take a stake in the ownership of the business (e.g. Dragon's Den)

Why does the government supply help to new businesses?

reduces unemployment
increases tax revenues when the firm is profitable

How does the government help new businesses?

It funds Business Link which provides help and support e.g. guidance on how to produce a business plan
The Department of Business, Enterprise and Regulatory Reform (BERR) also provides advice and leaflets
New firms can apply for bank loans underwritten by

What private firms offer support to new businesses?

banks - through loans and overdrafts, they also provide advice on how to manage finances, calculate taxes and keep records.
Many banks have small business advisors.
Banks may also put new businesses in contact with suppliers or potential customers.

Why do banks help new businesses?

to get the firm to open an account
to reduce the chances of the new business going bankrupt (the bank would lose the money it had leant)

What other type of private business may help a new business?

some firms exist to provide management services to other businesses, they charge existing businesses but may help new businesses for free in the hope that if the business survives it will pay fees in future

What is an example of a charity that helps new businesses?

The Prince's Trust - it gives advice, grants and low-interest loans

What are Chambers of Commerce?

Groups of business people in a city or town who work together to look after the interests of local businesses - they provide information and support.

What is cash flow?

The flow of all money into and out of a business.

When a firm sells its products, money flows in - this is called cash ......

inflow

When a business buys materials or pays wages, money flows out - this is called cash ........

outflow

What is net cash flow?

The difference between cash inflow and cash outflow over a period of time

Why is a cash flow forecast useful?

It's a good way of predicting when the firm might have a liquidity problem.

What is a liquidity problem?

lack of cash

What is shown in a cash flow forecast?

All the inflows and outflows of cash that appear in the budget

A firm's cash flow will change if they give their customers longer to pay for products - when businesses give customers more time this is called what?

credit

What do credit terms tell you?

How long after agreeing to buy a product the customer has to pay.

What is the most common reason that profitable businesses go bankrupt?

poor cash flow

What does poor cash flow mean?

That there is not enough cash in the business to meet its day to day expenses - i.e. there is a lack of working capital.

What can the consequences of poor cash flow be?

staff don't get paid on time (resentment and poor morale)
creditors may not get paid on time (harsher terms in future)
won't be able to take advantage of discounts for paying quickly
creditors may take legal action to recover the debt

If a business does not have enough money it may go into ............

receivership

What happens when a firm is in receivership?

a receiver is appointed to reclaim money owed to the creditors by selling off a struggling firm's assets or the firm may be forced to cease trading

What are the three main reasons for poor cash flow?

poor sales
overtrading
poor business decisions

How can overtrading affect cash flow?

The firm takes on too many orders - as a result it buys in too many raw materials and hires too many staff. Something goes wrong with the orders and the firms doesn't get the money from customers quickly enough to pay its debts

Give an example of how can poor business decisions affect cash flow?

The firm decides to bring out new products or expand into new markets but they do not bring in as much money as forecast.

What are bad business decisions usually the result of?

Not doing enough planning or market research.

Name three ways a business can improve its cashflow.

reschedule their receipts of income
reschedule their payments or negotiate better terms
sell down stock

How can a firm reschedule receipts of income to improve cashflow?

By giving customers less generous credit terms or insisting they pay cash.

How can a firm reschedule the payments they make to suppliers to improve cashflow?

They can reschedule the credit period given to customers so that it is less than the credit period obtained from suppliers.

How does destocking improve cash flows?

By destocking, the cash inflows will be the same but the cash outflows will be reduced as less will be spent on raw materials.

Why is destocking a short term solution to cashflow problems?

Eventually they'll run out of stock so they'll have to pay money to make more products.

If Tardy Ltd output 30,000 alarm clocks at a total cost of �120,000, what is the average cost of making each clock?

�4

Calculate how much profit a business made in 2008 if it had revenue of �125,000 and costs of �80,000?

�45,000

Give two reasons why a new business needs a source of start-up finance.

to buy assets
to finance poor initial cash flow

Describe one benefit for a business of using a grant over other sources of start-up finance.

it doesn't need to be paid back

Annual Fee

An amount that credit card companies can charge for the use of a credit card.

Annual Percentage Rate (APR)

Shows how much credit costs you on a yearly basis, expressed as a percentage.

Asset

anything of value that is owned

Bank

a financial institution that accepts deposits and channels the money into lending activities

Bank Reserves

the currency banks hold in their vaults plus their deposits at the Federal Reserve

Blue Chip Stocks

stocks of large, well-established corporations with a solid record of profitability

Board of Governors

the seven-member board that oversees the Federal Reserve System

Capital Gain

the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the seller

Capital Loss

Loss from the sale of an asset. (Capital loss can result when stock is sold for a lower price than was paid for it).

Central Banking System

A nation's central bank that is established to regulate the money supply and oversee the nation's banks. In the United States the Federal Reserve is the central bank.

Certificate of Deposit (CD)

a savings alternative in which money is left on deposit for a stated period of time to earn a specific rate of return

Characteristics of Money

Durability, portability, divisibility, uniformity, limited supply, and acceptability

Collateral

a security pledged for the repayment of a loan

Commodities Market

The market for the purchase and sale of commodity (a basic product, usually, but not always, agricultural or mineral) futures, contracts for the sale and delivery of commodities at some future time.

Compound Interest

Interest earned on both the principal amount and any interest already earned.

Compounding

the accumulation of a sum of money in, say, a bank account, where the interest earned remains in the account to earn additional interest in the future

Contractionary Fiscal Policy

a decrease in government purchases, increase in net taxes, or some combination of the two aimed at reducing aggregate demand enough to return the economy to potential output without worsening inflation; fiscal policy used to close an expansionary gap

Contractionary Monetary Policy

the federal reserve's adjusting the money supply to increase interest rates to reduce inflation

Credit

An arrangement to receive cash, goods, or services now and pay for them in the future.

Credit Card

A plastic card used to make purchases now and pay for them later.

Credit Rating

rating of the risk involved in lending to a specific person or business

Credit Union

a nonprofit financial institution that is owned by its members and organized for their benefit

Crowding-Out

occurs when a government deficit drives up the interest rate and leads to reduced investment spending

Currency

the metal or paper medium of exchange that is presently used

Debit Card

a bank card that automatically deducts the amount of a purchase from the checking account of the cardholder

Deflation

a contraction of economic activity resulting in a decline of prices

Demand Deposit

the money in checking accounts

Discount Rate

the rate of interest set by the Federal Reserve that member banks are charged when they borrow money through the Federal Reserve System

Easy-Money Policy

monetary policy resulting in lower interest rates and greater access to credit; associated with an expansion of the money supply

Excess Reserves

reserves that banks hold over and above the legal requirement

Expansionary Fiscal Policy

An increase in government spending or a reduction in taxes

Expansionary Monetary Policy

the federal reserve's increasing the money supply and decreasing interest rates to increase real GDP

Fair Credit Reporting Act

federal law giving constumers right to veiw and correct their credit information

Federal Deposit Insurance Corporation (FDIC)

A federal agency which insures bank deposits, created by the Glass-Strengall Banking Reform Act of 1933.

Federal Reserve

the central bank of the United States

Finance Charge

A fee for borrowing money, added to a monthly credit card bill.

Fiscal Policy

a government policy for dealing with the budget (especially with taxation and borrowing)

Fractional Reserve Banking System

A banking system in which banks keep less than 100 percent of deposits as reserves

Functions of Money

Medium of exchange, unit of account, store of value

Initial Public Offering (IPO)

the first time a company issues stock that may be bought by the general public

Interest

the price paid for the use of borrowed money

Interest Rate

the percentage of a sum of money charged for its use

Investment Return

The additional income earned from saving or investing money, often expressed as an annual percentage of the amount invested.

Liquid Investments

assets that flow easily since they can be converted into other investments or cash without much time or difficulty

Monetary Policy

the setting of the money supply by policymakers in the central bank

Money

the official currency issued by a government or national bank

Money Market Account

is a savings account in which the interest rate varies from month to month

Money Market Mutual Fund (MMMF)

interest-bearing accounts offered by investment companies, which pool depositor's funds for the purchase of short-term securties. Depositors can write checks in minimum amounts or more against their accounts

Money Supply

the total stock of money in the economy

Open Market Operations

the buying and selling of government securities to alter the supply of money

Real Interest Rates

the interest rate that is adjusted by subtracting expected changes in the price level (inflation) so that it more accurately reflects the true cost of borrowing

Required Reserves

Reserves that a bank is legally required to hold, based on its checking account deposits

Rule of 72

The number of years it takes for a certain amount to double in value is equal to 72 divided by its annual rate of interest.

Stock

a certificate documenting the shareholder's ownership in the corporation

Stock Market

A system for buying and selling shares of companies

Three Cs of Credit

Character
Capacity
Capital

Tight Money Policy

monetary policy resulting in higher interest rates and restricted access to credit; associated with a contraction of the money supply

U.S. Savings Bonds

small denomination bonds that are issued by the federal government at a discounted price and grow to full value over time.

What can people refer to instead of saying stocks?

Equities or securities

What are the two main kinds of stocks?

Common and preferred

Why don't all companies issue stocks?

Because a company has to be a corporation to issue stock

Capital gains?

The profits you make from a stock

Capital loss?

The profits you make from a stock

Market makers?

Are individuals or firms that are obligated to buy and sell to provide and maintain liquidity in the market-place

Bull market?

When the market goes up

Bear market?

Wen stocks go down

Sideways market?

When the market goes nowhere

How long can a bull and bear market last?

Bear markets are short, they take no longer than a year. But bull markets can last as long as three to four years long

Value stocks?

Stocks that sell for less than they're worth

Income stocks?

Shares of corporations that give money back to shareholders in the form of dividends

Growth stocks?

Are stocks of companies that consistently grow their earnings year after year

What are income stocks also called?

Dividend stocks

Market capitalization?

Tells you how large the corporation is

Asset

Anything of value that a business owns, such as cash, equipment, or a building.

Balance sheet

A report of the final balance of all assets, liabilities, and owner's capital at the end of an accounting period.

Break-even point

The point at which the money from product sales equals the costs of making and distributing the product.

Budget

A formal, written statement of expected revenue and expected revenue and expenses for a future period.

Capital

The buildings, equipment, tools, and other goods needed to produce a product or the money used to buy these items.

Credit

An arrangement to receive cash, goods, or services now and pay for them in the future.

Debit

A bookkeeping entry on the left side of an account. It records the increase to an asset or an expense, OR the decrease of a liability or item of equity or revenue.

Equity

Amount of owners' or shareholders' portion of a business.

Fixed expense

a consistent and regular cost of doing business such as rent or insurance.

Income statement

A financial report of the revenue, expenses, and net profit/loss for an accounting period.
Also know as the P&L statement for "profit and loss".

Invoice

An itemized statement of money owed for goods shipped or services rendered.

Liability

A debt owed by a business.

Markup

The amount added to the cost of an item to cover expenses and ensure a profit.

Net profit

The amount remaining after expenses are deducted from sales revenue.

Return on investment (ROI)

The amount earned as a result of an investment.

Variable expenses

an occasional cost of doing business that varies in amount from month to month.

Prestige pricing

a technique in which higher-than-average prices are used to suggest status and prestige to the customer.

Price skimming

a technique of charging high prices on a new product to recover costs, then dropped when the product is no longer unique.

Odd/even pricing

A pricing technique in which odd-numbered prices are used to suggest bargains, such as $19.99.

Discount pricing

A technique that offers a percentage-off discount such as 25% off

Bundle pricing