Beginner’s Guide to Stock Terminology

Beginner’s Guide to Stock Terminology

We will learn the basics and fundamentals of the stock market to help you get started.

What we’ll learn:

  • Teach how the stock market works
  • Show why stock prices go up and down
  • Explain how to read a stock chart

Are there any course requirements or prerequisites?

  • An interest in learning about the stock market
  • A desire to start investing in stocks

Who this course is for:

  • Beginners and intermediates looking to build their basic knowledge of stocks
  • People who want to start investing
  • People who find stock terms confusing

 

1.) What are stocks?

2.) What is the stock market?

3.) What are the different types of stocks?

4.) Why do stock prices change?

5.) Why should I invest in the stock market?

6.) How do I read the stock chart?

7.) Stock market terms and concept

Bulls & Bears:
  • Investor sentiment
  • Investor feels confident or pessimistic about a stock in a stock market

BullsInvestor in a stock market that is optimistic, charge ahead in buying shares.

BearsInvestor in a stock market that is pessimistic, sells shares.

Bid & Ask: Related to stock prices due to the auction format of a stock market refers to the prices buy and sell out help to form when we see a stock price.

Bid – highest price a buyer will pay for a share

Ask – lowest price a seller will sell for a share

Capital: financial resources avail for use can be used as a synonym for assets

Basis Point:

– unit of measurement for interest rates and other percentages in finance

– unit equal to 1/100th of 1%

– tiny units of measurement but are important for tracking bond yields since they tend to change less than a 1% on a given trading day

Liquidity:

ability to use cash

– the ability to turn asset into cash and use that cash

– this helps to measure how easy it is for a company to pay off its obligations

– and can be very important if a firm suddenly experiences an earnings loss

Balance Sheet:

– company’s financial condition

– financial statement

– summarizes company’s assets, liabilities and shareholder’s equity at a specific point in time

– this helps to illustrates what a company owns, owes and how much money the investors have invested in the business

Assets: Measurement of possessions

– prefers to the possessions that a company has present or future economic value to the owner

– can be cash, inventories, factories, prepaid insurance

Liabilities: Measurement of obligation

– actual or potential financial obligations

– is a form of debt

Stockholder’s Equity: Capital invested

Book value of the company

Refers to the capital received from investors in exchange for stock or paid in capital

– Stockholder’s Equity = assets minus liabilities

Accounts Receivable: Money owned by customers

– money owed by the customers to the business

Depreciation: how much of an asset’s value has been used

Amortization:

how much of an asset’s value has been used

– similar to depreciation but use of intangible assets

– example: value of patent

Current Assets:

– assets expected to be liquid within a year

– all assets that are expected to be converted to cash within the next year

– these assets are liquid

Working Capital:

– current assets/current liabilities

– measures when a company doesn’t have enough short term asset to cover short term debts

Accounts Payable

example of a short term debt

– owed by the company

Current Liabilities:

– total debt or obligations due within one yr

– firm should be able to cover these from the cash on hand and the current assets referred to working capital

Long-term Liabilities:

– obligation due after one year

– can be covered by future earnings since there are plenty of time to prepare to pay them

Book Value:

– assets minus liabilities

– stockholder’s equity is the corporation’s net worth =assets minus liabilities

Retained Earnings: earnings withheld to reinvest in the business or pay debt

Days of Sales Outstanding: average no of days it takes to get revenue after a sale

Days of Inventory Outstanding: average no of days it takes to convert inventory into a sale

Income statement:

– measures a firm’s earnings performance

– shows the business incurs its revenues and expenses through both operating and non-operating activities

COGS:

– cost of goods sold

– measures directly related to sale of the firm’s product/s

SG&A:

– measures indirect cost of operation

– selling general and administrative expenses

– firms cost of operations, payroll cost, research development and marketing costs

EBITDA:

net income before interest, taxes, depreciation and amortization

– removes differences in financing and accounting decisions the firm make so you can compare firms across different industries

EBIT:

– earnings before interest and taxes

– important for comparing firms so that the effect of different financial set ups

Cash flows Statement: statement of cash inflows and outflows

Operating Cash flows:

– cash flows in business operations

cash generated by normal business conditions

– helps to show how profitable a firm is in cash production of its opeartions

Investing Cash flows:

– cash related to purchase or sale of long term assets

– cash flows related to the firm’s building and equipment

Financing Cash flows:

– cash flows between the firm, owners and creditors

– tracks funds related to providing finances to the firm’s operations

Futures:

– contracts for future delivery of securities

– contracts for future delivery of securities or commodity at a said price and a specified amount of time

Options: rights to buy or sell an asset at a specific price within a period of time

Call: rights to buy an asset within a fixed amount of time

Put: right to sell an asset within a fixed amount of time

Index:

– a collection of stocks

– used to mimic an entire market or segment

Index fund:

– designed to track or match a market index

Mutual fund:

pool of money actively managed by a portfolio manager

– classified by the type of stocks held within the fund

Hedge fund:

pools of money managed professionally but less regulated than mutual funds

– less regulated because they cater allegedly to more sophisticated investors

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