Definitions Flashcards

1
Q

What is ‘Gross Profit’

A

Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services. Gross profit will appear on a company’s income statement, and can be calculated with this formula:

Gross profit = Revenue - Cost of Goods Sold

Gross profit is also called sales profit and gross income.

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2
Q

Term of the Day - Portfolio

A

A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non publicly trade-able securities, like real estate, art, and private investments. Portfolios are held directly by investors and/or managed by financial professionals and money managers. Investors should construct an investment portfolio in accordance with their risk tolerance and their investing objectives. Investors can also have multiple portfolios for various purposes. It all depends on one’s objectives as an investor.

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3
Q

Business Cycle

A

The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles are generally measured using rise and fall in real – inflation-adjusted – gross domestic product (GDP), which includes output from the household and nonprofit sector and the government sector, as well as business output. “Output cycle” is therefore a better description of what is measured. The business or output cycle should not be confused with market cycles, measured using broad stock market indices; or the debt cycle, referring to the rise and fall in household and government debt.

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4
Q

Socially Responsible Investment - SRI

A

An investment that is considered socially responsible because of the nature of the business the company conducts. Common themes for socially responsible investments include avoiding investment in companies that produce or sell addictive substances (like alcohol, gambling and tobacco) and seeking out companies engaged in social justice, environmental sustainability and alternative energy/clean technology efforts. Socially responsible investments can be made in individual companies or through a socially conscious mutual fund or exchange-traded fund (ETF).

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5
Q

Futures Contract

A

A futures contract is a legal agreement to buy or sell a particular commodity or asst at a predetermined price at a specified time in the future. Futures contracts are standardized for quality and quantity to facilitate trading on a futures exchange. The buyer of a futures contract is taking on the obligation to buy the underlying asset when the futures contract expires. The seller of the futures contract is taking on the obligation to provide the underlying asset at the expiration date.

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6
Q

Yield Curve

A

A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates, and it is also used to predict changes in economic output and growth.

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7
Q

Stock Option

A

A stock option is a privilege, sold by one party to another, that gives the buyer the right, but not the obligation, to buy or sell a stock at an agreed-upon price within a certain period of time. American options, which make up most of the public exchange-traded stock options, can be exercised any time between the date of purchase and the expiration date of the option. On the other hand, European options, also known as “share options” in the United Kingdom, are slightly less common and can only be redeemed at the expiration date.

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8
Q

Basic Security Types

A

A “security” is the blanket term used to describe a financial product. Most investments that you purchase over a market or through an exchange can be described as a security.

Examples of securities: stocks, bonds, money market funds, annuities, ETFs, REITS and mutual funds.

Examples of investments that are not securities: Real estate, putting money in a startup, savings accounts.

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9
Q

Moving Average - MA

A

A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random price fluctuations. It is a trend-following, or lagging, indicator because it is based on past prices.

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10
Q

Coverage Ratio

A

The coverage ratio is a measure of a company’s ability to meet its financial obligations. In broad terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders. The trend of coverage ratios over time is also studied by analysts and investors to ascertain the change in a company’s financial position.

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11
Q

Candlestick

A

A candlestick is a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price. Black/red indicates that the stock closed lower and white/green indicates that the stock closed higher.

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12
Q

Indicator

A

Indicators are statistics used to measure current conditions as well as to forecast financial or economic trends.

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13
Q

Endowment

A

An endowment is a donation of money or property to a non-profit organization, which uses the resulting investment income for a specific purpose. “Endowment” can also refer to the total of a non-profit institution’s investable assets, also known as “principal” or “corpus,” which is meant to be used for operations or programs that are consistent with the wishes of the donor. Most endowments are designed to keep the principal amount intact while using the investment income for charitable efforts.

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14
Q

Risk Tolerance

A

Risk tolerance is the degree of variability in investment returns that an investor is willing to withstand. Risk tolerance is an important component in investing. You should have a realistic understanding of your ability and willingness to stomach large swings in the value of his investments; if you take on too much risk, you might panic and sell at the wrong time.

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15
Q

Systematic Risk

A

Systematic risk is the risk inherent to the entire market or market segment. Systematic risk, also known as “undiversifiable risk,” “volatility,” or “market risk,” affects the overall market, not just a particular stock or industry. This type of risk is both unpredictable and impossible to completely avoid. It cannot be mitigated through diversification, only through hedging or by using the correct asset allocation strategy.

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16
Q

Bubble

A

A bubble is an economic cycle characterized by rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive selloff occurs, causing the bubble to deflate.

17
Q

What are Pre-Market Trading hours?

A

4:00am-9:30am (EST)

18
Q

What are After-Hours Trading hours?

A

4:00pm-8:00pm (EST)

19
Q

What are regular market hours?

A

9:30am-4:00pm (EST)

20
Q

Roth IRA

A

Named for Delaware Senator William Roth and established by the Taxpayer Relief Act of 1997, a Roth IRA is an individual retirement plan (a type of qualified retirement plan) that bears many similarities to the traditional IRA. The biggest distinction between the two is how they’re taxed.

21
Q

Why Buy Options?

A

Most investors who use options do so for the purposes of speculation, hedging or both. Speculation refers to betting on the movement of a security, rather than holding shares of the security itself. Whereas an investor holding shares in Company X would only gain from the rise in a stock price, options allow the investor to bet that the price will go down or even sideways. Hedging, meanwhile, refers to the practice of protecting investments against rising, falling or neutral markets, read on.

22
Q

Trustee

A

A trustee is a person or firm that holds and administers property or assets for the benefit of a third party. A trustee may be appointed for a wide variety of purposes, such as in the case of bankruptcy, for a charity, for a trust fund or for certain types of retirement plans or pensions. Trustees are trusted to make decisions in the beneficiary’s best interests and often have a fiduciary responsibility to the trust beneficiaries.

23
Q

Stop Order

A

A stop order is an order to buy or sell a security when its price increases past a particular point, thus, ensuring a higher probability of achieving a predetermined entry or exit price, limiting the investor’s loss, or locking in his or her profit. Once the price surpasses the predefined entry/exit point, the stop order becomes a market order.

24
Q

Restricted Stock Unit - RSU

A

Restricted stock units (RSUs) are issued to an employee through a vesting plan and distribution schedule after achieving required performance milestones or upon remaining with their employer for a particular length of time. RSUs give an employee interest in company stock but have no tangible value until vesting is complete. The restricted stock units are assigned a fair market value when they vest. Upon vesting, they are considered income, and a portion of the shares are withheld to pay income taxes. The employee receives the remaining shares and can sell them at their discretion.

25
Q

Tariff

A

A tariff is a tax imposed on imported goods and services.

26
Q

Price to Book Ratio

A

One of the metrics that value investors use to find undervalued companies is the Price-to-Book (P/B) Ratio, which compares a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share.

It is also known as the “Price-Equity ratio” (not to be confused with the Price/Earnings Ratio), read on.

The P/B Ratio is calculated as:
P/B Ratio = Stock Price / (Total Assets - Intangible Assets and Liabilities)

27
Q

Liquidity

A

Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price.

28
Q

Price-Earnings Ratio - P/E Ratio

A

The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price-earnings ratio is also sometimes known as the price multiple or the earnings multiple.