Trading & Finance Vocabulary Flashcards
Dividend
A distribution of a portion of a companies earnings to a class of its shareholders E.g. - cash payments, shares of stock, or other property
True or False
Stock Market and Equity Market are technically the same thing
True
Stock
A share in the ownership of a company. A stock represents a claim on the companies assets and earnings.
Asset
A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.
Bankruptcy
A legal proceeding involving a person or business that is unable to pay outstanding debts.
How do you calculate Market Capitalization
Stock price x number of shares outstanding
If the companies results on a financial report are better than expected, the stock usually goes in which direction?
UP
If a companies results based on a financial report is worse than was expected, the stock goes in which direction?
DOWN
Earnings
After-tax net income. Earnings are the main determinant of share price because earnings and the circumstance relating to them can indicate if the business will be profitable and successful in the long run.
How to calculate Free Cash Flow (FCF)
Operating Cash flow - capital expenditures = free cash flow
Free cash flow
A measure of financial performance. FCF represents the cash the company is able to generate after laying out the money required to maintain or expand its asset base.
How do you calculate operating cash flow (OCF) and why is it important.
OCF = Revenues - operating expenses
OCF tells investors and management whether a company can pay its bills
Cash IN must exceed cash OUT for a business to profit in the long run
Can cash flow alone tell you if a company is financially sound?
No. It is important to know the source of the incoming cash.
Is it coming from sales or liquidating assets? What is the reason for cash flow?
Capital Expenditure (CAPEX)
A companies spending on physical assets
-cannot be deducted from income for tax purposes. Instead, the value of the capital expenditure is added to the companies assets.
Why should investors follow Capital Expenditure (CAPEX)?
To determine if a company is more or less efficient than its rivals
To determine if a company has been underinvesting and could potentially suffer from less efficiency, lower margins and higher future spending requirements.
