LEVEL 1 GLOSSARY
-
Bonds
When you buy bonds, you're basically lending money to municipalities, states, and other government entities, which they use for construction projects and other fun stuff. They then pay you back with interest. These aren’t the biggest money makers, but bonds are fairly stable for those of you who think “risk” is a dirty word.
-
NASDAQ
It's known as The National Association of Securities Dealers Automated Quotation System, but suffice to say this stock exchange is one of the biggies.
-
Return
Gain (or loss) from an investment. Unless you're fiscally masochistic, you're going to cross your fingers for a gain.
-
Revenue
The money generated from sales. If you own a lemonade stand and charge 25 cents per cup, add up all the sales for the day and—voila!—that's the revenue (just to keep you on your toes, sometimes people just refer to this as sales).
-
Stock
This is your piece of the corporate pie, and it entitles the holder to a share of assets and earnings.
-
Bull Market
Like a bull charging forward, a “bull market” is typically a market on the upswing. Olé!
-
Debt
It's a bad word in personal finance, but it's pretty common in the corporate world. This is the money that a company owes to a lender.
-
Dow Jones Industrial Average
The grandaddy of them all when it comes to indices only because it’s the oldest and most popular—not the largest or most representative. The Dow only represents the prices of 30 largest and most widely held companies in the U.S.
-
IPO
Short for Initial Public Offering, this is a private company's way of saying, "Do you want a piece of this?" This is when a company offers shares to the public to get more dough to grow the business. Also known as "going public."
-
NYSE
The New York Stock Exchange, a.k.a. Wall Street, is where stocks are bought and sold.
See full glossary
In Level 1 we'll introduce you to some of the basic concepts of investing. Each concept features a brief description and a case study, so you can see how each concept works in what financial analysts call "the real world." When you've mastered a concept, click the link at the bottom of the page to add it to your Report Card and move to the next one. Master all the concepts in each level, and then take the quiz to see just how smart you are.
- What is money?
-
The uses of money
- Function of a bank
-
What is a company?
- Is that company any good?
- How companies make money
- Brands
- Stocks vs. bonds
- What is a stock?
- Compounding interest
- What is the market?
- LEVEL 1 QUIZ
Show Us the Money
So a company buys some things, makes some things, and then sells some things people want to buy. Whatever money they have left over is their profit. Pretty straightforward, isn't it?
You'd think so, but there are countless examples of companies that forgot how simple it should be to make money.
Take the dot-com era back in the '90s: Hundreds of small companies cropped up, and many people thought they were going to become millionaires.
Why? All because they had an idea of how their business was going to use the Internet to make everyday responsibilities (such as buying pet supplies) faster and easier.
Everything looked great for a while — until the bubble exploded and everything came crashing down. Why did things go kablooey? The answer is simple: Most of these companies weren't making any money.
They had an idea of how their company was going to rake in millions by going virtual, but they never actually sold anything that brought in any cash.
Looking back, it seems they forgot one simple axiom: You can't expect to stick around if you aren't making any money.
But then you have Amazon.com (AMZN) — they also weren't making any money when they started in 1994.
It took them seven years to finally start reporting profits.
The difference between Amazon and the dot-com duds? Amazon had a great idea that was already bringing in cash. It just took a while for them to make enough money to cover their start-up expenses and begin generating some profit.
Another factor companies can use to calculate their profit is how they're going to price their product. If you sell glasses of lemonade for $1 instead of $0.30, you'll make a lot more money on each sale.
But you would also probably lose sales, because not as many people would be willing to shell out that much for your precious — and pricey — drink.
Amazon is catching some flak for this right now with their electronic book reader, the Kindle. Some people think it's too expensive at $359. So Amazon could lower the price and sell more of them, or keep the price high and make more off of each one.
This will affect how much money Amazon makes, and it's an important balance all companies need to consider.
Of course, that comes after taking care of the most important part of a business: making money in the first place.
- Bookmark this page:
-
-
-
-
-
-
-
