LEVEL 2 GLOSSARY
-
Balance Sheet
This financial statement tells you if the company is in the black (good) or red (bad). The statement details the good, the bad, and the ugly of the company's liabilities, assets and shareholders??? equity. One rule to remember here is a company's assets = liabilities + shareholders' equity.
-
Book value
Theoretically, it’s what a shareholder would receive if the company were liquidated or sold for cash today. As we all know, the books don't always reflect the reality.
-
Income Statement
One of the three common financial statements that is basically the company's quarterly budget. This is how much the company made and how much it spent, the bottom line (literally) being the profits left over.
-
Market maker
A brokerage firm that is willing to sell you a stock (at the bid price) or buy one back from you (the ask price). They play both sides and make money off of each. Brilliant!
-
Security
Basically, any contract representing ownership, such as stocks, bonds, options, swaps, notes, and futures. It says, "I OWN THIS"
-
Shares Outstanding
The total number of shares currently held by investors.
-
Statement of Cash Flows
Do you balance your check book? So do companies, and this is what it looks like. This is one of the three common financial statements compiled by a company. It shows how the company generated cash and where it spent it.
-
Value Investing
An investment strategy that relies on picking stocks that are undervalued by the market and hoping that the market catches up at some point.
-
Annual report
This report airs the company's dirty laundry with the freshest spin possible. They tell you what happened last year and what the financials look like all in one place, they can usually be found filed with the SEC or on the company website. Companies are required by law to put these out, but don't get fooled by the pretty pictures???the bad stuff is in there too.
See full glossary
In Level 2, we'll take you a little deeper into the trading world. Like in Level 1, there are a series of concepts that you should master before taking the Level 2 quiz. Remember to click the "Mastered this concept?" link at the bottom of the page to keep track of your progress in your Report Card.
- Invest in what you know
- Working at the stock market
- Price of stock
- What affects share price?
- Judging a stock
- The Fair-Price Rating
- Shares outstanding
- Where to learn about a company
- Growth investing
- Value investing
- Invest like Buffett
- The government's role
- LEVEL 2 QUIZ
Growing Up
Chico's (CHS) clothing stores started out in 1983 as your typical small store that just kept growing. Initially, it was a small shop on Florida's Sanibel Island that sold Mexican-oriented clothing for older women.
As its popularity grew, the couple who owned it — Marvin and Helene Gralnick — started opening more franchises. Chico's expanded to some 60 stores by 1992, and the company went public the following year.
The Gralnicks made millions of dollars in the IPO and promptly retired, which caused Chico's to falter. Within a year, net income dropped by a half.
The Gralnicks came back, and soon sales were back up. But this didn't translate to an eye-popping balance sheet: shareholders earned a mere $0.10 in earnings per share in 2000.
Then things started to really turn around: Chico's started opening more stores and spent more money on advertising. Earnings grew 77 percent to $0.17 a share in 2001. In 2003, Chico's owners bought another store — White House Inc. (operators of the store White House Black Market) — and targeted a younger audience.
The move paid off: The company kept growing at record levels, and by 2005 they were earnings $0.80 a share. During that same time the stock went from $1.77 to $44.11 — talk about some serious returns for shareholders!
In 2006, Chico's managed to grow earnings again and it was pulling in $1.06 a share, but it was becoming clear that this kind of growth couldn't last forever. As it neared its ceiling, investors saw an end to the upward climb and headed for the hills.
The stock went from above $40 a share to around $20 in 2006. The fall continued over the next few years: Earnings fell nine percent in 2007 and a whopping 50 percent in 2008.
The moral of the story: Chico's growth was great while it lasted, and great for investors who got in at the right time. But like all good things, it just couldn't last. So watch for signs that the party is coming to an end and make sure you're not the last to leave.
- Bookmark this page:
-
-
-
-
-
-
-
