LEVEL 2 GLOSSARY
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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.
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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.
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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.
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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!
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Security
Basically, any contract representing ownership, such as stocks, bonds, options, swaps, notes, and futures. It says, "I OWN THIS"
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Shares Outstanding
The total number of shares currently held by investors.
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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.
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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.
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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
The Price Is Right (Or Wrong)
In one hand, you hold a cell phone. In the other, you hold a can of shaving cream. You want to see which one is "worth more." What could you do to find out?
Well, you could just look at the price tag and right away you'd see that the cell phone is way more expensive than the can of shaving cream.
But is it worth more? Of course!
A-ha! You thought we were trying to trick you! We weren't. Sometimes, it's that easy to determine value.
Unfortunately, it's a little more complicated with stocks.
Let's take a look at the companies behind the cell phone and the shaving cream, AT&T (T) and Procter & Gamble (PG).
If you don't know which company makes which product, you should probably go back to Level 1.
Anyway, both of these companies are around the same size: They're worth around $150 billion. But AT&T's stock price is around $25, while Procter's is around $50.
What does that tell us? Can we say that Procter is worth more than AT&T? Can we say that it's more valuable?
You may want to say that, but you can't. That's one of the limitations of stock prices. They can't really tell you much more than the price of one slice of the company behind it.
We'll get into more details about figuring out a stock's value later, but for now it's good to know that when it comes to stocks, price isn't everything.
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