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
Here Come the Feds
Kids have learned that it's not nice to lie, cheat, or take things that aren't theirs. Alas, by the time those kids become CEOs, it seems they've forgotten some of the rules.
That's where the Securities and Exchange Commission (SEC) steps in.
Remember Enron, that company that did so well, and then did so very badly? Yep, they forgot that cheating isn't cool. And if you want to get technical, cheating is also against the law.
Like every company on the stock market, Enron had to report their gains and losses in the form of quarterly reports.
But Enron had a really, really bad quarter, so the company's CEOs decided to hide the bad news by tucking the losses into one of the company's side businesses.
As if that wasn't bad enough, they used funny money to bump up their cash-flow figures by renaming their borrowed cash "prepaid contracts."
That lasted for a while — then the SEC caught on. Now the company exists only in the nightmares of the people who lost money when it got busted.
As the government's watchdog, the SEC makes sure that companies like Enron can't misrepresent the facts and figures investors need to make good stock picks.
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