LEVEL 3 GLOSSARY
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Dividend
Not all companies pay dividends, but when they do, you should say "Cha-ching!" Dividends are payments the company makes to their shareholders. They're a way of giving the shareholder a piece of the profit pie.
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Dividend Yield
Put your dividend dinero into a percentage: a $1 annual dividend for a $10 stock has a 10% yield.
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Earnings Per Share
This is the amount of money earned per every one share. If the company made $1 million in profits and has 1 million shares outstanding, the EPS would be $1.
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Liability
Think of this as debt, but then cast the net a little wider. Liability is the obligation to repay its loans, IOUs, payroll, leases, pensions, vacation hours, and taxes a company owes.
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P/E Ratio
Stocks work hard for the money, so hard for it honey—ahem. P/E ratio is "price-to-earnings": it tells you how much you’re paying for the earnings that a share is generating. For those of you who are visual learners, P/E Ratio = price per share / earnings.
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Retained Earnings
If you're expecting a dividend check and end up empty-handed, it could be because the company decided to keep the earnings and put them back into the business. This money, and all other earnings the company keeps, are called retained earnings. The amount of a company's retained earnings can be found in the shareholders' equity section of the balance sheet.
See full glossary
In Level 3, we'll introduce you to the advanced concepts of investing. Just like the first two levels, there will be some concepts and one quiz. Ace the Level 3 quiz and people will be very impressed when they see your Report Card. So dig in, have fun, and ace that quiz! Good luck!
- The role of risk
- Diversification
- Corporate actions
- Dividends
- Reinvesting
- Issuing more shares
- P/E ratio
- LEVEL 3 QUIZ
Mo' Shares, Mo' Money
So your company needs a little extra cash. Time to sell more shares, right? But is it really that easy to raise money by just selling shares?
Let's take a trip to Vegas to look at an example: Las Vegas Sands (LVS) runs several resorts and hotels in Sin City.
In November 2008, the company announced that they would be issuing more shares. Not to bet on black, but to put back into the business.
LVS announced it would be issuing around 181 million new shares. So what happened to the stock? Before the announcement, it was at $8. Afterwards, it fell to $5.
What happened?
Well, remember that issuing more shares means that the pizza is divided into even more parts, meaning each share gets a little bit smaller.
That means the people who owned some slices of Las Vegas Sands saw their pieces get smaller, which meant their value was reduced.
Hopefully Las Vegas Sands is going to use the money they got from issuing more shares to get some of their value back. Maybe it will work out for them in the long run.
On the other hand, JP Morgan Chase & Co (JPM) announced in September 2008 they were going to issue new shares, and the stock went up from around $42 to $47.
What's up with that?
In this example, investors figured the money was going to be used wisely to make the company -- aka, the pizza -- even bigger and better. So they were willing to pay more for it, even though they had to share it with more people.
So when you see that a company is issuing more shares, remember to look at why the company is doing it, and whether this move will make the company bigger and better in the long run.
Or you can always ask your fellow WeSeeders and see what they say.
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