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
McDonald's Gets Happy
Here's one stock story that has a happy ending: McDonald's (MCD) began in 1940 with only burgers and fries in the hopper. That's it.
Pretty basic. While that was a good start — who doesn't love the fries — people wanted a little more variety and healthier options.
So Ronald went back to the kitchen and whipped up some new menu items. Filet-O-Fish, Big Macs, and dessert were soon on the menu. Not only did Ronald's menu get bigger, but so did his footprint: New franchises opened all over the world.
Fast-forward to 2008, when there were 31,000 McDonald's throughout the world!
While the Big Mac might not seem like a big deal (get it?), it was pretty huge at the time.
The birth of the Big Mac meant that Ronald was reinvesting in the business, making sure people got what they wanted, wherever they wanted it.
Other innovations have come along through the years, like salads, play areas, and espresso drinks, that tell the would-be investor that this company isn't just sitting on its laurels.
A smart company reinvests its money in its business to make sure people keep coming back. For McDonald's, it continued to invest in the menu.
Bottom line: Reinvesting can mean the difference between a successful company (i.e., McDonald's) and one that doesn't stand the test of time (RIP, Burger Chef).
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