Investing has its own terminology that you should know before you make your move.
All you have to do is a little bit of research to become a good investor.
But you won't understand what you are looking at if you don't understand the terms.
Here are a few key terms that will help you as you begin to invest in the stock market.
Revenue is the money that a company makes on the sales of products or services.
Sometimes you will see this as "sales" instead of revenue.
But the revenue doesn't give you a complete picture of the company.
Just like your budget, the expenses are important to your financial health.
Companies have to pay for employees, materials, advertising, office space and numerous other expenses.
These costs are stated in the company's pre-tax income.
After the company pays taxes and other expenses, they are stating their net income.
To determine the company's profitability you can look at the net income.
But you should also look at the company's profit margin.
The profit margin is the net income divided by the revenues.
It is a percentage.
This is often helpful when comparing companies.
The earnings per share is calculated by dividing the company's net income with the outstanding shares.
The outstanding shares are the stock that has been issued and is currently held by investors.
Many large companies give investors a share of their earnings, called a dividend.
The dividend adds to the total return you may get from a certain stock investment.
Capital appreciation also adds to the return.
Capital appreciation is the increase in the price of the stock.
The total return stated is usually calculated on an annualized basis, considering the expected change for the full year.
You can find growth rates for growth companies.
These will help you to identify how quickly a company is increasing revenue, profit and earnings per share.
These rates are recorded on a quarterly and yearly basis.
You can also find growth rates for multiple year periods.
Look at the book value in determining a company's worth.
This is the company's total assets minus its liabilities, preferred stocks and intangible assets.
This is what the company is worth if everything was liquidated and all debts paid in full.
This is often divided by the outstanding shares and is reported as the book value per share.
Many top employees of companies own significant portion of stock in the company.
They are referred to as insiders because they have confidential information that the normal investor doesn't gain access to.
If they hold a large number of shares in the company, they tend to act in the interest of the shareholder.
Check the level of insider ownership when you are looking at a stock.
High insider ownership levels are a positive factor when considering a stock.
You should also look at the risk the stock poses to you.
This can be seen in the stock's beta.
The beta measures the tendency for the stock to move up or down in price compared to the overall market.
A beta over one means that the stock is more volatile than the overall market.
A beta of less than one means that it is less volatile.
These are just a few of the terms that you will run into as you start to consider stocks for investment.
There are many more terms that you will encounter along your investment path.
All it takes is a little time and some simple research, and you will easily understand the stock market.