Have all you wanna be investors like me been hanging in there on this series? (If you’re reading this for the first time, you may want to go back and review Tips 1-4). But for now, more of our short version “must know” glossary of terms.

To summarize what we have covered so far, here are the terms discussed in previous posts of this series:

• Value Investing

• Growth Investing

• Fundamental Analysis

• Technical Analysis

• EPS

• P/E

• Dividends

• ETFs

Terms for this week

Market Cap (or market capitalization)- The market value of a company on the stock market. e.g. Current share price times the number of shares in issue. This is as opposed to the actual value of the company. When evaluating stocks, one of the things you want to look for is a low market to actual ratio.

Cash flow- The money that flows into the business, minus the money that flows out of the business. You want it to be positive. The bigger the better.

Cash flow/share- The company’s cash flow divided by the number of outstanding shares

Earnings momentum/Earnings acceleration- when a stocks earnings increase quarter after quarter. This is, of course a good thing. Growth investors demand this.

Price/Book Ratio- the value of the company in its entirety were it to be liquidated right now.

Price/sales ratio- is calculated by dividing the company’s market cap by the company’s sales revenue in the most recent fiscal year (or the most recent four fiscal quarters); or, equivalently, divide the per-share stock price by the per-share revenue. Sorry, I could not find an equation picture for this one.

Current Ratio- Divide current assets by current liabilities. This is a measure of a company’s ability to pay it’s bills over the next twelve months. You want it to be a minimum of 2:1, according to Jason Kelly. You definitely don’t want it to be less than 1. Quick ratio is similar to the current ratio, but more accurate in that it is a measure of actual available cash divided by current liabilities. This is a measure of a company’s ability to survive bad periods.

Net Profit Margin, Profit Margin or Net Profit Ratio- An indicator of a company’s pricing policies and its ability to control costs. Differences in competitive strategy and product mix cause profit margin to vary among different companies.

Once we get all the pertinent terms down, ’cause there are hundreds, and I only have so much time, after all, and my brain is only so big, I’ll do some scenarios to get us all comfortable with the terms. Then I’ll go over reading the stock market page. It might be fun to also learn about some of the Masters of Investing as well. And then we’ll get to the nitty gritty: evaluating potential stocks for purchase.

Anything else you would like to see?

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