Financial Definitions List

P/E Ratio – Used to value a company that measures its current share price relative to its per share earnings.

Value stock – A stock that trades lower relative to it’s fundamentals (dividends, earnings, sales) and thus considered undervalued.

Growth stock – A share in a company that is expected to grow at an above average rate relative to the market, and often pay dividends

Alpha – Gauges the performance of a stock relative to a benchmark – the excess return of a stock can represent alpha and is represented as a number (-5, 3) meaning 5% worse or 3% better.

Beta – Measure of a company relative to a benchmark, usually the S&P 500. A beta of 1.0 means it’s as volatile as the S&P 500, 0.5 means it’s half as volatile and 2.0 means double as volatile as S&P 500

Bid – The price at which you sell a stock

Ask – The price at which you buy a stock

S+P 500 – The most common benchmark for the US stock market, comprised of 500 large cap stock (companies that have market capitalization of $10 Billion+)

Market Capitalization – Outstanding shares of a company X the price per share

Index – A portfolio of securities, representing a particular market or portion of it

Sectors – An industry or market sharing common characteristics, such as technology, energy, utilities etc.

Asset classes – A group of securities that exhibit similar characteristics and behave similarly in the market place. Examples are stocks, bonds & money markets.

Business cycles – The fluctuations in a business cycle. The four cycles are Expansion, Peak, Contraction & Trough.

Earnings per share – The portion of a company’s profit allocated to each share of outstanding stock.

Price-to-book ratio – Used to compare market value (price an asset would fetch on the market today) and book value (how much a company would be worth today if it ceased doing business today, sold all it’s assets and paid off it’s debts)

Security – Financial instrument that represents ownership, divided into Equity (ownership interest help by a shareholder in a corporation) and debt security (money that is borrowed, generally in the form of a bond)