Whenever I hear a news story or read an article that’s really heavy on investing, I feel like I’m trying to decode another language. My investing experience begins and ends with setting up my 401(k) account, so I’m very unfamiliar with many investing terms that financial journalists toss around like nothing. However, I think I should at least understand some of the basic terms associated with investing. My knowledge will affect how I handle my retirement account in the coming years and will give me an advantage if I decide to do additional investing somewhere down the line.
I started looking up some investing terms that I think will be useful to know. Here are a few that might come in handy:
- Earnings per share (EPS). This refers to a firm’s profit divided by its number of common outstanding shares. As NASDAQ explains, “If a company earning $2 million in one year had two million common shares of stock outstanding, its EPS would be $1 per share.” This is a great number to understand if you want insight into a company’s profitability.
- Outstanding. When discussing shares, this refers to a company’s stock held by shareholders.
- Market value. This is the amount that investors think a company is worth and the price at which securities are traded. It’s calculated by multiplying the number of shares outstanding by the market price of a company’s shares.
I’ve got a long way to go before I start to really understand investing, but just understanding what certain terms mean helps a lot. Can you think of any other frequently used investing terms that would be helpful to know?