Key Terms To Make Money From Stock Trading

Closing Price

The final price at which a security is traded on a given trading day. The closing price represents the most up-to-date valuation of a security until trading commences again on the next trading day.

Dividend

A portion of a company's income that is paid out to shareholders on a quarterly or annual basis. The Board of Directors declares dividends. Dividends may be in the form of cash, stock, or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make up for this.

Earning Per Share (EPS)

Suppose there are 2 companies- A and B. Both earn $100, but company A has 10 shares outstanding, while company B has 50 shares outstanding.

Which company's stock do you want to own?

It makes more sense to look at earnings per share (EPS) for use as a comparison tool. You calculate earnings per share by taking the net earnings and divide by the outstanding shares.

Using our example above, Company A had earnings of $100 and 10 shares outstanding, which give an EPS of 10 ($100 / 10 = 10). Company B had earnings of $100 and 50 shares outstanding, which equal an EPS of 2 ($100 / 50 = 2).

So, you should buy Company A with an EPS of 10, right? Maybe, but not just on the basis of its EPS. The EPS is helpful in comparing one company to another, assuming they are in the same industry, but it doesn't tell you whether it's a good stock to buy or what the market thinks of it.

An important aspect of EPS that is often ignored is the capital that is required to generate the earnings (net income) in the calculation. Two companies could generate the same EPS number but one could do so with more equity. This tells investors that the company with the most equity is less efficient at using its equity to generate income.

Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. It is important not to rely on any one financial measure but to use them in conjunction with statement analysis and other measures.

Earning Yield

The earnings per share for the most recent 12 months divided by market price per share. Earnings yield is the inverse of the price-earnings ratio.

Face Value

The nominal value of a security stated by the issuer. For stocks, it is the original cost of the stock shown on the certificate.

Initial Public Offer (IPO)

It stands for Initial Public Offering. An IPO is when a company sells stock in itself for the first time.

Joint Stock Company

An organization that falls between the definitions of a partnership and corporation. This type of company issues stock and allows for secondary market trading; however, stockholders are liable for company debts. This is a type of company that has access to the liquidity and financial reserves of stock markets, but also has the restrictions of a partnership.

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Make Money on Autopilot Mode

Personal level Income Streams

Income can be broken down into essentially three types:

Earned income (1:1)
Portfolio income (Investment)
Passive income

Online profit streams

Regardless of whether you are beginning to develop your own business model or simply analyzing an existing business, the key focus is to decide on how are you going to generate that extra income. From my point of view, the best source of income is passive income whereby you do not have to physically there as it is created on an auto- pilot system.

If you're familiar with flying, you know that an automatic pilot is an instrument the pilot uses to make flying a lot easier. It is not used during takeoff, when the pilot must concentrate on every detail. However, once at cruising altitude, the pilot can set his course, speed and altitude, turn on the automatic pilot, and presto- the plane takes over! The pilot is now free to do other things. This does not mean he can forget his job. However,this means he only need to check his gauges and instruments occasionally. The pressure of flying has been significantly reduced. Your goal, as a creative investor, is to launch your ship into financial orbit, and then put it on auto- pilot mode!

Take a look at the 2 scenarios below which will exemplify the point on scalability.

Scenario A: David is an accountant in a firm and has been offering one-to- one professional service to small and medium- tier businesses for the last fifteen years. Although he charges $200 an hour, his revenue potential is limited as he only has 24 hours a day. He rants at the accounting software which only caters to the big companies and is not user- friendly for the small firm.He ends up slogging day and night for 10 hours daily. His wife threatens to file for a divorce with him as he hardly has time for his family.

Now, consider the following scenario B.

Scenario B: David leverages on his capability of offering sound accounting advice and develops a new software with templates that aids the accounting function of these businesses. His software is well- received as he understands the common accounting difficulties small and medium- tier business faces. He is able to provide a solution for their businesses needs. David is now able to enjoy more time with his family as he earns from the royalties from the sales of the software. He no longer have to be physically present to earn an income as he is able to create a system that runs on auto- pilot mode.

The above scenario is a tad simplistic, yet this point highlights the fact that as we develop from an Industrial Age to an Information Age, there can be boundless opportunities and the ability to reach out to the mass in a much shorter time. In your course of life, do think about making use of technology to aid you to work smarter, not harder.

Perrine Oh is a young and budding writer who is pursuing her CPA and launching a book on wealth management.

Check out her website on: http://perrineoh.blogspot.com/

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