1. A Primer on Selected Financial Terms Dr. Dan Gilbert Tennessee Wesleyan College

2. Stock Exchange  A mutual corporation providing facilities for stock brokers and traders to trade stocks and securities Archaic term: bourse  US regulated by SEC (Securities and Exchange Commission) 1.NYSE (owned by NYSE Euronext) The Big Board 2.Tokyo Stock Exchange 3.NASDAQ (National Assn of Securities Dealers Automated Quotations)  Following NASDAQ are London, Toronto, Frankfurt, Hong Kong, Shanghai, etc.

3. DJIA  The Dow Jones Industrial Average The Dow, the Dow Jones, the Dow 30  The average price of the 30 of the largest and publicly traded corporations in the US Modified periodically; no longer exclusively manufacturing  Editors of Wall Street Journal oversee DJIA reports

4. S&P 500  Index of the stock prices of top 500 corporations (chiefly US) in terms of market capitalization (stock price x shares outstanding) Bond ratings, credit ratings: AAA to D A division of McGraw Hill since 1960’s, Standard & Poor’s is a financial services firm Merger of Standard Statistics and Poor’s Publishing in 1940’s

5. Stock (generic “share”)  A security or share of ownership in a corporation  Generally, two types: Common Stock Preferred Stock  Earnings not retained by the firm are paid to stockholders (owners) as dividends  Otherwise, “retained earnings” are reinvested in the corporation, such as new equipment, buildings, assets

6. Common Stock  Right to share in distribution of profits  Regular dividends – Typically declared quarterly by board of directors Based on profitability of firm  Right to elect board of directors One certificate = one vote  Right to remaining assets after liquidation (only after creditors) This is rare

7. Preferred Stock  Dividends are paid at a fixed interval and fixed amount, if profits sufficient “Preferred” because dividends paid out of net earnings before dividends to holders of common stock  Does not have voting rights  Fixed amount does not increase if corporation more profitable Lower class of stock than common stock  Sometimes viewed as creditors

8. Common versus Preferred  Common stock Dividends can be higher than expected if profits increase Voting rights  Preferred stock Dividends paid at fix amount no matter what (if corporation is profitable) No voting rights The main issue – RISK of the owner

9. Bonds  A security in a corporation but without ownership; the bond holder is a lender  Has a maturity date at which bond is redeemed  Value is based on present value (PV) of all future interest and principal payments of the bond, discounted by the bond's rate of return (yield). Can be traded; less individual ownership than stocks  Viewed as a safer investment than stocks, because of creditor status  Not without risk

10. Earnings per share  Earnings Per Share: A ratio of earnings to the number of common shares outstanding  EPS = Net Earnings Wt Avg Outstanding Common Shares  One indicator of a company’s profitability.  Higher numbers are preferred. Outstanding shares - Weighted by number outstanding over different time periods (e.g., 10 million Jan-June, 12 million July – Dec.) Diluted shares – shares that could potentially enter market Should compare against stocks in same industry Net earnings after preferred stock dividends are paid