This extract from the book “Investing in stocks & shares, is aim for families or individuals who don’t know about technical economic terms but want to learn and invest.
The article gives all sort of financial definitions to understand what they mean when they talk about a share, an asset or what a dividend is. There are also ratios that investors need to know to be able to analyze which investment is best for them.
First of all, the writer talks about Shares which is defined as the person who owns the assets of a company, receives a dividend and votes in the company’s annual general meeting (AGM), in proportion to the size of the investor's holding.
Then we find out what assets are and the nominal value of them. The writer defines assets as Cash-in-hand, property (land, buildings,) and the company's stock of raw materials and work-in-hand, less its liabilities in the form of borrowings or payments to creditors. The Nominal value is the asset value of the company and the ability to make money with that asset.
Another type of share is the Non-voting share which normally enjoys most of the benefits of other shares, but the holder cannot vote. The holders of the original voting stock are usually rewarded by giving them more stock.
Finally, the dividend is that proportion of its profits paid to its owners, the shareholders. Normally a company will pay only part of its profits as a dividend. The remainder is retained to fund internal growth of the company.
The author starts giving ratios like the P/E Ratio or the yield. The P/E ratio is the Company’s profits divided by the number of shares in existence. The P/E (price to earnings) ratio measures how many years of earnings per share at the current share price would be needed to pay for the share.
The Yield is another important index of a company's performance. The yield is typically expressed as a net percentage of the current share price. In addition, the higher the risk, the higher the yield. Although local bonds, with the same risk or less than country bonds, have a higher yield.
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