How do Stock Splits Work?

Corporations have a lot of power over their stocks and can manipulate them to make them more desirable to investors and traders. One such move that a corporation can do is perform a stock split on their shares. This is a common move performed by big companies in the hope that it will make the shares seem more interesting to investors of all sizes, big or small. The concept behind a stock split is very simple and is not different to understand. As a day trader, they may never really affect but they can indicate when it is time to invest in a stock, as stock splits can act as strong predictors.stock-spilits

If you are not sure what a stock split is and why you should be bothered about them, continue to read on. It is important to familiarize yourself with these terms as you may come across them in later in your trading career

What is Stock Split?

A stock split is very similar to splitting a $20 note into two tens. The overall value of the money you’re holding has not changed by you now have two notes. So why does this matter? Well, in stocks, this can happen with individual shares.

A stock split is essentially when a company decides to split their shares to give them less value. The actual price of the stock doesn’t change but the price of individual shares does. There are a range of different splits that can occur and the most common is a 2-for-1 split, which cuts the shares by 50%. Current shareholders will get an additional share for each one they own and individuals looking to invest will now have to option to select cheaper shares. As I have stated, the overall market capitalization doesn’t budge because the overall price hasn’t changed.

You can even have a reverse-split. This is where the opposite happens where a corporation merges their shares together. For example, you could have a 1-for-10, where 10 shares are not added to produce one share. This, of course, raises price of shares 10x.

So what’s the Point of Stock Splits?

There are a range of reasons why a company might authorize a stock split. One of the most common reasons is for investor psychology. This is particularly true when the corporation is very large and their share price is very high. The high share price will deter investors from buying so my splitting the shares, it gives the impression that there is less money spent and less risk. In addition, current shareholders will feel happy that they now have more shares and will have more to trade if prices go up.what-is-stock-spilit

The benefit of a stock split is also that is increases the liquidity of the stock. This will increase with the number of shares and this can make the stock more stable. Some companies that have never split have large ask/bid price ranges because their shares are worth so much and because there is so little of them.

Conclusion

If you ask any professional or teacher in the stock market industry, they will tell you stock splits are a waste of time. They don’t really change a lot and benefit the corporations more than the investors and traders. However, a stock split can have some effect on your psychology of a stock. Just because there are cheaper shares, it doesn’t mean you should invest. However, saying this, if a company is splitting, it could indicate they’re doing well and they may be a company you want to invest in.  

Is it Possible to Make a Living by Trading Stocks

When it comes to trading stocks, it can look very appealing to beginners and outsiders. The money that can be made is incredible and the lifestyle of some traders attracts individuals who are looking for an escape from the daily grind. Many people would love to quit their day jobs and take up trading full time if they had the chance and this is something that many people try to do. But is this actually possible?

With the development of technology and because the cheap software that is now available. It is possible for average Joe’s to get into trading on the stock market with minimal upfront cost and knowledge. Of course, if you are see success when you first start trading, you need to have the investments and the knowledge, otherwise the stock market will eat you up. This article will go through the ways in which you can get involved with the stock market and how it is possible for you do it full time with the right information and tech.

What Options Do You Have?

With the advancements in technology and online brokers, you can now trader full-time without an impressive education or the necessary connections. Before, you would have had to go to an expensive college and would have had to know some of the individuals already working on the trade flaws.trading-stocks

Developments in IT and software now make it completely possible for people to quit their jobs and craft the lifestyle they want. However, there are also a number of considerations to make before you get involved in trading, as it is not an easy-to-play game.

There are two options you can take when it comes to working independently and full-time when it comes to trading. You can either trade solo or use proprietary firms.

Day Trading Solo

This is the preferred method to get into day trading and is the main method that people first have when they think of independent trading. The ability to now trade form home is a direct result of the advances in technology. You can now have access to the charts and stocks from a laptop, which can work from anywhere in the world with an internet connection. This option is flexible and works around your time, which is why it is the true trading dream.stocktrading

The main issue with this option is that it happens to be the option with the largest investment. Unless you go with discount online brokers, you will have to pay a large sum of money to trade on the stock market. A minimum equity requirement of $25,000 is set and this has to be maintained in order to trade. As well as equity, you also need the equipment and computer power to make sure your trades are secure. The last thing you want is your computer failing when you have just placed an order.

Using Proprietary Firms

Although trading independently is the dream, many individuals will join a firm because of their low commission fees and training programs. This is the alternative to working home and essentially throws you into the pit with other successful traders. The benefit with this method is that you’ll be spending firm money and the risk will be managed externally. They will teach you and advise you on trades and you will get a percentage of the net earnings.

Working for a firm is a great way to get started but many firms do require you have some educational knowledge or experience in the field before you’re hired. In some cases, the firm may allow you to work from home but this is rare.

Should You Day Trade?

Working as a full-time trader is a great job and you can earn a lot of money if you’re good at it. There are two options available to you if you want to trade full-time and you now don’t need a fancy education or network to get involved. Trading is difficult and you need to assess your character before you get involved. This is truer for individuals who are solo trading, as the capital used will be from your bank account.

Biggest IPOs of the Last Decade

The stock market wouldn’t even exist if it wasn’t for IPOs. These are essentially what started the stock market and are the reason normally public individuals can invest and trade the shares the companies give to the public.

IPO

An IPO is an initial public offering and is something a company does when it wants to allow the public section to invest and trade their shares. Initially, a company will be private, being owned specifically by the CEO with close investors, usually family and friends. The private company might also have early investors (venture and angel) who have put money into the business to see a profit. Once the company has reached a certain threshold it will be ready to go public, allowing the normally individuals in the world to invest their money into the business. When a company has an IPO, it is “going public”.

When a company goes public, it can go various ways. Sometimes the company will get no to little sales, whereas some companies explode and get thousands of traders the moment they launch an IPO. This article will go through some of the biggest IPOs in the last decade so should you how much money some companies made.

Baidu.com – 2005

Baidu is a Chinese internet search company similar to Google. They launched their IPO in 2005 at an initial price of $27, which is still considerably high. At the end of their first trading day, the shares were worth $122.54, producing a 354% rise on their first day. At this current point in time, their shares are worth $135.85 and have been growing since 2010.

Qihoo 360 Technology – 2011

Qihoo is another Chinese search company that has its IPO in early 2011. They started off their initial shares at $14.90 and at the end of the first trading day of their IPO, their shares rocketed 134% to a share price of $34. However, their share prices are a lot lower today at $28.85.

NYMEX – 2006

NYMEX is actually related to the stock market and is a futures trading platform for commodities. The company is now privately owned again under the CME group. When they first launched their IPO in 2006, their initial share price was $59. On the first day of trading this went up by 125% to $132.99. As already stated, there is not current share price because the company is now privately owned.

Youku.com – 2010

Youku is China’s version of YouTube. They opened up their IPO in 2010 at an asking price of $12.80 a share. This rapidity increased by 161% on the first day, totally $33.44 a share. Currently, their share price as sold off slightly but still stands at $50.26.

youku

The Impact of IPO’s on the Stock Market

IPOs have a huge impact on the stock market. As you can see above with the massive IPOs that happened in the last decade. Their presence causes huge spikes in trades and can make some people a lot of money. However, not all IPOs have this effect and many of them start out relatively slow. This is true with new companies that need investment, particularly penny stocks. However, if you position yourself at the right time, you can make a fortune.

Key Characteristics of Hedge Funds

As you probably already know, hedge funds have many similarities with mutual funds. In order to be able to tell the difference, you would have to learn about the key characteristic of the hedge funds, so that you can tell them apart.

Find out how to detect the hedge funds and the whole procedure will become extremely easy to you.

No Regulations

The most important characteristic is that hedge funds are not regulated. There are some specific limitations to the things that they can do. They have a specific number of investors and the fact that they cannot be advertised to the public. Therefore, an experienced investor must be in place where he can be properly informed and build up a thorough strategy.

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This is why many investors consider hedge funds to be quite risky. You should also know that hedge funds are not being overseeing by the state regulator, as with any other investment status. Therefore, you need a proper due diligence to help you out.

Reports

Keep in mind that hedge funds are not required to report their positions to the general public or to the regulatory agency. Of course, the investors are always trying to get as much transparency as possible. However, the truly experienced and talented managers do not want to reveal the positions. If this is your current state, you have a choice, and you can make an investment either way.

Money Managers

money-managersHedge funds managers were also some extremely talented guys who could manage their way around so much money. They made their own moves and produced the best returns for them and their clients. Of course, they will charge you an enormous fee for their consultation and services. Many great investors have followed one single manager after he went on his own way. Nowadays, there are many money managers to the market. This is why you have to be extra careful when you are in search for a talented hedge fund manager.

Fund Strategy

Many hedge funds can follow the same, certain strategies that can guarantee you that everything will go as promised. Hedge funds may combine short selling strategies with bullish plays to manage risk. The hedge funds used to have a certain strategy that everyone should follow in order to make the highest profit possible. However, with the extreme rise of hedge funds, you are now free to follow your very own strategy.

This, of course, means that if you are an experienced fudge manager that handles stock investments, you can now seek out some new fixed income investments as well. You can leave the US borders and easily expand your investments to other countries too. Of course, most managers will stick with what they know and will not experiment. But if you do it right, foreign investment can be something really good for you.

Take a look at these characteristics in order to better understand the differences and the key points to hedge funds. If you are an investor or a manager, you need to know as many details as possible in order to seek transparency.

ETF’s versus Mutual Funds – Which Is Best for You

Exchange Traded Funds (ETFs) and Mutual Funds are two popular types of investment options available to investors. However, many investors wonder whether they should invest through an ETF or through a mutual fund. The answer is that it really depends on your particular circumstances and what your investment goals are since each type has advantages as well as disadvantages.

Exchange Traded Funds

etf-vs-mutual-fundAn Exchange Traded Fund is a fund into which an investor invests along with other investors. Investors become shareholders and acquire shares in proportion to their investment. The fund usually tracks the performance of an index, a commodity such as oil or gold, bonds etc. An ETF trades on the stock exchange just like stocks do. But the risk is spread across several different asset classes unlike pure stock trading. It is relatively inexpensive to invest in ETFs since the fees are lower. Other advantages of ETFs include diversification, and the ability to buy and sell shares as desired. Since ETFs trade on the stock exchange, the value varies moment by moment as investors buy and sell shares throughout the day. Whenever profits are made, it is divided among the investors.

Mutual Funds

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A mutual fund is a pool of funds that are contributed by several different investors. The aim of the fund is to outperform a benchmark such as an index. Unlike ETFs, mutual funds are not traded on the stock exchange. Therefore, they may only be redeemed once daily at a single price known as the Net Asset Value (NAV). A Portfolio manager usually oversees a mutual fund and charges a fee for this service. This fee makes it relatively expensive when compared to ETFs. An advantage of mutual funds is that you may invest with as little as $2500 and sometimes less. Diversification is also an advantage.

ETFs vs. Mutual Funds: The Ultimate Guide

Exchange Traded Funds or ETFs have become the darling of the inventing world and they are giving mutual funds a run for their money. As much as both of them are viable investing choices, it is very important that as an investor, you familiarize yourself with the similarities and the differences both of them have to offer. With the right information, you can make an informed investment decision. This article discusses ETFs vs. mutual funds and will help you make that informed decision.

MUTUAL-FUND

MANAGEMENT

ETFs are index funds, which means that they are managed passively and track indexes. There are some ETFs that are managed actively but they function more like mutual funds and hence have higher fees. On the other hand, mutual funds are run by professional managers that attempt to beat the market. Due to the active management, mutual funds tend to have higher costs.

Some people think it is worth paying for the professional management and hence go with mutual funds but research indicates it is not. Funds that are actively managed rarely beat the market and as an investor, you have better chances of higher returns when you invest in low-cost index funds like ETFs.

TRADING

It’s a fact that ETFs are index funds but they come with a twist. ETFs are traded like stocks through the day and their prices are normally based on demand and supply. On the other hand, mutual funds are priced and traded at the end of every trading day.efts stock graph

Due to the fact that ETFs are like stocks when investors buy or sell, they pay some commissions. Nowadays, however, there are some brokerages that offer commission free ETFs and you should choose a few of these when investing. The commissions might not seem much but if you invest every month, it will add up very fast.

When investing in commission-free ETFs, you should consider the expense ratio because some of these funds have high expenses in order to make up for commissions. When investing with ETFs, keep in mind that they are not meant for day trading, you have to hold on to yours for a given number of days or you will be charged.

EXPENSE RATIO

The expense ratio is what indicated how much an investor pays every year in order to own a fund as a percentage of what they invested. ETFs are considered quite inexpensive with some of them carrying expense ratios of 0.01%, which means an investor pays $1 for every $1,000 they invest each year.

However, you should not assume that this means they are the cheapest option out there. Index funds, for instance, are worth considering but in general, mutual finds higher expense ratios than both index funds and ETFs.

TAX EFFICIENCY

ETFs are a lot of tax efficient compared to mutual finds due to the way they are managed. This is important to consider if the exchange traded fund is within a taxable account and not in a retirement account, which can be tax-advantaged like 401(k) or IRA.

financial and investment productsTHE STARTING MINIMUMS

Mutual funds can have very high entry costs that could even be a minimum of $1,000. However, ETFs are usually purchased by a share and this makes them inexpensive.

THE SELECTION

This might be the one area ETFs fall short. Despite the fact the ETFs have really grown in popularity, there are more mutual funds available. You will find an ETF that meets your needs but you will not have a lot to select from compared to mutual funds.

LIQUIDITY

Liquidity is normally measured by the trade volume. If the interest is low and the trading volumes are low then the spread increases. These forces sellers to offer price discounts so they can get the security sold and causes the buyers to pay price premiums. ETFs are somewhat immune to this because their liquidity is not influenced by trading volumes. ETFs liquidity is influenced by the liquidity of the stocks included on that index.

Final thought

As an investor, you should not assume that all investments are low cost. Ensure you consider all potential fees even for ETFs. They are inexpensive compared to mutual funds but you still need to know what you are doing. All in all, if you are looking for the better option, you need to consider all these aspects and decide which one will work best for you.

What is “Paper Trading” And Why Should You Do It?

Paper trаding ѕimрlу means to “рrеtеnd” tо trаdе uѕing rеаl mаrkеt data (аnd fake money) in оrdеr to рrасtiсе trading bеfоrе уоu bеgin. It’ѕ likе уоu аrе trаding with ‘рареr’ money оr monopoly mоnеу. In mоѕt cases уоu will fоllоw уоur charts (if уоu’rе uѕing technical аnаlуѕiѕ) еxасtlу аѕ you would if уоu wеrе trading with rеаl mоnеу, оr if you’re using fundаmеntаl аnаlуѕiѕ, you will fоllоw уоur ѕtrаtеgу and rеѕеаrсh thе company thе ѕаmе as if уоu were going to invest уоur mоnеу in them, only уоu аrе uѕing ‘рареr’ money.Paper-trading

Getting Started With Paper Trading

Whеn уоu begin tо рареr trаdе уоu will bе given a fаkе monetary vаluе in whiсh tо trаdе with. If уоu hаvе your оwn trаding ѕоftwаrе it’ѕ bеѕt to trade with a realistic аmоunt оf mоnеу (i.e. thе ѕаmе аmоunt of money аѕ уоu will when уоu use rеаl money). Thе rеаѕоn уоu do thiѕ iѕ bесаuѕе if уоu trade with a rеаliѕtiс amount, уоu are mоrе likеlу tо make dесiѕiоnѕ as if уоu wеrе trаding with уоur rеаl mоnеу. Another point, whiсh уоu might like to take, iѕ to trеаt уоur paper trаding money likе уоu bоrrоwеd it оff уоur grаndmоthеr and you’re terrified оf losing it. You dоn’t want tо focus оn bеing fеаrful оf lоѕing уоur mоnеу, however thаt iѕ рrоbаblу the сlоѕеѕt еxаmрlе of thе fееling уоu gеt whеn you trade with real mоnеу. I аѕѕurе уоu there will bе nоthing that will prepare уоu fоr the fееling оf trading with rеаl mоnеу; thаt is ѕоmеthing thаt уоu will develop whеn you gеt tо it. That having been ѕаid, brеаking through thаt fеаr iѕ rаthеr rеwаrding and thе fear itѕеlf shouldn’t put you off trаding.

The ѕесоnd thing wе need tо clear up iѕ thаt:

Pареr trаding ѕhоuld bе taken serious:

Every trade thаt уоu mаkе must bе made as if уоu were riѕking уоur real mоnеу. If уоu wouldn’t buу “XYZ” (а fiсtitiоuѕ ѕtосk) with уоur real mоnеу, but уоu hаvе a hunch thаt it’ѕ gоing to gо up, thеn you’re nоt рареr trаding you’re just having ѕоmе fun. Evеrуthing уоu dо ѕhоuld bе еxасtlу as уоu wоuld do it if you wеrе trаding real money, except уоu are uѕing рареr money. Hеrе are the rеаѕоnѕ whу уоu ѕhоuld рареr trading bеfоrе invеѕting in ѕtосkѕ:

  1. Lеаrn thе Mаrkеtѕbusiness-reportThe numbеr оnе reason whу you ѕhоuld рареr trade before invеѕting in ѕtосkѕ is tо givе уоurѕеlf a сhаnсе tо learn the mаrkеtѕ. I dоn’t саrе how gооd you think уоu аrе, trаding live (with rеаl mоnеу) without paper trаding first is ѕuiсidе. You nееd to bе able tо get аn understanding оf the mаrkеtѕ аnd how they ореrаtе. Trading iѕ nоt gаmbling; it iѕ аn analysis оf рrоbаbilitу аnd ѕресulаtiоn.
  2. Find уоur Strategy: Bеfоrе уоu trаdе with rеаl money, уоu nееd tо bе аblе tо рареr trаdе tо find уоur ѕtrаtеgу. Hоw саn you роѕѕiblу knоw if your trading ѕtrаtеgу wоrkѕ until уоu trу it оut for yourself with rеаl mаrkеt соnditiоnѕ?
  3. Mаkе Miѕtаkеѕ: Thе bеnеfit оf рареr trading iѕ hаving thе аbilitу tо make miѕtаkеѕ. Every nеw trаdеr mаkеѕ miѕtаkеѕ, аnd I аѕѕurе уоu, уоu wоn’t bе hарру аbоut mаking miѕtаkеѕ whеn уоu trаdе with rеаl mоnеу. If уоu рареr trаdе firѕt, уоu аrе lеѕѕ likеlу tо mаkе miѕtаkеѕ that will соѕt you mоnеу аnd you will bе аblе tо соntrоl уоur trading muсh mоrе.
  4. Find your Hаbitѕ: Evеrу one оf uѕ has hаbitѕ. Sоmе of thоѕе habits can be dеtrimеntаl tо trаding. If you рареr trаdе bеfоrе trаding with live mоnеу, уоu саn find уоur bаd hаbitѕ аnd irоn thеm out. It’s muсh еаѕiеr to сhаngе уоur bеhаviоr аnd hаbitѕ whеn уоu’rе nоt riѕking rеаl mоnеу.
  5. Tеѕt аnd Mеаѕurе: Trаding requires уоu tо соnѕtаntlу tеѕt аnd measure not оnlу your trading strategy, but your mindѕеt. Thе mаrkеtѕ аrе always changing, аnd what wоrkѕ tоdау, might not work in 6 months timе. Likеwiѕе уоu nееd tо test аnd mеаѕurе уоur bеhаviоr аѕ a trаdеr. 80% оf a traders ѕuссеѕѕ is due to thеir mindѕеt. If уоu саn lеаrn how tо tеѕt and measure, аnd dеvеlор your ѕkillѕ tо сhаngе quickly thеn уоu’rе gоing to be muсh more аѕtutе in thе rеаl marketplace.
  6. Master уоur Mindѕеt: Likе I mentioned аbоvе; trading iѕ 80% mindset and 20% ѕtrаtеgу. There is more to trаding thаn рiсking stocks, it iѕ a mind gаmе thаt уоu hаvе tо mаѕtеr, аnd unlеѕѕ уоu mаѕtеr it (оr аt lеаѕt learn thе basics) while уоu рареr trade (bеfоrе уоu trade with rеаl mоnеу); уоu’rе аlmоѕt guаrаntееd tо lose money in the marketplace.
  7. Lеаrn nеw Strategies: Thе markets аrе nеvеr thе same; thеу are соnѕtаntlу changing аnd require уоu tо develop nеw tесhniԛuеѕ аnd strategies regularly. Even еxреriеnсеd traders will never trade their rеаl money until thеу hаvе developed thеir nеw ѕtrаtеgу bу рареr trаding it. Evеrу timе you сrеаtе a nеw ѕtrаtеgу or tесhniԛuе you should рареr trаdе it firѕt to mаkе sure it works.make-money
  8. Lоѕе mоnеу: Part of bеing a ѕuссеѕѕful trаdеr iѕ having the аbilitу tо losemoney. Nоt еvеrу trade уоu mаkе will be a winning trade. Paper trаding givеѕ уоu the аbilitу tо learn that you will hаvе lоѕing trаdеѕ withоut affecting your real rеѕultѕ. Yоu nееd to bе аblе to dеаl with lоѕing money, аnd knоw thatanother trаdе will bе juѕt аrоund thе corner.
  9. Mаkе Money: Although it might sound odd, ѕоmе реорlе hаvе some рrеttу bizаrrе associations tо mаking mоnеу. Often реорlе fееl guiltу if thеу mаkе tоо much mоnеу, or thеу have a buffеr whеrе it bесоmеѕ too uncomfortable. Yоu nееd tо lеаrn tо ассерt mоrе mоnеу in уоur lifе and paper trading lets уоu dо thаt without riѕking аnу mоnеу of your оwn.
  10. Get Cоnѕiѕtеnсу: Finally, thе lаѕt rеаѕоn why уоu ѕhоuld рареr trade bеfоrе invеѕting in ѕtосkѕ is to gеt соnѕiѕtеnt rеѕultѕ fоr уоur trаding. Anyone саn mаkе money in the markets, but оnlу successful traders will mаkе mоnеу соnѕiѕtеntlу. Onсе you саn mаkе money соnѕiѕtеntlу in thе mаrkеtрlасе you know that уоu саn tаkе it tо thе nеxt ѕtер and mаkе rеаl mоnеу in thе mаrkеtѕ.

How Are ETFs Different From Mutual Funds?

etf-trader-draws-market-price

There are a lot of financial products in the stock market, and one of these is called Exchange Traded Funds or ETFs. For some reasons, ETFs can be likened to mutual funds, but are being traded in the form of stocks. You need to get educated with this type of investment or advised by a trusted finance consultant before coming up with the best strategy to handle them right.

What are ETFS?

Technically, ETFs are a type of fund that owns shares of bonds, stocks, gold bars, oil futures, foreign currency and other underlying assets. These are considered one of the best entries when trying to make an investment portfolio. Most people engage with these products to get a balanced approach in mixing bond and stock funds.

How are ETFs different from mutual funds?

  • ETFs are tax efficient compared to regular mutual funds. Tax spending happens when you sell an ETF and when you distribute fund through capital gain. The catch is that an ETF rarely allocates capital funds compared to mutual funds.
  • ETFs provide a current and definite view of holdings because reports are done on a daily basis. The transparent updates can help you know more about possible risks, trends and recognize overexposure to some markets.Various-type-of-financial-and-investment
  • ETFs, let you access unique types of investment. You can own shares of precious metals including platinum, palladium, gold, and silver.
  • ETFs also allow you to diversify your finance portfolio by letting yo invest according to characteristics, geography and market sectors. You can have shares in real estate, energy and dividend-paying stocks all at the same time.

What are the advantages of Exchange Traded Funds?

There are three main benefits of ETFs which substantially create an impact on the profitability of any investment:

  • Tax efficiency – As mentioned earlier, ETFs have a variety of stocks considered to be more efficient compared to index funds. ETFs also allow the investors to trade to significant volumes and receive non-cash payments. If an investor buys shares, then tax is deferred until the stock is sold.Streaming-Tickers
  • Diversification – Your investment will not focus on one stock or product alone. ETFs have diversified opportunities allowing you to invest in international shares and specific industries like energy, biotech, and technology.
  • Low expense ratio – Exchange Traded Funds cost less, have broad diversification and low turnover. You can be charged up to 10% on mutual fund fees while up to 1.25% on ETF expense.

What are the disadvantages of ETFs?

  • International exposure is limited – Although there is a vast range of ETF products to trade in the US market, some countries include large-cap products. A new investor might not be able to access mid and small-sized stocks.
  • The intra-day trading scheme may only be perfect for short-term ETF owners and not to long-term traders.
    A risk of investment inactivity – Some investments may not be as active as other traded goods due to issues which are regional or sector-related.

Investing in ETFs are rewarding and satisfying if you know how to handle its risks and benefits. Do your research and create an investment plan and strategy to make the most out of your shares.

How to Read a Company’s Income Statement

Whether you’re receiving income statements for your company or creating them yourself, they’re notorious as complicated and scary. But they don’t have to be. Here’s a simple guide of how to read a company’s income statement.company-income

The Main Terms and Their Meanings

Perhaps the most daunting aspect is the terminology, but here’s the basic breakdown.

  • Statement of Income, Statement of Earnings, Statement of Operations, Statement of Operating Results = Income Statement.
  • P&L Statement = Profit & Loss Statement = Income Statement
  • Gross = the profits before dedications
  • Net = the profits after dedications
  • Net Income, Net Earnings, Earnings = final profit (since Statements rarely, if ever never, use the term “profit”).

Multi-Step vs. Single-Step

Close-up-US-income-tax-formDepending on the size and complexity of your business, your income statement can take two forms – multi-step, where there are more expenses and points of income calculated, and single-step, which is more refined. To see the differences and their terms, read here, but for now, let’s cover the real heart of your statement.

The Structure

The Statement will begin by listing the business and the period of time the statement concerns.
Below this will be the body – where the numbers game begins. Read from top to bottom, starting with Sales Revenue and ending with Net Income, which is essentially how much money you started out with and how much is yours by the end.

Along the way, deductions will be made to cover:
Income Tax Expense.
Cost of Goods Sold (= manufacturing).
Administrative, Selling, and General Expenses (= employee wages, advertisement, legal fees, insurance premiums, etc.).
Research and Development (which made be included in the above category, depending on if you have a multi- or single-step Statement).
Etc.
It’s important to note that these deductions will not be characterized by parenthesis, minuses, or any similar symbols. Instead, the Gross Income will always be followed by a deduction. After which, a strong line will separate the profit into another section, where it will be accompanied by an additional deduction. The purpose behind this is to constantly draw your eye downward to the final Net Income.

At the end, the Net Income will likely be underlined, put in bold, or have a different font type. This is why it’s called “the bottom line.”

The Real Purpose Behind Income Statements

It’s important to remember these Statements are designed to give you a very brief but very crucial insight. They will not go into detail on how broad or narrow the deductions are, or how simple or extensive your profits are.marketanalysis

The Most Important Part to Watch

While each line offers valuable insights, the most crucial of them all is the Cost of Goods and Sales Revenue line. This shows you how much it cost to manufacture the products sold versus how much was actually made, before further deductions are counted. Since the Cost of Goods will likely be the largest expense you have, keeping a close eye on any spikes and evaluating ways to lower this price will give you the most pleasing Net Earnings in the next statement.
The profit after the Cost of Goods deduction will be known as a Gross Margin; always watch the Gross Margin.

What is Most Commonly Grouped Together?

Income Statements often become more confusing when expenses are lumped together, but it’s a common practice to improve efficiency. The most common combination is in the Operating Costs. Rather than itemizing Administrative, Selling, and General Expenses, your Statement will likely put them into that single umbrella term.

The History of the NASDAQ Stock Exchange

The World’s Stock Markets as we know them today generally sprung into existence in the 19th and 20th Centuries. The New York Stock Exchange was created in 1817 and dominated the world economy for nearly three centuries until the NASDAQ was created.the-Nasdaq-stock-market

The National Association of Securities Dealers and Financial Regulatory Authority created the NASDAQ in 1971. Its creation was intended to enable investors trade in securities on a transparent system that was also the first to be computerized. The NASDAQ commenced operations on February 8,, 1971. The trading term Nasdaq also encompasses the Nasdaq Composite, an index of more than 3000 stocks listed on the NASDAQ exchange.

Growth of Technology and its Effect on the NASDAQ

Because of its set-up, the Nasdaq is the global electronic marketplace for the trade in securities and the benchmark index for technology stocks. The computerized system that characterizes the NASDAQ was first conceptualized to be an alternative to the system used in earlier trading systems. Most traders found the older system inefficient and the NASDAQ was meant to change that.nasdaqcity

Its founders couldn’t have envisioned the advances in technology we have today. But they did a great job in creating a system that would evolve with technology. In fact, the evolution of technology has made the NASDAQ, a standard model in many of the world’s markets today.
Its efficiency was further compounded by the fact that many tech giants chose to list with the NASDAQ in their early days. And as the tech industry grew in the 80’s and 90’s the NASDAQ model was adopted by the rest of the world. It’s electronic trading model is currently used by 70 exchanges in over 50 countries.

Companies Listed on the NASDAQ Exchange

Its technology based model makes the NASDAQ composite a favorite of technology companies. So, it’s little wonder that the world largest tech companies are listed on the composite. These companies include Apple, Google, Oracle, Amazon, Microsoft, Amgen and Intel. But they are just a fraction of the more than 3000 stocks listed on the exchange.

Stock-Open-Slightly Higher On The-New-York-Stock-ExchangeThe composite’s performance during the dot-com boom and bust in the late 90’s signified its appeal to the tech world. During this period the NASDAQ composite crossed the 1,000 mark in July 1995, the first time it had ever done so in its history. It continued to soar in the subsequent years, rising to the 4,500 mark by March 2000 before the bust caused it to slump by almost 80% in October 2002.
The future of the NASDAQ composite looks bright. In 2007, it combined with OMX, the Scandinavian exchange group to form the NASDAQ OMX Group. Together, they became the world’s largest exchange with 1 in 10 of the world’s securities traded.

The NASDAQ OMX 100 index, introduced in 2008, is a global index that is traded in U.S Dollars and Euros. Transactions on this index are calculated in real time and the stocks listed here are the main players in the tech industry including Apple, Cisco and Amazon.

Intended to be the first transparent and electronic securities platform, the NASDAQ has continued to play that role in an ever-changing stock market. With technology changing every day, the NASDAQ’s primary function may well be further redefined as the global markets adjust to the changing environment.