Stock Terminology

#0. Stock

Stock refers to the unit that constitutes the capital of a corporation. This is the concept of dividing the company into several people.

In other words, the certificate of the owner of the company means stock.

And the person who holds this stock is called the 'shareholder'. You get the right to share the company's assets as much as you have.

#1. Bond

State, local governments, banks, and companies issue funds for businesses to borrow (which means collecting money from people). If countries issue, we called it government bonds. If companies issue, we called it corporate bonds.

If the company sells us bonds, we give the money to company. Then the company gets money. When the bond expires, we return the bond back to the company and receive the bond price with interest.

#2. Stock & Bond

Historically, bond prices rise when stock prices fall. If the stock market is unstable, the funds invested in stocks are concentrated on relatively safe assets such as U.S. government bonds.

But it's not always 'bonds go up when stocks fall'. The saying that stocks and bonds go the other way has been around for a while.
High inflation and recession fears hurt all financial markets in equity bonds.

#3. Fund

Funds are financial products in which funds collected for specific purposes are managed by asset management companies on behalf of investors.
It is not easy to decide where and how much to invest in stocks. When you join a fund recruited by a financial institution, fund managers, who are investment experts, invest the money in several places.

#4. IPO

Listed companies refer to companies that are registered to disclose stocks on the stock market so that stocks can be freely traded. It's called Initial Public Offering (IPO). Because the big companies we commonly know are "listed," we can buy shares in them

#5. Shorting (Short sale, Short selling)

Holding a short position in finance means investing in a way that investors can benefit from a decline in the value of the asset, contrary to the traditional long position.
Short selling is not holding stock, but selling stock.
It's a way to sell stocks that you don't have in advance and buy them if they fall.
In other words, it's the process of 'buying cheap after selling expensive' rather than what we usually think of as 'selling expensive after buying cheap'.

If you want to study more, please visit Almost Everything of Short Selling

#6. Trading Volume

How much is bought and sold is the volume. It's good for beginners to avoid stocks with low trading volume

#7. Trading Value

Trading Value = Price x Trading Volume

#8. Dividend

If the company has done well in a year and made a profit, some of it goes into investment for the growth of the company, and some of it distributes to shareholders.
If you think about it easily, it's similar to the interest paid by the bank
You can easily check each company's dividend history here (Apple Inc.)

If you want to study more, please visit Dividends: The fundamental of Stock Investing?

#9. Common Stock, Preferred Stock

1. Common Stock: You can claim the rights of a corporation. If you hold even one share, meaning you have ownership and voting rights, you can attend the general shareholders' meeting.
2. Preferred Stock: You cannot attend the general shareholders' meeting and have no voting rights. However, when distributing dividends or residual property, there is a priority over common stock. If the company goes bankrupt and distributes property to shareholders, it is provided to preferred stocks first.

#10. Financial Statements

It is an accounting report that measures a company's financial activities and summarizes them , which many investors value when it comes to investing in stocks.
This is objective data that can understand the company's profitability and business conditions. When investing, you must check the company's financial statements.
You can easily check each company's financials in this website Go to Apple Inc.

#11. Asset, Liabilities, Equity

Asset = Liabilities + Equity

#12. Market Capitalization

Market Cap = Shares x Price

#13. Book Value

Book Value = Net Asset Value = Equity = Asset - Liabilities

#14. Net Income (Net Profit)

Net Income = Net Profilt = Net Earnings = Total Revenue - Total Expenses
= Net Revenue - Cost of Goods Sold(COGS) - Operating and Other expenses - Interest - Tax

#15. Accounts Receivable

Accounts Receivable are the credit sales of a buisiness that goods or services delivered but not yet paid for by customers. This is also recoreded as revenue in accounting. But when the company get paid later, it's recoreded in cash flow. In other words, real moeny doesn't come into the buisiness until accounts receivable is received. So it's important to analyze how much accounts receivable has been collected.

It is a type of bond. Accounts receivable have the potential to become uncollectible if the customer defaults.

#16. EPS(Earnings Per Share)

EPS = Net Income / Shares

If you want to study more, please visit EPS matters in Earning Season: Basic EPS, Diluted EPS, Adjusted EPS

#17. PER(Price Earnings Ratio)

PER = Price/EPS.
The higher the PER, the higher the stock price compared to net profit.
A low PER means that the stock price is low compared to net profit.

There is also a strategy to invest in low PER stocks, but PER has the disadvantage of not reflecting the growth potential of a company. A low PER is not necessarily a good stock to buy. It could mean there's no growth potential and people don't expect anything.

Because PER vary so much from sector to sector, it's important to see which sector you want to invest in and to know what the average PER of other companies in the sector is.

#18. PEGR(Price Earnings to Growth Ratio)

PEGR = PER/(EPS growth rate).
Indicators that emerged to complement PER that does not reflect expectations for growth. Even if the PER is high, the PEGR can be lowered if the profit growth rate is high (growth potential).

Peter Lynch recommends setting the benchmark at 1 and buying below 0.5, and selling above 1.5

#19. BPS(Book-value Per Share)

BPS = Book value/shares = Indicates how much the company will return per share if it shuts down all activities and gives assets to shareholders

#20. PBR(Price to Book Ratio)

PBR = Current Stock Price/BPS = Indicates how much more expensive the stock price is than the company's net value added.
Similar to PER, lower is a good indicator, but lower is not necessarily a good indicator. You have to compare the PBRs of similar stocks like PER.

#21. PCR(Price to Cash-flow ratio)

PCR = Price/(operating cash flow per share)
= Indicates how expensive the stock price is compared to the cash flow
There is an argument that a company should be evaluated in cash instead of profit because it's the real value that the company makes when cash comes in

#22. PSR(Price to Selling Ratio)

PSR = Price/(sales per share)
In the case of early venture companies and bio companies, there is no profit yet, and their book value is not large. So it's important for these companies to start getting sales. (Early Facebook (now Meta) , for example)
There is an opinion that the enterprise value of these companies should be measured by sales.

#23. ROE(Return on Equity)

ROE = Net Income/Equity = EPS/BPS = PBR/PER = Indicates how much profit an entity has made from its equity
The most important indicator with PER

#24. ROA(Return On Assets)

ROA = Net Income / Assets

#25. Operatin Income, Operating Margin

Operating Income = Total Revenue – Direct Costs – Indirect Costs
= Gross Profit – Operating Expenses – Depreciation – Amortization
= Net Earnings + Interest Expense + Taxes
Operating Margin(%) = (Operating Income / Sales) * 100
Operating Margin is really really important. Apple Inc. always has great operating margin

#26. Debt Ratio

Debt Ratio (%) = Total Debt / Total Equity x 100.
It's a really important factor when analyzing corporate stability.
You can think that there should be no debt unconditionally, but if you use a certain amount of debt, you can make a bigger profit than expected. This is called the "leverage effect".
The debt ratio varies from industry to industry, so we need to compare how companies are in the same industry

#27. Leverage Effect

I’ll give you an example. The money you have is $1 and let's look into the next two options. And let's suppose house prices go up by 10 percent overall.
1. Buy a $1 house => Rise to $1.10 => Earn 10 cents from a $1 investment => Yield 10%.
2. Get a $9 loan and buy a $10 house with my $1 => The house price goes up to $11 => Pay back the $9 loan and the remaining $2 => Invest in $1 and earn $1 => Yield 100%.
(Of course, you'll have to consider the interest rate because you'll have to pay the interest on the loan. For an easy example, interest rates are not considered).
This is called the leverage effect. So the appropriate debt ratio is a positive view.

#28. Current Ratio

1. Assets that can be converted into cash within one year are called current assets. An asset that takes more than a year is called a Long-term asset
2. Liabilities (debts) that must be paid within a year are called current liabilities. Debts that remain in maturity for more than a year and can be paid back more than a year are called Long-term liabilities.
=> Current ratio = Current assets/Current Liabilities.
Normally, liquidity is considered risky if the current ratio is less than 100%

#29. Depreciation

Goods and facilities used by companies are consumed every year, and the value of this drop is calculated and treated as an expense in accounting.
For example, let's say a company bought a car and this car can only be ridden for 10 years. Then the value of this car in 10 years is zero, not the amount we first purchased. Considering the value of cars falling like this, it is treated as an expense

#30. EV(Enterprise Value)

Enterprise value (EV) is the total value of the enterprise, the total amount that a person who wants to buy the entire enterprise has to pay
EV = Market cap + net deposit (total borrowings-cash deposits, etc.)

#31. EBITDA(Earnings Before Interest, Taxes, Depreciation and Amortization)

It refers to net income before subtracting interest expense, Tax, and depreciation (Depreciation & Amortization).
An indicator of the ability of a company to earn cash purely from operating activities by excluding depreciation costs from expenses rather than direct cash expenditures


It is an indicator of how much a company is valued compared to the cash flow generated by its operating activities
EV/EBITDA is a new indicator that complements PER and PCR and is primarily used when evaluating enterprise value.
It is mainly used for corporate valuation for M&A.

#33. Paid-in Capital Increase

Companies need investment funds for new businesses or have difficulty managing them, so they issue new stocks and sell them for money to increase their capital.
People often view capital increase as negative. In particular, if the purpose of the capital increase is to raise operating funds, it is viewed more negatively. If the purpose is to invest in expanding the business, it can be viewed positively considering the potential for growth

#34. Bonus Issue(Free Capital Increase)

Free of charge, handing out shares without receiving money.
Even if the number of shares increases, the equity does not increase. Bonus Issue is not necessarily a good fact. We need to make a judgment according to the situation

#35. Capital Reduction

Capital Reduction is the opposite concept of capital increase and refers to reducing the total amount of capital.
It is said that the Capital Reduction is carried out for the purpose of company reorganization, division, merger, and business preservatio. But in the stock market, when the accumulated deficit has grown too much and is in a crisis of capital erosion, most of them try to escape the delisting through 'Capital Reduction Without Refund'.
Therefore, it can be very bad news if the disclosure of 'Capital Reduction' is announced.
There are two types of reduction: Capital Reduction Without Refund and Capital Reduction With Refund. I'll explain it in detail below

#36. Captial Reduction with Refund

Capital Reduction with Refund is the return of part of the stock price held by shareholders in situations where capital is reduced, such as business reduction and company merger.
It is called 'Capital Reduction with Refund' because the capital is compensated to shareholders as much as it is reduced.
'Capital Reduction with Refund' is rare in the stock market because they reduce capital when the capital is judged to be too large for the size of the company

#37. Captial Reduction without Refund

It is implemented to prevent capital erosion(a deficit in which retained earnings in financial statements fall below zero) through capital reduction by not paying any compensation to shareholders when making capital reduction. It is classified as the biggest negative factor in the stock market because it is implemented to prevent delisting.

#38. Index Fund

An index fund is a fund that invests in a specific index, and is designed to change its rate of return in line with the movement of the index.
Index funds are financial products that can be invested in the entire market even in small amounts.
1. SPY (S&P 500)

#39. ETF(Exchange Traded Fund)

An ETF is an index fund listed on an exchange that can be bought and sold in the same way as stocks

#40. Derivatives

It refers to a financial instrument whose price is determined by changes in the value of the underlying asset using traditional financial instruments such as stocks and bonds as underlying assets. Typical derivatives include forward trading, futures, options, swaps, etc.
Due to its high leverage, derivatives are highly speculative

#41. Futures

Futures is pre-setting the transactions to be done in the future.
Buyers and sellers promised to sell at the price promised at this point and at that price at a certain point in the future.

#42. Option

Option is the trade of the right to buy and sell a product at an exercise price (contracted price) within a certain period (expiration date).
The right to buy is called a call option, and the right to sell is called a put option.
The difference with Futures is that although Futures must be traded at the price it was contracted for, option was bought 'right' at option premium, so depending on the situation, you may give up the right to buy or sell.

#43. Swap

Swap is a contract in which the underlying assets are agreed to be exchanged between the parties to the transaction at a predetermined price on a specific date

#44. Inflation, Deflation, Stagflation

Inflation is a sustained increase in prices due to a decrease in the value of money.
Deflation is the opposite of inflation: a sustained decline in prices.
Staglfation is the combination of inflation and recession.

If you want to study more, please visit Inflation, Deflation, Stagflation: How do they affect stock prices?(highly recommended)