Investing Terms

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  • Return On Equity (ROE)

    What Is Return On Equity? The return on equity (ROE) is a measure of corporate profitability. It measures how much profit a company generates from shareholders equity, which is the company's total assets minus its total liabilities. ROE is expressed as a percentage, and it can be measured by a fairly simple equation: ROE = net income divided by shareholders equity. For example, if a company had US$1 million of…

  • Passive Investing

    What Is Passive Investing? Passive investing is an investment strategy that seeks to track the performance of a market index, such as the stock market indices S&P 500 or the Dow Jones Industrial Average. Passive investing differs from active management, in which professional portfolio managers seek to outperform a specific benchmark by buying and selling specific securities and other strategies. Two of the more popular avenues of this style of…

  • Blue Chip Stocks

    What Are Blue Chip Stocks? In the stock market, blue chip stocks are shares in large multinational companies with well-known names and long track records of growth and dividend payments. They got their name from poker, where blue chips are often the most valuable chips on the table. Oliver Gingold, an employee of Dow Jones—the publisher of the Wall Street Journal and the creator of the Dow Jones Industrial Average…

  • Return On Assets (ROA)

    What Is Return On Assets (ROA)? Return on assets (ROA) is an important measurement of a company's profitability. Usually stated as a percentage, ROA measures net income divided by the company's total assets. Derived from the company's balance sheet, assets include cash and cash-equivalent items, receivables, inventories, land, and buildings and equipment. They also include intangible assets such as intellectual property, copyrights and patents, the estimated value of brand and…

  • Real Estate Investment Trusts (REITs)

    What Are Real Estate Investment Trusts (REITs)? Real estate investment trusts, or REITs (pronounced "reetz"), are funds that own, develop and manage income-producing properties in a range of real estate sectors, including shopping malls, offices and commercial buildings, residential apartments and health care facilities. Some of these trusts also invest in mortgages and other property loans. Basically, REITs collect rent from the tenants of these properties and distribute the income…

  • Cash Flow Statement

    What Is A Cash Flow Statement? A cash flow statement, also known as a statement of cash flow, is one of the main financial statements, along with the income statement and the balance sheet, that companies are required by securities regulators to prepare to demonstrate their financial condition. The cash flow statement is important because it shows investors and creditors how well a company manages its cash and that it…

  • Value Investing

    What Is Value Investing? Value investing is an investment strategy in which the investor seeks to profit by buying stocks they believe are underpriced or undervalued by the market at large. The investor looks to buy stocks when they believe they are "on sale," just as they would buy a box of cereal at the supermarket when it's on sale rather than paying full price. The idea of value investing…

  • Secured Overnight Financing Rate (SOFR)

    What Is Secured Overnight Financing Rate (SOFR)? The Secured Overnight Financing Rate (SOFR) is an interest rate benchmark chosen by the Alternative Reference Rates Committee (ARRC) in 2017 as an alternative and eventual replacement for the London Interbank Offered Rate, more commonly known as Libor, which is slated to be phased out by 2021. ARRC is a committee set up by the U.S. Federal Reserve Board and the Federal Reserve…

  • Systemically Important Financial Institutions (SIFIs)

    What Are Systemically Important Financial Institutions (SIFIs)? Systemically Important Financial Institutions, or SIFIs, are a group of 29 large international banks that are required to hold extra equity capital against losses because of their size, complexity and importance to the international financial system. These institutions are generally regarded as "too big to fail," meaning they would require being bailed out by taxpayers if they were threatened with failure during a…

  • Short Covering

    What Is Short Covering? Short covering is the act of closing out a short position in a security. Investors who believe that a stock, bond or commodity is overvalued and is likely to decline in price can try to profit on that belief by selling short that particular asset. In a short sale, the investor borrows the security from their broker and immediately sells it. At some point the investor…

  • Short Interest

    What Is Short Interest? Short interest is the number of shares of a stock that have been sold short by investors but have not yet been paid back. Investors who believe a stock is overpriced and headed for a fall can short a stock by borrowing shares from their broker and then selling them, the proceeds of which go into their account. At some point they have to buy the…

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