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Stocks come in two varieties. "Common stocks" are indeed the most common, hence the name. For most people, the words "stocks" and "common stocks" are nearly synonymous terms. However, there is another type of stock, known as "preferred." While both common and preferred offer ownership shares in a company, there are big differences between the two. In a nutshell, common stocks offer the greatest reward but at the greatest risk.…
What Is A Balance Sheet? The balance sheet is one of the three most important documents—the other two are income statement and the statement of cash flow—that companies produce that enable their investors to examine and assess their financial health. Publicly traded companies are required to produce and publish these documents regularly, usually once per quarter, to shareholders as well as to tax and regulatory authorities. The balance sheet shows…
What Is A Warrant? A warrant is a security that gives the holder the right to purchase a company's stock or bond at a specific price by a certain date. Warrants are similar to options, but warrants are issued directly by a company, usually as an incentive to get investors to buy the company's stock or bonds. Options, by contrast, are a contract between two parties in which the holder…
What Is A Convertible Bond? Convertible bonds are a hybrid security that act mainly as a bond but also give the holder the right to convert the security into common shares of the issuing company at certain times and usually at the investor's option. Unlike traditional corporate bonds, convertibles offer investors a limited opportunity to participate if the stock of the issuing company rises. If the company's stock falters, investors…
What Is Cost Accounting? Cost accounting is a process companies go through to determine how much it costs to manufacture a product or provide a service in order to decide: how much they should make, the price they should charge and how profitable the product or service is. The main goal of cost accounting is to determine the breakeven point, above which sales revenue exceeds costs and the company makes…
What Is An Income Statement? The income statement is one of the main financial statements that companies prepare regularly to measure their financial health. The income statement—also known as a profit and loss statement (P&L)—shows the company's profitability over a given period of time. Most public companies prepare income statements quarterly, and private companies may do it more frequently, such as monthly. Investors use income statements to discern the basic…
What Is A Commodity Stock? A commodity stock is a debt offering from a corporation involved in the consumption, extraction, refinement or delivery of raw materials. Accordingly, both company performance and share price are correlated to the relative value of an underlying commodity(s). Valuing Commodity Stocks Acting as the basis for a broad spectrum of securities, commodities are a premier asset class in the global marketplace. Essentially, any item with…
What Are Commodity Dollars? The term "commodity dollar" is used to define a currency closely correlated with raw materials integral to a nation's export sector. Also referred to as a "commodity currency" or "comdoll," commodity dollars derive a great deal of their value from specific underlying assets. The markets of oil, gold and agricultural products often play key roles in the exchange rate valuations of these currencies. Generally speaking, the…
What Is A Derivative? Derivatives are financial instruments that derive their value from an underlying asset such as a currency, a commodity like oil, gold or wheat, stocks and bonds, or interest rates. The most common types of derivatives are options and futures, credit default swaps, interest rate swaps and collateralized debt obligations (CDOs). Pros of Derivatives Derivatives were originally developed to enable companies and producers to protect themselves against…
What Is Seasonality? In finance, the term seasonality is used to describe periodic trends in supply/demand, business performance and asset pricing. This phenomenon occurs consistently on an annual basis, in concert with regional weather patterns, economic data releases or the celebration of assorted holidays. Seasonality is an important factor to consider when crafting investment decisions. If left unchecked, the enhanced volatility and market turbulence attributable to these trends can increase…
The Futures Industry Association (FIA) is a leading authority on the global derivatives industry. Headquartered in Singapore, Brussels, London and Washington D.C., the FIA is an advisory body to the world's futures and options market participants. Operating as a network of clearinghouses, exchanges and trading firms, the FIA aims to satisfy its self-stated, multifaceted mission: Support market transparency, competition and open accessibility Preserve the integrity of the financial system Promote…
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