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What Stock Market Basics Do You Need To Know?

May 26, 2008
To succeed in the business of stocks, learning the stock market basics of the trade is essential. The stock market is a complicated game and knowledge is power when it comes to financial freedom.

The decisions you make can yield unlimited earnings or completely break your budget. While there is some level of gambling involved in the stock market, an educated trader will ultimately achieve success.

Prior to risking your hard-earned cash on the stock market, you need to recognize certain vital factors when deciding which company to invest in.

Consider these stock market basics to learn more about the company you want to buy into:

Check Out A Company's Revenue

What is the actual amount of money the company makes? This total amount is referred to as revenue. While young companies in their early stages of development may not have much revenue to offer, other companies who have been in the market for a long time may use their revenues to cover costs and losses.

A Company's Earnings Make A Difference

How much money does the company make? This amount of money is called a company's earnings. Beside revenues, earnings may be used to cover expenses. Earnings are the extra money taken in by a company. Because investors investigate the earnings made by a company they want to purchase stocks on, the companies with large earnings have a distinct advantage in the stock market.

A Company In Debt Is A Bad Sign

How much money does the company owe? Debt is the money owed by a company, which can be represented in many different ways. When a company is in debt, the money they have will be used to pay up the debit. It is risky to purchase stock from companies in debt because the company is unstable which could result in them declaring bankruptcy.

A Company Should Own Property

What does the company own? The assets owned by a company, including business, money and stocks, are referred to as property. When you are aware of a company's assets, you can better ascertain their position in the industry. When companies have significant properties under their ownership, it is safer to trust their background. Often people will immediately buy stocks from companies holding a major amount of assets because they are more secure.

A Company Should Show Financial Responsibility

How much does the company have to pay out and what are their total financial obligations? Each company has different financial obligations. When a company has few financial obligations, they are in less danger of getting into debt. Examine the liabilities versus the assets of a company to determine their financial responsibility. A company should have higher assets than financial obligations.

Gambling your money on a company you know nothing about is an unsafe and unwise decision. By simply reviewing the company's background, you have all the stock market basics right at your fingertips.

To make sure your money is in the right hands, do your research about the companies you want to invest in.
About the Author
For more information on stock market basics -- including a growing collection of tips, strategy and advice -- visit: http://stockinvesting101.net
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