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The Ins and Outs of Investing

Aug 17, 2007
Want to know the difference of your company's annual report and financial statements means? Well you have come to the right place. I have made a plan on how to teach even a caveman to get rich. How to take the financial statements of a company and carefully analyze them to determine what the stock is truly "worth" will be a simple task after this. I will show you how to make better investing decisions by helping you avoid the costly mistake of purchasing a company when its share price is too high.

You are going to look at why stocks exist and explain how a business goes from being a family-owned company to a "Wal-Mart".

First, you will have to learn what these symbols and words mean. EPS, which stands for earnings per share. In lamens terms this means amount of profit each share has earned, or entitled. GP, this stands for going public. This literally means that a company is going to open up some shares to the public.

Then there is Market Cap, which means the amount of money you would have to pay if you bought every share of stock in a company. To find this out just multiply the amount of shares to share price. Now lets not forget about the most important word, SHARES. A share represents an investor's ownership in a "share" of the profits, losses, and assets of a company. It is created when a business chops itself into pieces and sells them to investors (like you) in exchange for capita. Also with each Publicly shared company there comes a Ticker Symbol.

This is basically a small group of letters that represent the company. For ex. Google.com is GOOG.
While the stock market can be a great source of income for many people, it can also be a tangling mess for others. The average person falls into one of two categories. The first group thinks investing is like gambling. These people are stuck on thinking that you will loose your money if you invest.

More often than not, this group is influenced by experiences from friends and family. The second group is made up of those who know they should invest for the long run, but do not know where to start. Most of the time, these people leave their money to the so-called "Professionals."

Now that you know a little more on how the stock market works, you are going to take a closer peek at the individual stuff that make the market go wild. Understanding this will help you to take lead of the behavior that sometimes affects your portfolio.

Here are a few more terms you need to digest before you can understand a little better. Bear Market the stock market in general has falling prices. Broker: A person who buys or sells shares for you for a nominal fee. Bull Market: Market is rising. Laws of supply and demand adversely affect the stock market.

Now that you know all this let me teach you how to read a balance sheet. You must remember that for every business, there are three important financial statements you must look at. The Balance Sheet, the Income Statement, and the Cash Flow Statement. The balance sheet tells you how much money the company has, how much debt it owes, and what your share is. The cash flow statement is like a business' checking account. It shows you where their money is going. The income statement is a shows the company's profitability. It tells you how much money a corporation has made, or even lost.

These are terms your have to know for a balance sheet. The Annual Report: this is a document released by companies at the end of their fiscal year. Tells you what the CEO and other senior management have discussed about the past year as well as the upcoming year regarding the company. This should include financial documents.

The 10K: This is a document filed with the SEC, which contains a detailed explanation of the business and what it does. (Filed annually) The 10q: The 10q is similar to the 10k, but is filed quarterly. All of this information will help you determine whether or not the company is worth your money.

Ok, I think you are ready to make your own balance sheet now. Pretend that you are going to apply for a home equity loan to remodel your kitchen. The first think your going to do is ask the bank to borrow money. And the first thing the banker asks for is a list of your current finances. This involves a little work. Write down everything you have that is worth something for ex. your checking and savings accounts, mutual funds, house, cars, and other various objects of worth. Then, your going to write down all of your debts.

Things like the mortgage, car payments, and your student loan. Take the debt you owe and subtract that to the things you have of value and now, and you have your net worth. You have created your balance sheet.
About the Author
Keith Londrie II is a Webmaster and the owner and publisher of moneytobemadeonline.com A website that specializes in providing tips on how to REALLY make money online that you can research from the comfort of your home.
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