Finance Terminology

In order to explain the various financial terminologies we are going to create a fictional company. Our fictional company will be called Bait Co and its main source of income is fishing bait vending machines. Last year our company went public and is now trading under the symbol BCO with 1,000 shares outstanding.

Price Per Share - How much money you will pay to purchase one share of a company. Let’s say our fictional company is trading at $100 per share.

Book Value – A companies assets minus its liabilities. If our fictional company owned 100 vending machines, valued at $1000 each, its assets would be $100,000. BCO also has $15,000 of debt so its book value would be $100,000 - $15,000 = $85,000.

Volume – How many of a companies shares are traded daily.

Dividend – The amount of money a stock is paying out to per share. Our fictional company pays out $4 per share every year. As a result you will receive a check for $1 every 3 months for every share you own.

Earnings Per Share – How much earnings a company is producing per outstanding share. If our fictional company earned $10,000 last year then its earnings per share would be $10.

Market capitalization – A measurement of economic size of a company. This number is created by taking the number of shares outstanding * the share price. In our fictional company the market capitalization would be $100,000 if our shares where trading at $100 each.

Price to Earnings Ratio (P/E Ratio) – A measurement of how expensive a companies stock currently is. This number is created by taking the price per share and dividing it by the earnings per share. Our fictional company would currently have a P/E of 10.

Price to Book Ratio (P/B Ratio) - A financial ratio used to determine how expensive a stock currently is. The higher the number the more you are paying for a hard asset. In our fictional company the book value is $85 ($85,000 / 1000 shares) and the price is per share is $100. Our fictional companies P/B ratio would be 1.18.

Dividend Yield – A ratio the helps investors see how much money a company is paying out relative to its current share price. Our fictional company, BCO, is paying $4 per share and is trading at $100. It would have a dividend yield of 4.0%.