Finance & Investment Questions

Gross Profit is the profit a company makes after deducting the costs associated with making and selling its products (Cost of Goods Sold or COGS). It is calculated as Total Revenue minus COGS. It does not include other expenses like taxes or interest.

A Blue Chip stock is a huge company with an excellent reputation. These are typically large, well-established, and financially sound companies that have operated for many years and that have dependable earnings. Examples include Coca-Cola, Disney, and Microsoft.

ROI stands for Return on Investment. It is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of several different investments. It is calculated by dividing the profit of an investment by its cost.

A Bull Market is a financial market of a group of securities in which prices are rising or are expected to rise. The term "bull" is used because a bull attacks by thrusting its horns upward, symbolizing the upward movement of stock prices.

A Portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed-end funds. A diversified portfolio is key to reducing risk.

Variable Costs are corporate expenses that change in direct proportion to how much a company produces or sells. Examples include raw materials, packaging, and shipping costs, which increase as production volume goes up. Unlike fixed costs, these expenses can be scaled down quickly if the business decides to slow its operations.

A Stock Market is a public marketplace where shares of publicly held companies are issued, bought, and sold. It provides companies with access to capital in exchange for giving investors a slice of ownership. The market is often used as a barometer for the overall health of the economy.

A Liability is something a person or company owes, usually a sum of money. On a balance sheet, liabilities are the opposite of assets; they include loans, mortgages, and unpaid bills. If a company's liabilities become much larger than its assets, it may face bankruptcy.

Net profit (often called the "bottom line") is the amount of money a business has left over after all of its operating expenses, interest, taxes, and other costs have been paid.

A T-Bill (Treasury Bill) is a short-term U.S. government debt obligation backed by the Treasury Department with a maturity of one year or less. They are sold in denominations of 1,000.

Human Capital is an intangible asset representing the economic value of a worker's experience and skills. This includes education, training, intelligence, health, and other qualities that employers value, such as loyalty and punctuality. Investing in human capital (through better schooling or healthcare) is considered essential for increasing the productivity and long-term income of a nation.

A Bear Market is a condition in which securities prices fall and widespread pessimism causes the stock market's self-sustaining downward spiral. The term comes from the way a bear swipes its paws downward when attacking.

Fixed costs are business expenses that do not change as with an increase or decrease in the number of goods or services produced. Examples include rent, insurance, and interest on loans.

A Dividend is a distribution of some of a company's earnings to a class of its shareholders, as determined by the company's board of directors. It is a way for investors to earn "passive income" from their stocks without selling them.

Credit is a contractual agreement in which a borrower receives something of value now and agrees to repay the lender at a later date, generally with interest. Credit is based on the "creditworthiness" of the borrower.

Revenue is the total amount of money a company receives from selling its goods or services. It is the "top line" on an income statement.

A bear market is characterized by a prolonged period of falling stock prices (usually a drop of 20% or more from recent highs) and widespread investor pessimism.

Venture Capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. VC investors often provide not just money, but also technical or managerial expertise.

Profit is the financial gain realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity. It is the primary motivation for entrepreneurs to take risks and start businesses. "Gross profit" only looks at the cost of goods, while "net profit" looks at all costs.

A Hedge Fund is an investment fund that pools capital from accredited individuals or institutional investors and invests in a variety of assets, often with complex portfolio-construction and risk-management techniques. They are called "hedge" funds because they often take positions that "hedge" against market downturns.