- How to Calculate Total Addressable Market (TAM)
The total addressable market (TAM) represents the total revenue opportunity that’s available for a product or service, assuming it achieves 100% market share. Calculating the TAM allows investors to assess the maximum potential revenue a company could generate in a best case scenario. It can be used to evaluate the growth potential of a company’s… read more…
- Treynor Ratio vs. Sharpe Ratio: A Complete Guide
The Treynor ratio and the Sharpe ratio are financial metrics that use different approaches to evaluate the risk-adjusted returns of an investment portfolio. The Treynor ratio employs beta and measures returns relative to the amount of systematic risk the portfolio carries. The Sharpe ratio looks at standard deviation and accounts for unsystematic risk. Both these… read more…
- What Are Non-Operating Assets?
While most investors focus on operating assets—which are those directly involved in a company’s core business activities—it’s equally important to consider non-operating assets. These are assets that are not essential to the primary operations of a business but impact its bottom line. Examples include excess cash, marketable securities or real estate holdings that are not… read more…
- What Does Mid-Cap Mean in the Stock Market?
In the stock market, the term “mid-cap” is defined by companies with a medium-sized market cap, typically between $2 billion and $10 billion. Mid-cap stocks are often companies that have moved past the volatility of their initial growth stages, but still have room for expansion, making them attractive to those looking to invest in companies… read more…
- Investing in an IRA vs. CD vs. Money Market Account
When comparing options like individual retirement accounts (IRAs), certificates of deposit (CDs) and money market accounts, it’s important to understand how each can fit into your financial strategy. While you can’t directly invest in an IRA itself, you can hold investments like CDs or money market accounts within one. Here’s a breakdown of what each… read more…
- What Are Non-Marginable Securities?
Non-marginable securities are financial instruments that cannot be purchased on margin, meaning investors must pay the full purchase price without borrowing funds from their brokerage. This restriction is typically due to the inherent risk or volatility associated with these securities, which most commonly include certain stocks, mutual funds and options. The inability to leverage these… read more…
- Authorized Stock: What It Is and Why It’s Important
Authorized stock represents the highest number of shares a corporation is legally allowed to issue, as outlined in its corporate charter. This number sets the ceiling for how many shares can be distributed to shareholders through public offerings, private sales or employee stock options. While not all authorized shares are issued immediately, having a higher… read more…
- Return on Average Assets (ROAA): Definition and How to Calculate
One key metric that offers valuable insights into a company’s financial health is the return on average assets (ROAA). This financial ratio measures how effectively a company uses its assets to generate profits. By calculating ROAA, investors can assess how well a company is using its resources to produce earnings, which is particularly useful when… read more…
- What Is a Pullback in Stock Trading?
A pullback in stock trading refers to a temporary decline in the price of a stock or the overall market after a period of upward momentum. This phenomenon is a natural part of market cycles and can present both challenges and opportunities for investors. While a pullback might initially seem like a cause for concern,… read more…
- How to Invest in ETFs
Exchange-traded funds, or ETFs, offer a way to diversify your portfolio with minimal effort. ETFs are collections of assets that trade on stock exchanges, similar to individual stocks. They offer investors a way to gain exposure to a wide range of markets and sectors without having to buy each individual security. To start investing in… read more…
- Required Rate of Return (RRR): Definition and How to Calculate
Required rate of return (RRR) gives investors a benchmark to determine the minimum acceptable return on an investment considering the risk involved. By calculating RRR, investors can assess whether an investment aligns with their financial goals and risk tolerance. The calculation uses the risk-free rate and the risk premium. This concept is not only in… read more…
- 5 Short-Term Cash Investments to Consider
Short-term cash investments are useful when saving for an upcoming expense and aiming to maximize returns without tying up your money for too long. These investments offer different levels of liquidity and risk, from high-yield savings accounts to money market funds and short-term bonds, each with its own benefits. A financial advisor can help you… read more…
- Pros and Cons of Micro Investing
Micro investing allows investors to start with minimal capital, often using spare change from everyday purchases to build a diversified portfolio over time. Micro investing is both accessible and simple, making it an attractive option for beginners and those with limited funds. However, like any investment strategy, it comes with its own set of advantages… read more…
- What Is a Market Maker and What Do They Do?
A market maker is a firm or individual that helps facilitate the buying and selling of securities by providing liquidity. They do this by being ready to buy and sell at publicly quoted prices, which helps trades occur smoothly. Market makers profit from the spread, the difference between the buy (bid) and sell (ask) prices.… read more…
- How a Liquidity Ratio Works and How It’s Used
One of the key indicators investors use to assess a company’s financial health is the liquidity ratio. This financial metric provides insight into a company’s ability to meet its short-term obligations by comparing a company’s liquid assets to its current liabilities. This is particularly important in times of economic uncertainty, where cash flow can become… read more…
- How to Invest in Micro-Cap Stocks
Investing in micro-cap stocks involves buying shares in companies with relatively small market capitalizations that may not be widely known or covered by major financial analysts. As a result, these investments can offer opportunities for growth potential, albeit with higher volatility and risk as smaller companies are more susceptible to market fluctuations and economic changes.… read more…
- What Is a Liquidity Event?
A liquidity event is a transaction that lets a company’s investors, founders, or employees turn their ownership stakes into cash or liquid assets. This event often happens through acquisitions or public offerings, which can shift a company from private to public ownership. Mergers, where two companies join together into a single entity by combining assets,… read more…
- Random Walk Theory: What It Is and How to Use It
Random walk theory proposes that stock prices move unpredictably, making it impossible to predict future movements based solely on past trends. This financial theory, first popularized by economist Burton Malkiel, argues that price changes are random and follow no discernible pattern. As a result, it challenges the idea that investors can consistently outperform the market… read more…
- Pros and Cons of Adding Alternative Investments to Your Portfolio
Alternative investments like real estate, commodities, and hedge funds often perform differently from stocks and bonds, offering useful diversification benefits. They also have the potential for higher returns. However, they come with downsides, such as reduced liquidity and limited information. Working with a financial advisor can help you analyze different alternative investments and manage risks.… read more…
- How Private Equity vs. Stock Market Returns Compare
Private equity investments can offer returns that significantly exceed those from investments in publicly traded stocks. However, earning these higher returns depends on a number of circumstances, including the specific private equity fund chosen for investment as well as economic and market conditions. In addition to promising different returns, these two asset types also have… read more…
- How to Set Up and IPO a Special Purpose Acquisition Company
Setting up and launching an initial public offering (IPO) for a special purpose acquisition Company (SPAC) generally is much less involved than conducting a typical IPO. However, it still requires planning and execution. Organizers must first create the shell company and market it to investors. Then, when ready, they conduct an IPO, selling shares to… read more…
- How to Value a Real Estate Investment Trust (REIT)
Valuing a real estate investment trust (REIT) requires a clear understanding of advanced financial metrics. Unlike other investment types that use metrics like earnings per share (EPS) and price-to-earnings (P/E) ratios, REIT valuation techniques often include using tools like net asset value (NAV), funds from operations (FFO) and adjusted funds from operations (AFFO). These metrics… read more…
- 5 Tax Benefits of Investing in ETFs Over Mutual Funds
When choosing between exchange-traded funds (ETFs) and mutual funds, it’s important to consider their tax benefits. While both offer diversification, ETFs generally provide better tax efficiency. A financial advisor can help explain how each is taxed, so you can pick the option that minimizes the tax impact on your returns. Understanding ETFs and Mutual Funds… read more…
- How to Make Passive Income: Ideas and Examples
Passive income is money earned with little ongoing effort or involvement after an upfront investment of time, funds, or resources. Unlike traditional income, which is earned through direct labor or services, passive income streams allow for ongoing earnings with little ongoing work. There are various ways to make passive income, from investing in real estate… read more…
- What Is the Cumulative Abnormal Return of an Investment?
The cumulative abnormal return (CAR) is a key metric used by investors and financial analysts to evaluate the actual performance of a stock or portfolio relative to what is expected. CAR measures the total abnormal returns of an investment over a specific period of time, often following an event like a merger, earnings report or… read more…