Earning Potential
The possible upside of the earnings that could be generated for each share outstanding of a particular stock. Earning potential reflects the largest possible profit that a corporation can make. It is often passed on to investors in the form of dividends. Greater earning potential drives up the price of a stock.
Dividend
A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.
Closing Bell
A bell that rings to signify the end of a trading session. The closing bell occurs at 4:00 pm EST. Between 1870 and 1903, a gong was used. A bell was then introduced and is still in use today. Not all exchanges use this traditional system – the New York Stock Exchange is one that does.
NYSE began having special guests ring the closing bell on a regular basis in 1995. This daily tradition is highly publicized and often done by a company. Prior to 1995, ringing the bell was usually the responsibility of the exchange’s floor managers. There are bells located in each of the four main sections of the NYSE that all ring at the same time once a button is pressed. The ringers press the button for approximately 10 seconds, and a gavel sitting at the front is also used on some occasions.
Opening Bell
A bell that is rung to signify the start of the day’s trading session. The opening bell is both a symbol of the opening of the market for the day and a physical event involving an individual striking a metal bell. Since 1985, the New York Stock Exchange (NYSE) has used the opening bell to start its trading session at 9:30 a.m.
With the decline in activity on the trading floor due to the increased use of electronic platforms, the opening bell has become more of a symbolic event, rather than a practical one. Today, dignitaries visiting stock markets take part in small ceremonies in which they ring the opening bell. Not all exchanges use this traditional system, with the NYSE remaining one of the more recognizable exchanges that still uses a bell.
Trading Floor
The floor where trading activities are conducted. Trading floors are found in the buildings of various exchanges, such as the New York Stock Exchange and the Chicago Board of tease. These floors represent the area where traders complete the buying or selling of an asset.
The trading floor is also referred to as “the pit” of an exchange, due to the hectic nature of the area. However, with the advent of electronic trading platforms, many of the trading floors that once dominated market exchanges have started to disappear as trading has become more electronically based.
Trading floors can also be found in brokerages, investment banks and other companies involved in trading activities. In this case, it refers to the physical office location that houses the trading division, which can complete transactions over the internet or telephone.
Investment Bank
A financial intermediary that performs a variety of services. Investment banks specialize in large and complex financial transactions such as underwriting, acting as an intermediary between a securities issuer and the investing public, facilitating mergers and other corporate reorganizations, and acting as a broker and/or financial adviser for institutional clients. Major investment banks include Barclays, BofA Merrill Lynch, Warburgs, Goldman Sachs, Deutsche Bank, JP Morgan, Morgan Stanley, Salomon Brothers, UBS, Credit Suisse, Citibank and Lazard. Some investment banks specialize in particular industry sectors. Many investment banks also have retail operations that serve small, individual customers.
Price-Earnings Ratio (P/E Ratio)
The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative to its per-share earnings.
Earnings Per Share (EPS)
The portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company’s profitability.
Calculated as:
When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period.