How is the Consumer Price Index (CPI) Calculated?
The Consumer Price Index (CPI) is calculated using prices of sample goods from predetermined urban areas. According to the Bureau of Labor Statistics (BLS), the CPI is a product of a series of interrelated samples. First, using data from the 1990 Census of Population, BLS selected the urban areas from which data on prices were collected and chose the housing units within each area that were eligible for use in the shelter component of the CPI. The Census of Population also provided data on the number of consumers represented by each area selected as a CPI price collection area. Continue reading...
What does Arbitrage Mean?
Arbitrage is the practice of buying a security/product in one market and selling it in another, in an effort to capitalize on price difference. Arbitrage can take many forms in trading: buying a security in one market and selling it in another for a better price (market arbitrage); borrowing money in one currency at a lower interest rate in order to pay off debt in another currency with a higher interest rate (currency arbitrage); buying and selling the same security on different exchanges or between spot prices of a security and its future contract; and so on. Continue reading...
What is Form 1099-R?
IRS Link to Form — Found Here Sources of retirement plan income, such as pensions, annuities, and IRAs, will be associated with a 1099-R filing. The form is filed by the company making the distribution. The taxpayer uses the information on it for when filing income taxes. The IRS receives Form 1099-R from the companies making distributions from retirement plans. They have categorized all annuity contracts as retirement plans by default, so those are included, as are pensions, profit sharing plans, other forms of employer-sponsored retirement plans, cash-value life insurance distributions, and individual retirement accounts (IRAs). The company making the distribution sends the 1099-R to the IRS and the account owner. Continue reading...
What are Fully Diluted Shares?
Fully Diluted Shares are a calculation used to show how much the existing shares of common stock could potentially be diluted if all the convertible securities and employee stock options, were exercised. Fully Diluted Shares is a calculation used to show the potential number of shares that could hypothetically be called into existence instantaneously by the holders of convertible securities, warrants, employee stock options and so forth. Continue reading...
What is Net Income?
Net income is the amount of earnings left over once expenses have been deducted from sales. In short, it is the net amount of profit or loss. It is calculated by taking total earnings in a period (such as a quarter), and deducting all elements of the cost of doing business (labor, depreciation, fixed expenses, overhead, etc…) Net income is ultimately a measure of a company’s profitability, and its calculation should be scrutinized closely to ensure all expenses are being accounted for accurately. Continue reading...
What are Bank Fees?
Bank fees are penalties or maintenance requirements that may apply to checking, savings, or money market accounts. Banks may charge fees for specific types of transactions, if a check bounces, or just a monthly checking account fee. There are many other types of fees and reasons for them. They may be penalties, such as an overdraft fee, or they may be customary for the kind of transaction or account being used. Continue reading...
What is the foreign corrupt practices act?
The Foreign Corrupt Practices Act attempts to reduce the possibility that a corporation with American affiliations will engage in the bribery of foreign officials. The act was created in 1977 and has since been amended and expanded several times. The SEC and the Department of Justice are both responsible for enforcing the FCPA, which is a law designed to prevent US-based companies from engaging in corrupt practices abroad. Continue reading...
What is a commodities futures contract?
Commodities Futures are one of the most highly traded securities in the world, and it is partially because nothing has to be delivered by the participants as in a spot-trading market. Futures can be purchased on margin, opening up large positions, long or short, and if a trader finds a place to exit before the settlement date of the contract, the trader will buy/sell to close his or her position, and the exchange will regard the trader’s position as flat, and nonexistent for all intents and purposes. Continue reading...
What is Total Enterprise Value?
Enterprise value is an amount that would have to be paid for a company to acquire all of its equity and debt. It is notable that cash and cash equivalents are left out of this equation since that amount is netted out of a cash purchase. The basic formula for enterprise value is market capitalization + debt obligations and any minority interests or preferred shares. This regularly appears in the numerator position in the EV/EBITDA ratio. Often investors can just look at the market capitalization of a company to get an estimation of the size of the company. Continue reading...
What is an OTC Stock?
Over-the-Counter securities transactions are done outside of formal exchanges, and the term could refer to private investments and contracts or transactions in unlisted securities, such as penny stocks. The major exchanges have requirements for being listed, pertaining mainly to the size of the company offering equity shares and the nature of the securities. Resources such as the Over the Counter Bulletin Board and "pink sheets" help to facilitate trades that cannot be performed on the largest exchanges, but there are several caveats to bear in mind. Continue reading...