TERM OF THE DAY

What Is Gross Domestic Product (GDP)?

is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.

Though GDP is typically calculated on an annual basis, it is sometimes calculated on a quarterly basis as well. In the U.S., for example, the government releases an annualized GDP estimate for each fiscal quarter and also for the calendar year. The individual data sets included in this report are given in real terms, so the data is adjusted for price changes and is, therefore, net of inflation..


What Is a Stock Split?

A stock split occurs when a company divides each one of its existing shares of stock into multiple shares. A company implements a stock split to increase the stock's liquidity.

While following a stock split the number of shares outstanding – the number of shares on the open marker – increases by a specific multiple, the dollar value of the total number of shares is the same as that of the number of shares outstanding prior to the split. Consequently, from the company's perspective, a stock split, like a stock dividend, is a non-monetary transaction.

Two common split ratios are 2-for-1 and 3-for-1, or 2:1 or 3:1 stock split. In the case of a 2:1 split, for each share that a stockholder owns prior to a stock split, she will own two shares following the split. In a similar fashion, should a 3:1 stock split occur, a stockholder will receive an additional two shares for each share he owned prior to the split.


Purpose of a Stock Split

A corporation implements a stock split to divide each existing share into multiple shares. By multiplying the number of outstanding shares, the company takes administrative action to decrease by a significant percent the per-share price of the stock outstanding.

As the result of a stock split, the stock becomes more actively traded in that its share price is sufficiently low as to not preclude its purchase by a larger number of investors. As a result, the split increases the liquidity of its shares.

Long-Term Effect of a Stock Split

The fact that some people prefer to purchase bargains is one reason that a stock that undergoes a split may experience a rise in price immediately after the split. Perhaps it's less gut-smacking to purchase 50 shares of stock with a $100 price per share than buying 10 shares of stock at $500 per share.

When a company is profitable, one that generates a healthy revenue stream and one whose management has the approval of "the market," it's likely that the stock will gain additional value over the long term. Following a split, an investor has a greater opportunity to capture more "share upside" than before the split, when the per-share price is high.

Following a stock split, the price per share adjusts according to supply and demand.

Per-Share Basis After Stock Split

A shareholder does not recognize a gain or loss due to a stock split, so it's not a tax-relevant event. Instead, the gain or loss is recognized at the time you sell the stock. To calculate that event correctly, you must calculate the per-share basis following the stock split.

To begin, divide the price you paid for the relevant shares by the number of shares that you purchased. For instance, assume that you paid $8,000 to acquire 10 shares. In this case, the per-share basis equals $8,000 divided by 10, or $800.

Next, divide the per-share basis by the number of shares that you received following the stock split for each share that you had owned prior to the split. For instance, after a 3:1 stock split, the new per-share basis equals $800 divided by 3, or a per-share basis of $266.67.

You repeat these two steps for any subsequent stock split.

Market Capitalization After Stock Split

A company's market capitalization, or market cap, is the total market value of its outstanding shares of stock. You calculate the figure by multiplying the total number of shares outstanding by the stock's per-share price. For instance, for a corporation that has 10 million shares outstanding and the current per-share price is $50, the company's market capitalization is $500 million.

Restricted Stock Unit (RSU)

The term restricted stock unit (RSU) refers to a form of compensation issued by an employer to an employee in the form of company shares. Restricted stock units are issued to employees through a vesting plan and distribution schedule after they achieve required performance milestones or upon remaining with their employer for a particular length of time. RSUs give employees interest in company stock but no tangible value until vesting is complete. The RSUs are assigned a fair market value (FMV) when they vest. They are considered income once vested, and a portion of the shares is withheld to pay income taxes. The employee receives the remaining shares and can sell them at their discretion.


Sovereign Bond

A sovereign bond is a debt security issued by a national government to raise money for financing government programs, paying down old debt, paying interest on current debt, and any other government spending needs. Sovereign bonds can be denominated in a foreign currency or the government’s domestic currency. Sovereign bonds are a way governments raise money in addition to tax revenue.


Blue Chip Stock

A blue chip stock is a stock of 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, often paying dividends to investors. A blue chip stock typically has a market capitalization in the billions, is generally the market leader or among the top three companies in its sector, and is more often than not a household name. For all of these reasons, blue chip stocks are among the most popular to buy among investors. Some examples of blue chip stocks are IBM (IBM), Coca-Cola Co. (KO), and Boeing Co. (BA).


Debit Balance

The debit balance in a margin account is the total amount of money owed by the customer to a broker or other lender for funds borrowed to purchase securities. The debit balance is the amount of cash the customer must have in the account following the execution of a security purchase order so that the transaction can be settled properly.

The debit balance in a margin account is the total owed by a customer to a broker for funds borrowed to purchase securities.
  • There are two types of trading accounts: a cash account and a margin account.
  • A cash account only uses the cash available to purchase securities, while a margin account uses borrowed money from the broker to purchase securities.
  • The amount borrowed in the margin account is the debit balance.
  • Borrowing on margin is also known as being leveraged.
  • An adjusted debit balance is the debit balance minus the profits from short sales in the account.


Web 3.0

TWeb 3.0 is the third generation of internet services for websites and applications that will focus on using a machine-based understanding of data to provide a data-driven and Semantic Web. The ultimate goal of Web 3.0 is to create more intelligent, connected and open websites.


Dividend Aristocrat

Dividend aristocrat is a company in the S&P 500 index that not only consistently pays a dividend to shareholders, but annually increases the size of its payout.

  •  A company will be considered a dividend aristocrat if it raises its dividends consistently for at least the past 25 years. Some aficionados of dividend aristocrats rank them according to additional factors such as company size and liquidity, for instance having a market capitalization in excess of $3 billion.


Schedule 13G definition

 13G form is used to report a party's ownership of stock which exceeds 5% of a company's total stock issue required by SEC - Securities and Exchange Commission.


Schedule 13D definition

is a required SEC filing for entities acquiring more than 5% of the stock of a public company. It is seen as a signal of an imminent corporate takeover. Significant information in the 13D includes the source of the funds used for the purchase.


Schedule 13F definition

Form 13F is the reporting form filed by institutional investment managers pursuant to Section 13(f) of the Securities Exchange Act of 1934.Institutional investment managers that use the United States mail (or other means or instrumentality of interstate commerce) in the course of their business and that exercise investment discretion over $100 million or more. 


What is the SWIFT payments system?

Digital Currency