Definitions

General
Earnings Per Share indicates the amount of net income which is attributable to each share outstanding. In other words, EPS = Net Income/# Shares Outstanding. Companies can raise their EPS over the years by either realizing more profits or decreasing the number of shares outstanding by buying back their own shares.

*Note that the EPS does not represent how much money each share is ACTUALLY earning. In other words, an EPS of $0.10 does not imply each shareholder is rewarded with $0.10/share.
The volume is the number of shares that exchanged hands in a day. A low average volume (less than 100k shares traded in one day) does not imply the stock is bad, it just means the price won’t fluctuate as much as a stock with a higher volume. It also means that you might not be able to buy/sell all of your shares at once. Stocks often have higher volumes on the day they report earnings.
The market cap (mkt cap) represents the value of all the shares outstanding. In other words, Mkt Cap = # Shares Outstanding * Price/Share. When buying a stock, it may be helpful to consider the market cap of the stock. For example, if stock AAA has a mkt cap of $50 million while stock BBB’s mkt cap is $50 billion, then it would take only $50 million to double the value of AAA’s market cap, which is a lot less than the $50 billion it would take BBB. In addition, small cap stocks are more likely to get bought out (https://www.investopedia.com/ask/answers/033015/does-investing-small-cap-stocks-have-advantages-over-investing-big-cap-stocks.asp). Of course, it’s not all sunshine and rainbows… Small cap stocks (stocks with a market capitalization under $2 billion) are usually less stable than large market caps, and are more likely to go bankrupt. In all, small caps are great if you’re looking for the next Apple [AAPL] or a quick jump higher, but if you’re looking for slow and steady growth, large cap stocks are often the way to go.
*Note this is a generalization and thus is not true for all cases.
A dividend is a payment a company pays out to shareholders. They are often cash payments, but you can elect to have those dividends reinvested in the company (for more information, see “DRIP”). Dividends are usually paid out quarterly, but there exist annual, semi-annual, monthly and even special dividends (these rare dividends are paid out by the company when they have a lot of cash on hand). There are six dividend dates to keep in mind:
  1. Declaration Date
    This is the date the company announces they will be paying a dividend. As dividends usually occur at regular intervals, this isn’t a very important date for shareholders.
  2. "Own" Date
    You must own the stock by the end of this fictional business date in order to be eligible for the dividend.
  3. Ex-dividend Date
    This is the date where the stock goes “ex-dividend”, which means new buyers are not eligible to receive the dividend. On this day, the price of the stock will drop by the dividend amount being paid out.
  4. Record Date
    Since transactions take about 2-3 days (they used to be three days, but now most of them take two days) to be settled, this is the date the company will look at their records to determine who will receive dividend payments.
  5. Payment Date
    This is the date shareholders receive their cash payments.
  6. DRIP (Dividend ReInvestment Plan) Date
    If you are enrolled in a dividend reinvestment plan, it usually takes another two weeks before the dividend reinvestment appears in your activity.
The yield calculates the percentage of the share price that is paid out in dividends every year. In other words, Yield(%) = Dividend/Share Price * 100.
The yield is often more important that the dividend amount because yield is a more comparable figure.
Also referred to as the “P/E Multiple,” this ratio is useful for determining if a stock is expensive. Remember that a stock trading at $500/share isn’t necessarily “expensive”, it could report EPS of $100, which would make it relatively cheap. Most stocks have a P/E around 18-20, thus a stock with a P/E above 20 is usually considered expensive, and a stock with a P/E below 18 is considered cheap. However, just because a stock has a P/E above 20, it could be justified by explosive growth. For example, a stock trading at 30 times earnings that plans on doubling its EPS in one year would thus be trading at 15 times earnings a year from now, which is considered cheap, thus investors will pay more for it as they believe it is a discount in the long run. Similarly, a stock could have a P/E of 10 and not be considered cheap because the company will have declining sales for the next couple of years. The exact calculation of the P/E Ratio is as follows: P/E Ratio = Share Price/Earnings Per Share.
The bid is the price at which you can currently sell a share, and the ask is the price at which you can currently buy a share. The lots beside each number indicate how many shares, in bundles of 10 or 100, are waiting to be sold/bought.
Most stocks are eligible for the Dividend ReInvestment Plan, which means that the dividends you receive will be reinvested in the stock with no commission. However, there are some key points to keep in mind:
  • Some companies offer discounted share prices for DRIP purchases. The discounts usually range from 2-5%. This is referred to as a “Treasury DRIP”, and it can take about two weeks longer to be processed than a regular DRIP. A regular DRIP (non-treasury) will purchase the stock for you on the dividend payment date (for more information on the dividend dates, see “Dividend”).
  • You cannot buy partial shares, which means you must have enough dividends every payment to buy at least one share.
  • Any portion of the dividend that is not reinvested will be deposited into your account.
  • You cannot accumulate dividends to reinvest. In other words, any portion of the dividend that is not reinvested is removed from the DRIP program.
  • To sign up for DRIP, you will have to call your online broker. It should be free to sign up, and you can cancel at no charge.
  • If you decide to cancel your DRIP or sell shares enrolled in DRIP, make sure you sell them after you receive your DRIP shares AND before the next ex-dividend date. If not, you will have a small portion of your investment remaining, and it will cost you another commission fee to sell that small portion.
The beta (usually a number from 0.3 to 2) indicates how volatile a stock is in comparison to the market average. For example, if the beta is 1.3, then the stock is 30% more volatile than the market. If the market had a return of 10%, then a stock with a beta of 1.3 had a return of 13%. Do not be mistaken though, a higher beta does not imply higher returns. If the market drops 10%, then a stock with a beta of 1.3 will have gone down 13%. For you finance students, the beta is used to calculate the market risk premium.
Registered Accounts
This registered account saw its debut in 2009 thanks to Jim Flaherty. The government wanted to encourage citizens to invest their money, so they created an account where all of your gains are free of tax. However, there are some rules to keep in mind:
  • You have to be at least 18 years of age in order to open an account.
  • There is a maximum amount of money that can be transferred in. The government can change this amount year over year, but it usually ranges from 5-10k. Fortunately, this contribution limit never expires, which means any unused portion of your limit will carry forward to the following year. See the table below for yearly contribution limits:

    Year TFSA Annual Limit
    2009, 2010, 2011, 2012 $5,000
    2013, 2014 $5,500
    2015 $10,000
    2016, 2017, 2018 $5,500

*To calculate your contribution limit, add up any unused annual limits and any withdrawals from your TFSA, then subtract any deposits you’ve made into the account. In other words,

Contribution Room = Annual Limits + Withdrawals – Deposits

For help calculating your contribution room, check out our TFSA Contribution Calculator.

  • Any gains realized in the account are tax-free, as well as any transfers out of the account.
  • Transfers out of the account increase your contribution limit for the following year. In other words, if you need to take money out of your TFSA, you can contribute that amount the following year in addition to the annual limit.
In order to encourage saving up for your children’s tuition, the government allows you to open an RESP where:
  • The government will contribute a certain amount of money every year you contribute to the account.
  • Gains realized in the account are not taxable. Once they are withdrawn from the account, the student must pay the tax on them. Usually, the student is of a lower tax bracket than the adult, so this is still advantageous.
  • Unlike an RRSP, the adult does not receive a tax credit for contributing to the RESP.
  • Most importantly, the individual taking out the funds must be attending university or college.
As an initiative to encourage saving for retirement, the government allows you to open an RRSP. There are a lot of rules involved, so here are a few important ones to remember:
  • Gains realized in the account are not taxable, but they are taxable when they are withdrawn from the account.
  • Unlike the other registered accounts, you receive a tax deduction when you contribute to the account.
    • Although you receive a tax deduction, it is not recommended to transfer money into the account until your income for the year is greater than or equal to what your income will be when you retire. The goal is to receive a large tax credit when your salary is high and then take the money out when your salary is low (retirement), this way you receive a tax credit when your marginal tax rate is high and you pay tax when your marginal tax rate is low (retirement).
  • Unlike a TFSA, money taken out of the RRSP cannot be put back in.
  • Your annual contribution limit is a percentage of your annual income. Similarly to a TFSA, your contribution room never expires.
  • You must take your money out of your RRSP by the age of 71. There are other options beside a lump sum payment, just know this is the age at which you must take the money out of your RRSP.