Lesson 2 of 5 · 5 min read
The words about money
Price, return, profit, revenue. Four words everyone uses interchangeably.
Price is just the price
The price of a share is what one piece costs right now. Nothing more. It changes all day because there are always people wanting to buy and people wanting to sell, and they don't always agree on the number. If a share sits at twenty-six, you pay twenty-six for one piece. Want ten? Two hundred and sixty. It really is that simple.
Return is what it earned
Return is the difference between what you put in and what you took out, usually as a percentage. Buy for a hundred, and if it's later worth a hundred and ten, your return is ten percent. If it becomes ninety, it's minus ten percent. Percentages are used so you can compare amounts of different sizes: ten of profit on a hundred is better than ten of profit on a thousand, even though the amount is identical.
You put in $36,000. The other $42,139 is pure compound growth. Time does most of the work.
In practice
Two people both make fifty. One put in two hundred, the other two thousand. Twenty-five percent against two and a half. Without percentages you can't see that difference.
Revenue and profit are two things
Revenue is all the money coming into a company from sales. Profit is what's left after every cost is paid: staff, rent, stock, tax. A sandwich shop selling a thousand a day has a thousand in revenue, but if the bread, the wages and the rent come to nine hundred, the profit is a hundred. News stories often shout a big revenue number while the profit disappoints, and those are very different stories.
Dividend is a slice of that profit
Some companies keep their profit to grow with it. Others give part of it away to the people who own shares. That given-away part is called a dividend and usually lands in your account a few times a year, simply because you hold the share. It isn't compulsory and it isn't guaranteed: a company can cut it or stop it. So it's a welcome extra, not a fixed income.
Stocky says
If you hear a company "pays a five percent dividend", that's five percent of the share price per year. On a hundred-euro share, that's five euros.
Remember this
- The price is simply what one share costs right now.
- Return is in percentages, so amounts of different sizes can be compared.
- Revenue is what comes in; profit is what's left after every cost.
- A dividend is a slice of profit paid out, and it is never compulsory.
There is a quiz for this lesson
3 questions that check whether it stuck. They live in the app, because a quiz nobody grades teaches nothing.
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