DEFINITION OF 'GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - GAAP'The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information.INVESTOPEDIA EXPLAINS 'GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - GAAP'GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP cover such things as revenue recognition, balance sheet item classification and outstanding share measurements. Companies are expected to follow GAAP rules when reporting their financial data via financial statements. If a financial statement is not prepared using GAAP principles, be very wary!That said, keep in mind that GAAP is only a set of standards. There is plenty of room within GAAP for unscrupulous accountants to distort figures. So, even when a company uses GAAP, you still need to scrutinize its financial statements

DEFINITION OF 'PROFIT AND LOSS STATEMENT - P&L'A financial statement that summarizes the revenues, costs and expenses incurred during a specific period of time - usually a fiscal quarter or year. These records provide information that shows the ability of a company to generate profit by increasing revenue and reducing costs. The P&L statement is also known as a "statement of profit and loss", an "income statement" or an "income and expense statement".INVESTOPEDIA EXPLAINS 'PROFIT AND LOSS STATEMENT - P&L'The statement of profit and loss follows a general form as seen in this example. It begins with an entry for revenue and subtracts from revenue the costs of running the business, including cost of goods sold, operating expenses, tax expense and interest expense. The bottom line (literally and figuratively) is net income (profit). Many templates can be found online for free, that can be used in creating your profit and loss, or income statement.The balance sheet, income statement and statement of cash flows are the most important financial statements produced by a company. While each is important in its own right, they are meant to be analyzed together.What is an income an expenditure account?An income and expenditure account is a record showing debits and credits for an organization within a particular time period.Income and expenditure accounts are also referred to as profit and loss accounts. Generally, these accounts are credited with debits and credits, whether paid or not. As a rule, transactions of a capital nature, such as payments for vehicles or sales of machinery, as well as donations from a will, should not be included in this account.The difference between income and expenditure, whether surplus or deficiency, is transferred to a capital account. A capital account is record of money available for the daily operations of an organization. Income and expenditure accounts are popular with nonprofit organizations, such as clubs, hospitals, schools and charities. Donations, member subscriptions and entrance fees are among the items that appear on the income side of profit and loss accounts.Items appearing on the expenditure side of the record include salaries, honorariums, rents, utility bills and car expenses. Data for generating an income and expenditure account comes from a receipt and payment account or from a trial balance. A trial balance is a record that shows the ending balance of a particular account at the close of a particular period.DEFINITION OF 'BALANCE SHEET'A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.The balance sheet must follow the following formula:Assets = Liabilities + Shareholders' EquityIt's called a balance sheet because the two sides balance out. This makes sense: a company has to pay for all the things it has (assets) by either borrowing money (liabilities) or getting it from shareholders (shareholders' equity).Each of the three segments of the balance sheet will have many accounts within it that document the value of each. Accounts such as cash, inventory and property are on the asset side of the balance sheet, while on the liability side there are accounts such as accounts payable or long-term debt. The exact accounts on a balance sheet will differ by company and by industry, as there is no one set template that accurately accommodates for the differences between different types of businesses.DEFINITION OF 'OPERATING COST'Expenses associated with administering a business on a day to day basis. Operating costs include both fixed costs and variable costs. Fixed costs, such as overhead, remain the same regardless of the number of products produced; variable costs, such as materials, can vary according to how much product is produced.Businesses have to keep track of both operating costs and costs associated with non-operating activities, such as interest expenses on a loan. Both costs are accounted for differently in a company's books, allowing analysts to see how costs are associated with revenue-generating activities and whether or not the business can be run more efficiently.DEFINITION OF 'NON-OPERATING EXPENSE'An expense incurred by activities not relating to the core operations of the business. Accountants may remove non-operating expenses or revenues in order to examine the performance of the business, ignoring effects of financing or irrelevant issues.Non-operating expenses may take a variety of forms. The most common type relate to interest charges or other costs of borrowing. A firm may also categorize any costs incurred from restructuring or reorganizing, currency exchange, charges on obsolescence of inventory, as non-operating expenses. Expenses relating to employee benefits, such as pension contributions would also be considered as a non-operating cost.DEFINITION OF 'FIXED COST'A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses that have to be paid by a company, independent of any business activity. It is one of the two components of the total cost of a good or service, along with variable cost.An example of a fixed cost would be a company's lease on a building. If a company has to pay $10,000 each month to cover the cost of the lease but does not manufacture anything during the month, the lease payment is still due in full.In economics, a business can achieve economies of scale when it produces enough goods to spread fixed costs. For example, the $100,000 lease spread out over 100,000 widgets means that each widget carries with it $1 in fixed costs. If the company produces 200,000 widgets, the fixed cost per unit drops to 50 cents.DEFINITION OF 'VARIABLE COST'A corporate expense that varies with production output. Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases. Variable costs differ from fixed costs such as rent, advertising, insurance and office supplies, which tend to remain the same regardless of production output. Fixed costs and variable costs comprise total cost.Variable costs can include direct material costs or direct labor costs necessary to complete a certain project. For example, a company may have variable costs associated with the packaging of one of its products. As the company moves more of this product, the costs for packaging will increase. Conversely, when fewer of these products are sold the costs for packaging will consequently decrease.DEFINITION OF 'FLEXIBLE EXPENSE'An expense that is easily altered or avoided by the person bearing the cost. Flexible expenses are costs that may be manipulated in amount or eliminated by not engaging in the activity that incurred the expense.In personal finance, flexible expense are costs that are easily changed, reduced or eliminated. Spending money on entertainment and clothing represent flexible expenses. Even expenses that must be incurred, such as a grocery bill, can be considered flexible because the amount spent can vary.DEFINITION OF 'TANGIBLE COST'A quantifiable cost related to an identifiable source or asset. Tangible costs represent expenses arising from such things as purchasing materials, paying employees or renting equipment.Tangible costs are often associated with items that also have related intangible costs. An intangible cost consists of a subjective value placed on a circumstance or event in an attempt to quantify its impact.

For example, let's examine the costs associated with a customer who has received broken merchandise. The company will usually refund the value of the product to the customer, paying a tangible cost. If the customer is still upset over the event, he or she may complain about the poor service to friends. The potential loss of sales, resulting from the friends hearing the complaints, consists of an intangible cost relating to the broken merchandise.DEFINITION OF 'INTANGIBLE COST'An unquantifiable cost relating to an identifiable source. Intangible costs represent a variety of expenses such as losses in productivity, customer goodwill or drops in employee morale. While these costs do not have a firm value, managers often attempt to estimate the impact of the intangibles.Ignoring intangible costs can have a significant effect on a company's performance. For example, let's examine a potential decision for a widget company to cut back on employee benefits. To improve profits, the firm wants to cut back $100,000 in employee benefits. When news reaches the employees of the cut-back, worker morale will likely drop. The widget production will likely be diminished, as employees focus on losing benefits instead of making products. The loss in production represents an intangible cost, which may be great enough to offset the gain in profits created by reducing employee benefits.Hidden COSTExpensenot normally included in thepurchasepriceof anequipmentormachine, such as formaintenance,supplies,training, andupgrades.

DEFINITION OF 'CAPITAL EXPENDITURE - CAPEX'Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. This type of outlay is made by companies to maintain or increase the scope of their operations. These expenditures can include everything from repairing a roof to building a brand new factory.The amount of capital expenditures a company is likely to have depends on the industry it occupies. Some of the most capital intensive industries include oil, telecom and utilities.In terms of accounting, an expense is considered to be a capital expenditure when the asset is a newly purchased capital asset or an investment that improves the useful life of an existing capital asset. If an expense is a capital expenditure, it needs to be capitalized; this requires the company to spread the cost of the expenditure over the useful life of the asset. If, however, the expense is one that maintains the asset at its current condition, the cost is deducted fully in the year of the expense.What is the difference between a capital expenditure and a revenue expenditure?|The difference betweencapital expendituresand revenue expenditures is essentially the same as the difference between capital expenditures andoperating expenses.Capital expenditures represent major investments of capital that a company makes to maintain or, more often, to expand its business and generate additional profits. Capital expenses are for the acquisition of long-term assets, such as facilities or manufacturing equipment. Because such assets provide income-generating value for a company for a period of years, companies are not allowed to deduct the full cost of the asset in the year the expense is incurred; they must recover the cost through year-by-year depreciation over the useful life of the asset. Companies often use debt financing or equity financing to cover the substantial costs involved in acquiring major assets for expanding their business.Revenue expenses are shorter-term expenses required to meet the ongoing operational costs of running a business, and thus are essentially the same as operating expenses. Unlike capital expenditures, revenue expenses can be fully tax-deducted in the same year the expenses occur. In relation to the major asset purchases that qualify as capital expenditures, revenue expenditures include the ordinary repair and maintenance costs that are necessary to keep the asset in working order without substantially improving or extending the useful life of the asset. Revenue expenses related to existing assets include repairs and regular maintenance as well as repainting and renewal expenses. Revenue expenditures can be considered to be recurring expenses in contrast to the one-off nature of most capital expenditures.The purpose of capital expenditures is commonly to expand a company's ability to generate earnings, whereas revenue expenditures are more commonly for the purpose of maintaining a company's ability to operate. Capital expenditures appear as an asset on a company's balance sheet; revenue expenses are listed with liabilities.

DEFINITION OF 'OPERATING EXPENSE'A category of expenditure that a business incurs as a result of performing its normal business operations. One of the typical responsibilities that management must contend with is determining how low operating expenses can be reduced without significantly affecting the firm's ability to compete with its competitors.Also known as "OPEX".For example, the payment of employees' wages and funds allocated toward research and development are operating expenses. In the absence of raising prices or finding new markets or product channels in order to raise profits, some businesses attempt to increase the bottom line purely by cutting expenses.While laying off employees and reducing product quality can initially boost earnings and may even be necessary in cases where a company has lost its competitiveness, there are only so many operating expenses that management can cut before the quality of business operations is damaged.\DEFINITION OF 'INCOME STATEMENT'A financial statement that measures a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year.Also known as the "profit and loss statement" or "statement of revenue and expense."INVESTOPEDIA EXPLAINS 'INCOME STATEMENT'The income statement is the one of the three major financial statements. The other two are the balance sheet and the statement of cash flows. The income statement is divided into two parts: the operating and non-operating sections.The portion of the income statement that deals with operating items is interesting to investors and analysts alike because this section discloses information about revenues and expenses that are a direct result of the regular business operations. For example, if a business creates sports equipment, then the operating items section would talk about the revenues and expenses involved with the production of sports equipment.The non-operating items section discloses revenue and expense information about activities that are not tied directly to a company's regular operations. For example, if the sport equipment company sold a factory and some old plant equipment, then this information would be in the non-operating items section.DEFINITION OF 'FIXED ASSET'A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be consumed or converted into cash any sooner than at least one year's time.Fixed assets are sometimes collectively referred to as "plant".INVESTOPEDIA EXPLAINS 'FIXED ASSET'Buildings, real estate, equipment and furniture are good examples of fixed assets.Generally, intangible long-term assets such as trademarks and patents are not categorized as fixed assets but are more specifically referred to as "fixed intangible assets".DEFINITION OF 'CURRENT ASSETS'1. A balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash.2. In personal finance, current assets are all assets that a person can readily convert to cash to pay outstanding debts and cover liabilities without having to sell fixed assets.In the United Kingdom, current assets are also known as "current accounts."INVESTOPEDIA EXPLAINS 'CURRENT ASSETS'1. Current assets are important to businesses because they are the assets that are used to fund day-to-day operations and pay ongoing expenses. Depending on the nature of the business, current assets can range from barrels of crude oil, to baked goods, to foreign currency.2. In personal finance, current assets include cash on hand and in the bank, and marketable securities that are not tied up in long-term investments. In other words, current assets are anything of value that is highly liquid.DEFINITION OF 'LIABILITY'A company's legal debts or obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services.INVESTOPEDIA EXPLAINS 'LIABILITY'Recorded on the balance sheet (right side), liabilities include loans, accounts payable, mortgages, deferred revenues and accrued expenses. Liabilities are a vital aspect of a company's operations because they are used to finance operations and pay for large expansions. They can also make transactions between businesses more efficient. For example, the outstanding money that a company owes to its suppliers would be considered a liability.Outside of accounting and finance this term simply refers to any money or service that is currently owed to another party. One form of liability, for example, would be the property taxes that a homeowner owes to the municipal government.Current liabilities are debts payable within one year, while long-term liabilities are debts payable over a longer period.DEFINITION OF 'CURRENT LIABILITIES'A company's debts or obligations that are due within one year. Current liabilities appear on the company's balance sheet and include short term debt, accounts payable, accrued liabilities and other debts.INVESTOPEDIA EXPLAINS 'CURRENT LIABILITIES'Essentially, these are bills that are due to creditors and suppliers within a short period of time. Normally, companies withdraw or cash current assets in order to pay their current liabilities.Analysts and creditors will often use the current ratio, (which divides current assets by liabilities), or the quick ratio, (which divides current assets minus inventories by current liabilities), to determine whether a company has the ability to pay off its current liabilities.DEFINITION OF 'GROSS MARGIN'A company's total salesrevenueminus itscost of goods sold, divided by the total sales revenue, expressed as a percentage. The gross margin represents the percent of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services sold by a company. The higher the percentage, the more the company retains on each dollar of sales to service its other costs and obligations.

INVESTOPEDIA EXPLAINS 'GROSS MARGIN'This number represents the proportion of each dollar of revenue that the company retains as gross profit. For example, if a company's gross margin for the most recent quarter was 35%, it would retain $0.35 from each dollar of revenue generated, to be put towards paying off selling, general and administrative expenses, interest expenses and distributions to shareholders. Thelevels of gross margin can vary drastically from one industry to anotherdepending on the business. For example, software companies will generally have a much higher gross margin than a manufacturing firm.What is the difference between gross margin and gross profit?The difference between the profit measures ofgross marginandgross profitis strictly a matter of numbers. Gross margin, commonly referred to as gross profit margin, is a percentage number, while gross profit is an absolute dollar amount. Both essentially represent the same thing, but gross margin is a more helpful analytical figure.The gross margin is determined using a specific equation. Take the total amount in sales revenue a company earns, subtract direct costs of manufacturing the product, and divide by the total amount of revenue. The resulting percentage figure is the company's gross profit margin, primarily used to help a company examine its direct production costs.The gross profit is the absolute dollar amount of revenue the company generates beyond direct production costs. Thus, an alternate rendering of the gross margin equation becomes gross profit divided by total revenues. The gross profit figure is of little analytical use, because it simply presents a number in isolation, rather than rendering a figure calculated in relation to both costs and revenue. Therefore, the gross margin figure is much more significant for market analysts and investors.To illustrate the difference, consider a company showing a gross profit of $1 million. At first glance, the profit figure may appear impressive, but if the gross margin for the company is only 1%, then a mere 2% increase in production costs is sufficient to make the company actually lose money. That situation is further compounded by the fact that gross margin does not factor in a company's total operating costs.Gross profit and gross margin are only two measurements of profitability. Net profit margin, which includes a company's total expenses, is a much more definitive profitability metric, and the one most closely scrutinized by analysts and investors.

Net profitWhen investors want to see how a company is performing, chances are theyll browse the companys website or annual report for its income statement. One sees the businesss total revenue at the top, followed by several rows of expenses. The very bottom row shows whats left over: the net profit or loss. If this number is bigger than last years, one might presume the firm is doing better. But is it?

As it turns out, an organization's performance is a little more complex than its bottom line". Thats why most analysts look at more than one form of profit when evaluating a stock. In addition to the net profit, they may also factor ingross profit(a.k.a. gross income) andoperating profit(a.k.a. operating income). Each of these line items on the income statement tells important information about how the company is doing. And if the investor knows what to look for, the different measures of profit can help indicate whether recent trends good or bad are likely to continue.

The Three Major ProfitsTo understand each type of profit, its useful toget a grasp on the income statement itself. This is a financial document that shows the companys revenue and expenses for a specific time period, usually a quarter or a full year. If its a publicly traded company, an individual can virtually always find it on the companys investor relations webpage.

The following is a full-year income statement for Active Tots, a maker of outdoor childrens toys.(in millions)20122011

Net Sales2,0001,800

Cost of Goods Sold(900)(700)

Gross Profit1,1001,100

Operating Expenses (SG&A)(400)(250)

Operating Profit700850

Other Income (Expense)(100)50

Extraordinary Gain (Loss)400(100)

Interest Expense(200)(150)

Net Profit Before Taxes (Pretax Income)800650

Taxes(250)(200)

Net Income550450

The top line of the table shows the companys revenue or net sales in other words, all the revenue it has generated over a given stretch of time from its day-to-day operations. From this initial sales figure, the business subtracts all the expenses associated with actually producing its toys, from raw materials to the wages of people working in its factory. These production-related expenditures are referred to as the cost of goods sold". The remaining amount, usually on line 3, is thegross profit.

The next row down shows the businesssoperating expenses, or SG&A, which stands for selling, general and administrative expenses. Essentially, these are its overhead expenses. Companies cant just make products and collect the proceeds. They need to hire salespeople to bring the goods to market and executives who help chart the organizations direction. Usually theyll also pay for advertising as well as the cost of any administrative buildings. All of these items are included in the operating expense figure. Once this is subtracted from gross profit, we arrive at theoperating profit.Toward the bottom of the income statement are expensesnotrelated to the firms core business. For example, theres aline for extraordinary gains or losses, which include unusual events such as the sale of a building or business unit. Here, we also see any gains or losses from investments or interest expenses. Finally, the document includes a line representing the corporations tax expense. Once these additional expenses are deducted fromoperating profit, the investor arrives at the net income ornet profit or net loss, if thats the case. This is the amount of money the company has either added to or subtracted from its coffers over a given time period.

Understanding the DifferencesSo why use these different metrics? Lets examine the Active Tots income statement to find out. Many beginning investors will naturally look right for the net profit line. In this case, the company earned $550 million in its latest fiscal year, up from $450 million the year before.

On the surface, this looks like a positive development. However, a closer look reveals some interesting information. As it turns out, the firms gross profit again, the revenue that remains after subtracting production expenses is the same from one year to the next. In fact, thecost of goods soldgrew at a faster pace than net sales. There could be any number of reasons for this. Perhaps the cost of plastic, a primary material in many of its products, rose significantly. Or, perhaps its unionized plant workers negotiated for higher wages.

What is perhaps more interesting is that the businesss operating profit actually went down in the latest year. This may be a sign that the companys staff is becoming bloated, or that Active Tots has failed to rein in employee perks or other overhead expenses.

How, then, is the company earning $100 million more in net profit? One of the biggest factors appears toward the bottom of the income statement. Last year, Active Tots recorded an extraordinary $400 million gain. In this case, the one-time windfall was the result of selling its educational products division.

While the sale of this business unit increased net profit, its not income the company can count on year after year. For this reason, many analysts emphasize operating profit, which captures the performance of a firms core business activity, over net profit.

Its important to note, however, thatnot all spending increases are negative. For example, if Active Tots saw its operating expenses shoot up as a result of a new advertising campaign, the firm might more than make up for it the following year with increased revenue. In addition to looking at the income statement, its important to read up on the company to find outwhyfigures are changing.

Evaluating PerformanceProfit metrics can help assess a companys health in two ways. The first is to use them for an internal review in other words, comparing new numbers to the firms historical data. A knowledgeable investor will look for trends that help predict future performance. For instance, if the costs associated with production have risen faster than the companys sales over multiple years, it may be difficult for the company to maintain healthy profit margins going forward. By contrast, if its administrative expenses start to take up a smaller part of revenue, the company is probably doing some belt-tightening that will enhance profitability.

Investors should also compare these three metrics gross profit, operating profit and net profit to those of its competitors. Many investors look atearnings per sharefigures, which are based on net profit, when deciding which stocks offer the best value. However, because one-time gains or expenses can distort financial performance, many securities analysts will instead key in on operating profit to determine what shares are worth.

Is operating profit the same as net income?Many of the terms used in finance and accounting may seem almost interchangeable to the average person. However, several of these seemingly identical terms actually have very specific meanings and contextual uses. For the first-time investor or entrepreneur, a firm grasp of these concepts is crucial to a basic understanding of business finance. Two important terms found on any company'sincome statementare operating profit and net income. Though both deal with positive cash flow, these terms differ in important ways.Both concepts begin with a company's revenue. Simply put, revenue is the total amount of income from the sale of products or services associated with the company's main business function. For a grocery store, this includes the sale of everything from produce to dog food. Revenue is found at the very top of an income statement and all further calculations begin with this figure. Operating profit is the amount of revenue that remains after accounting forvariable expensesand fixed operating expenses. This includes expenses for the raw materials used to create products for sale, called cost of goods sold or COGS, and all the day-to-day costs of running a business, such as rent, utilities, payroll and depreciation.Revenue is the top line of the income statement and net income is the renowned bottom line.Net income, also called net profit, reflects the amount of cash that remains after accounting for all expenses and income. Expenses that factor into the calculation of net income but not operating profit include payments on debts, interest on loans and one-time payments for unusual events such as lawsuits. Additional income not counted as revenue is also considered in the calculation of net income and includes interest earned on investments and funds from the sale of assets not associated with primary operations. While both are measurements of profitability, operating profit is just one of many calculations that occur on the way from raw revenue to net income.

DEFINITION OF 'RETAINED EARNINGS'The percentage ofnet earningsnot paid out asdividends, but retained by the company to be reinvested in its core business, or to pay debt. It is recorded undershareholders' equityon the balance sheet.The formula calculates retained earnings by adding net income to (or subtracting any net losses from) beginning retained earnings and subtracting any dividends paid to shareholders:

Also known as the "retention ratio" or "retained surplus".INVESTOPEDIA EXPLAINS 'RETAINED EARNINGS'In most cases, companies retain their earnings in order to invest them into areas where the company can create growth opportunities, such as buying new machinery or spending the money on moreresearch and development.Should anet lossbe greater than beginning retained earnings, retained earnings can become negative, creating adeficit.The retained earnings general ledger account is adjusted every time a journal entry is made to an income or expense account.Retained earnings are the portion of a company's income that management retains for internal operations instead of paying it to owners in form of dividends. The statement of retained earnings, a basic financial statement undergenerally accepted accounting principles(GAAP) rules, explains changes in retained earnings over the reporting period - usually the fiscal year. Retained earnings are calculated by adding net income and subtractingdividendsfrom the balance of retained earnings at the beginning of the period.

For example: If you had $5000 when the reporting period started and at the end of the period you realized $4000 in net income and paid out $2000 in dividends, your retained earnings at the end of the period will be:

Retained Earnings = Beginning Balance + Net Income Dividends

Retained Earnings = $5000 + $4000 - $2000 = $7000.

Essentially, the statement of retained earnings is affected by any transaction that affects net income and dividends. So, when total dividends paid out is increased or decreased, there is a definite effect on thestatement of retained earnings. Anything that affects net income, also affects the statement of retained earnings. Some transactions that affect net income include those that increase or decrease in revenue, cost of goods sold and expenses.

DEFINITION OF 'DIVIDEND'1. A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.

Also referred to as "Dividend Per Share (DPS)."

2. Mandatory distributions of income and realized capital gains made to mutual fund investors.

1. Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make up for this.

High-growth companies rarely offer dividends because all of their profits are reinvested to help sustain higher-than-average growth.

2. Mutual funds pay out interest and dividend income received from their portfolio holdings as dividends to fund shareholders. In addition, realized capital gains from the portfolio's trading activities are generally paid out (capital gains distribution) as a year-end dividend.Inaccountingthere are two common uses of the termstock. One meaning of stock refers to the goods on hand which is to be sold to customers. In that situation, stock meansinventory.

The termstockis also used to mean the ownership shares of a corporation. For example, an owner of a corporation will have a stock certificate which provides evidence of his or her ownership of a corporation'scommon stockorpreferred stock. The owner of the corporation's common or preferred stock is known as a stockholder.