We have provided some excerpts from our Learning Center below.
They will help you answer some very important questions, and appreciate the true value our Learning Center will provide.

• What is Net Income ?
• What is Net Profit Margin ?
• What does Shares Outstanding mean ?
• Get full access to our Learning Center

Net Income is the amount of money that remains after subtracting all expenses and costs from the company's revenues. It is the amount of money the company actually makes (Profit).

As an investor you want to see the Net Income of your company (notice I said "your company", since you are a part owner) growing. Steady increases in Net Income are a sign that the business is growing. The company is acquiring more customers. The demand for their product or service is growing.

If you see that the Net Income of your company is shrinking, become very cautious. The business is most likely also shrinking. The company may be losing customers. The demand for their products and/or services is decreasing.

Simple Example:
Company A has net income of $400,000
Company B has revenue of $600,000
Both companies are in the same industry and equal in size.

Which one would you want to invest in?
Since Company B is making more money than Company A, Company B is the more attractive choice.

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Net Profit Margin (NPM) tells you how much profit a company makes for every $1 it generates in revenue. NPMs vary by industry, but all else being equal, the higher a company's NPM compared to its competitors, the better.

If you see NPM for a company increasing steadily, this is a very positive signal that management is doing a good job. The company is becoming more efficient. It is managing cost wisely.

On the flip side, if you see a company's NPM decreasing, it may be a sign that the company is losing its edge. It is not managing expenses efficiently.

Simple Example:
Company A has a NPM of 20%, $0.20 for every $1 in Revenue.
Company B has a NPM of 30%, $0.30 for every $1 in Revenue.
Both companies are in the same industry and equal in size.

Which one would you want to invest in?
Unless you don't like money, chances are that you would pick Company B. It has a very large advantage over its competitor (Company A). It can offer better prices to its customers, while still making a higher profit.

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Shares Outstanding is the total number of shares of stock that make up ownership of a company.

As an investor, you want to see the number of shares outstanding decrease. The number shares outstanding usually decreases when the company buys shares back, or the company issues a stock split. We will get back to stock splits later; let's discuss company buy backs for now.

Why would a company want to buy its own shares?
Well think about it. Why do you buy shares of a company's stock? One common reason is because you think the price is cheap considering the companies worth and that the company has the potential to perform well and the shares will increase in value. As a result, you can make a higher return investing in this company since the stock price may be a bargain. That's the same way the company thinks when it buys it own shares. It thinks that its shares are cheap and that the business will grow and hence the share price will grow. The company believes that they can make a higher return investing in itself as opposed to investing elsewhere. Another point to note is that if a company is buying back its own shares, IT HAS MONEY. They are generating a healthy amount of cash from their business.

On the other hand, if the number of shares outstanding is increasing, you should start to tighten you laces, and get ready to run. The number of shares outstanding usually increases when the company needs to raise money. As a result, your one share is worth a smaller portion of the company. Keep in mind that if a company needs to raise cash, chances are its not generating enough through its own business.

Simple Example:
Think of the Company as a Pizza Pie. Each slice represents a share in the company. There are a total of eight slices, hence eight shares. For argument sake, let say you won one share. Tomorrow, the company sells more shares, and now there are a total 16 shares outstanding. Notice the number of shares you own in the company has not increased, you still own one share. What happened to your share of the company, did it increase or decrease? Yes, you guessed right, your ownership of the company has decreased to half. You own 6.25% (1 out of 16 shares) of the company as opposed to 12.5% (1 out of 8 shares) before the company sold more shares.

On the other hand, let say that the company decides buys two shares back. The total number of shares outstanding becomes six. What happened to your share of the company? Did it increase or decrease? Yes you got it, it increased. You know own 16.67% (1 out of 6 shares) of the company as opposed to 12.5% of the company (1 out of 8 shares) before the stock buy back.

Now let's take a look at stock splits.
Stock splits are usually never a positive event for a shareholder. All it does it gives you more shares, but each share is worth less respectively. Think about the example above with the Pizza Pie. If you have one slice of the company, and now we cut that slice into two pieces. Do you own a higher portion of the pie? No. You own the exact same amount, just in smaller pieces. That is pretty much what a stock split is.

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