Investor Relations Key Terms

Invest wisely by becoming aware of investor relations key terms

By Apryl Beverly

The role of investor relations is to communicate information about the company’s financial standing and corporate governance policy. Public companies are required by the Securities and Exchange Commission (SEC) to share this information with the media, shareholders and the general public quarterly and annually. The individual responsible for investor relations should have extensive details about current and upcoming challenges that may face a company and should have the ability to analyze stock trading patterns. Learning about investor relations key terms will help you gain a better understanding of the information shared in company financial reports.

Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) is a U.S. agency that protects the interests of investors. The agency does this by setting laws that require public companies to regularly disclose financial data. The SEC prohibits company misrepresentation and deceit and works to ensure that this data is shared in a timely manner.
Try: Read more about the role of this agency at the SEC website.

Financial strength

A company's financial strength is determined by comparing its liabilities to its assets. If a company's assets significantly exceed its liabilities, then the company is considered to have good financial strength. However, if the company has more debt then assets, the company is considered to have satisfactory or poor financial strength.
Try: Read more about financial strength at Progressive.

Valuation ratios

A valuation ratio determines how expensive or inexpensive a company or security is based on a measurement of profit or value. Price to earnings (P/E) ratio is the most common investment valuation measurement which is a ratio that compares the current price of a company's shares to the amount of earnings the company generates.
Try: Learn more about valuation ratios at Dummies.com.

Profitability

Profitability simply refers to a company's ability to earn a profit. A profitability ratio analyzes a company's ability to earn profits compared to its liabilities and other costs incurred during a specific period of time. Profit margin and returns on assets and equity are a few examples of profitability ratios.
Try: Read more about profitability at Investopedia.

Dividends

Dividends are stock distributions that a company must pay to stockholders. Dividend payments can be made in the form of money, property or stock of another company. Individuals can also receive dividend payments through a partnership, estate, trust, S-corporation or an association that can be taxed as a corporation.
Try: Read more about dividends at the Internal Revenue Service.

Market capitalization

Market capitalization, also known as market cap, is the sum of the current stock price per share multiplied by the number of outstanding shares. Because stock prices are constantly changing and stocks are frequently bought and sold, market cap is a temporary indication of a company's value.
Try: Find out more about market cap at ABCs of Investing.