Covering Business

10 Things Every Journalist Needs to Know and Understand

1. The Dow

Charles DowThe Dow Jones Industrial Average

• Founded in 1896 by Charles Dow, a journalist, and Edward Jones, a statistician

• It is a weighted average of 30 large companies that are publicly traded

• It’s intended to show in aggregate the movement of the market at any given moment during the day

Coca-Cola, Alcoa, General Electric, Intel, IBM, JP Morgan Chase, Travelers, Wal-Mart,, Home Depot, Exxon, Boeing, Amex, Disney, Kraft, Caterpillar, DuPont, Merck, Johnson & Jonson, McDonalds, Procter & Gamble, AT&T, Cisco Systems, 3M, Verizon, United Technologies, Microsoft, Pfizer ,Hewlett-Packard, Chevron, Bank of America

Stocks in the Dow today include:

Dow is not the Only Game in Town

S&P 500

• It’s an index of the 500 largest cap publicly held stocks

• Standard & Poors

NASDAQ

• An index of 3,700 stocks• Electronically traded,

automatic quotations• More trading value than

any other exchange in the world

2. What’s a Stock?

A stock represents a proportional share of a business or corporation. It means you own a fraction of that business.

How much you own depends on the number of shares you hold and the number of shares available.

Companies share the profits with their shareholders in the form of dividends.

NUMBER 3 : WHAT’S A BOND? A bond reflects a security issued by a corporation, a national government, a state government, a municipality. In essence, it represents a loan that represents a portion of the institution’s debt.

Number 4: Interest Rates

• Interest rates represent the cost of credit: how much you will pay to borrow and how much you can earn on your money

• Set by the Federal Reserve

IN SIMPLE TERMS

When credit is tight, interest rates are high. COSTLY TO BORROW

When credit is loose, interest rates are low. EASY LOANS

LIQUIDITYMoney flows to where it can earn the highest interest

5. INFLATION

Consumer Price Index• Economic indicator that show

the prices paid by urban consumers for a representative basket of goods and services

• Compiled by the Bureau of Labor Statistics

• Based on numbers gathered in 87 urban areas in 23,000 establishments

What’s in the basket?Price of Milk and WineCost of GasolineInsurance PremiumsCost of a TV setMovie TicketsRentsCollege tuitionCigarettes

Used as a Basis of Compairson

• In 2009 dollars, Gone with The Wind is the biggest U.S. box office winner ever.

• Gone with the Wind:• $1,606,254,777• Avatar: $760,506,204

6. RECESSION—WHAT IS IT?

• It’s a slow down in the Gross Domestic Product for two consecutive quarters.

• What’s the Gross Domestic Product?

• A country’s economic output

7. DEFICIT –A 7-letter word

• THE BUDGET DEFICIT OF THE UNITED STATES THIS YEAR WILL REACH…….

PLAIN AND SIMPLE--

It means you are spending more than what you have

$1,340,000,000,000.00

That’s $1.34 trillion dollars!!!!

Source: Projections/Congressional Budget Office

DEBT IS DIFFERENT

If you have a deficit, though you have to borrow to make up the difference. What you owe is your debt.

US DEBT….

… IS ESTIMATED TO REACH $19.6 TRILLION DOLLARS BY 2015

THAT’S EXPECTED TO EQUAL TO 102 PERCENT OF OUR 2015 GDP

8. A COMPANY IS PUBLIC..SO WHAT??

BOUND BY RULES

• In 1934, the Securities and Exchange Commission set up to ensure companies follow rules and regulations so investors know what they’re getting into

MUST BE TRANSPARENT

• Must file their financial results publicly

• All documents and results are available on www.sec.gov

• The Edgar Database

REQUIRED DOCUMENTS INCLUDE:

The 10 K (the annual report), the 10 Q,the Proxy , the 8 Q

9. FINANCIAL LINGO DEMYSTIFIED

BALANCE SHEET

• ASSETS: what a company owns

• LIABILITIES: what a company owes

BALANCE SHEETASSETS

CASH $6,600ACCOUNTS RECEIVABLE $6,200

TOTAL EQUIPMENT $25,000

LIABILITIES

NOTES PAYABLE $30,000ACCOUNTS PAYABLE

TOTAL: $37,800 TOTAL LIABILITY: $30,000

OWNERS EQUITY Capital stock $7000Retained Earnings $7,800

TOTAL: $37,800

FISCAL YEARSome companies report on a calendar year, others do not

INCOME STATEMENT

• Second Financial Statement Required

• Records Profit & Loss

• Details Source of Income and Expenses

THEY ALL MEAN ONE AND THE SAME THING –WHAT A COMPANY POCKETS AFTER EXPENSES

EARNINGS PROFITS NET INCOME

A COMPANY CAN EARN A PROFIT

Translation: It earned more than it spent

OR IT CAN REGISTERA LOSS

….Meaning it spent more money than it took in

YOU’VE SEEN THESE KINDS OF HEADLINES

BOEING'S EARNINGS INCREASE 35%; BEATING EXPECTATIONS

OR….

Sales Rise 7% As Boeing Doubles Profit

A SALES GAIN DOES NOT ALWAYS MEAN A COMPANY IS PROFITABLE

But……

COME AGAIN

Gap’s sales rose 3.4 percent, to $3.56 billion

BUT

Gap said net incomedropped 26 percent, to $178million, in the three months through May 5.

HOW CAN THIS BE?

POST SCRIPT:Revenues and sales are the same thing

3rd Financial Statement

• The Cash Flow

It’s similar to a checking account—how much comes in (sales/deposits), how much goes out (checks/payments)

10. BANKRUPTCY

Belly Up?

Chapter 11?

Same thing?

Not quite

• Chapter 11 means a company has entered into bankruptcy protection under a federal court…

• It will restructure• A controlled sale of its

assets will occur• It’s all done under the

auspices of a judge