Originally the term benchmark was a surveyor's mark indicating a specific height above sea level. ![]() Conversely, a higher yield indicates investors are putting their money elsewhere. In a somewhat different way, the changing yield on the 10-year US Treasury bond is considered a benchmark of investor attitudes.įor example, a lower yield is an indication that investors are putting money into bonds, driving up the price, possibly because they expect stock prices to drop. Individual investors and financial professionals often gauge their market expectations and judge the performance of individual investments or market sectors against the appropriate benchmarks. There are other indexes that serve as benchmarks for both broader and narrower segments of the US equities markets, of international markets, and of other types of investments such as bonds, mutual funds, and commodities. When the benchmark is an index tracking a specific segment of the market, the changing value of the index not only measures the strength or weakness of its segment but is the standard against which the performance of individual investments within the segment are measured.įor example, the Standard & Poor's 500 Index (S&P 500) and the Dow Jones Industrial Average (DJIA) are the most widely followed benchmarks, or indicators, of the US market for large-company stocks and the funds that invest in those stocks. Benchmark.Īn investment benchmark is a standard against which the performance of an individual security or group of securities is measured.įor example, the average annual performance of a class of securities over time is a benchmark against which current performance of members of that class and the class itself is measured. Copyright © 2003 by Houghton Mifflin Company. The balance sheet, the income statement, and the cash flow statement are three of the most significant financial statements used in performance analysis.įinancial performance analysis can focus on different areas.Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. The aim is to understand the company's business model, the profitability (or loss) of its operations, and how it's spending, investing, and generally using its money-summarizing the company by the numbers, so to speak.Ī financial performance analysis examines the company at a specific period in time-usually, the most recent fiscal quarter or year.
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