Buying a stock means you become a part owner of a public company. Some companies, such as utilities, often pay dividends; start-ups and technology companies generally don’t. A growth stock is one that investors think will grow at a faster rate than the market; a value stock is one that some investors think is a bargain.

Over the long run, the U.S. stock market has outperformed other investments, with an average annual return of roughly 9% since 1926, according to the Wall Street Journal. But stocks fluctuate and offer no guarantees.

Here are the basics about stocks. A financial advisor can work with you to fully explain key stock-market terms and evaluate potential stocks based on your goals and comfort level. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations.

How is a stock’s price determined?

A stock’s price is based on many factors but essentially reflects the company’s current value and its prospects, according to investors.

So is a $100 stock better than a $10 stock because it costs more?

Not necessarily. The relative value of each share of stock is influenced by many factors, including the number of shares of stock issued by a company.

What’s a dividend, and why do some companies pay dividends but others don’t?

Dividends are payments that stock issuers make to shareholders, usually every quarter. They represent a portion of company profits.

More established companies with fairly predictable income, such as utilities, are the ones most likely to pay dividends. Start-ups and technology companies generally don’t pay dividends because they usually prefer to reinvest profits back into their companies.

You can see if a company pays dividends and the size of any dividends by looking at the NYSE and Nasdaq stock tables online or in some newspapers. Dividends are not guaranteed and are subject to change or elimination.

What’s a P/E ratio?

A stock’s price/earnings (P/E) ratio is a mathematical formula that can help give investors an idea of how much they are paid for a company’s earning power. The P/E ratio is the shorthand for what the market thinks of the stock — you could call it the conventional wisdom.

The formula for determining the P/E ratio is: Current share price ÷ earnings per share (the portion of the company’s profits allocated to each share of stock).

Say one stock is selling for $100, and its earning per share is $4. Its P/E ratio is 25. If another $100 stock has earnings per share of $10, its P/E ratio is much lower: 10.

Over the past 20 years, the average annual P/E ratio for the stocks in the Standard & Poor’s 500 (500 large-company stocks) was about 18.

But as with stock prices, a higher P/E ratio isn’t necessarily better than a lower one. The key is how the stock’s P/E ratio compares with other similar companies. Certain industries, such as biotechnology, tend to have high P/E ratios. Others, such as automakers, generally have lower P/E ratios.

What’s the difference between a growth stock and a value stock?

• Growth stocks have established a pattern of strong growth in the past and investors believe the companies have strong potential to keep increasing their earnings.

What is a stock’s total return?

A stock’s total return is a percentage figure that shows you how profitable the stock has been for you over time. That’s after factoring in commissions, the stock’s price fluctuation, and any dividends you’ve received.

To calculate your stock’s total return, first determine the difference between what you initially paid for the stock (including brokerage commissions) and the stock’s market price at the end of the time period. Add any dividends you’ve received. That total figure is your profit (or loss). Then, divide that figure by your initial cost.

For example, say you bought a stock for $600, it was worth $750 at the end of the year, and you received $26 in dividends. Your total return is ($750-$650) + $25 / $600 = 0.293. So you have a total return of 29.3%.