Ask the Fool: Charged Up

Q:

What are the "onetime charges against earnings" that I see in company earnings reports?

- R.Y., St. Augustine, Fla.

A:

They are meant to reflect out-of-the-ordinary costs a company is bearing (for example, for closing plants, downsizing, writing off bad investments, etc.). The charges are meant to be removed from the company's earnings (in other words, their amount is added back), ostensibly to more accurately reflect the firm's operating performance. Imagine that Meteorite Insurance Inc. (ticker: HEDSUP) earns $10 million in a quarter, but it lays off many employees, too, incurring significant severance-payment costs. If these costs amounted to $2 million and were labeled as onetime charges, then the company would be suggesting that its business really earned $12 million in the quarter.

Q:

What is the S&P 500?

- H.W., Seattle

A:

It is an index of 500 of America's biggest companies, as selected by the folks at Standard & Poor's. Though the U.S. stock market encompasses thousands of companies, these 500 together make up more than 75 percent of the market's value. The companies sport market capitalizations of at least $5 billion, and they include names such as Amazon.com Inc., Anheuser-Busch Cos. Inc., Boeing Co., Campbell Soup Co., the Charles Schwab Corp., Dell Inc., Exxon Mobil Corp., FedEx Corp., Ford Motor Co., General Electric Co., Google Inc., Harley-Davidson Inc., Halliburton Co., H.J. Heinz Co., the Hershey Co., Kellogg Co., Mattel Inc., Merck & Co. Inc., Microsoft Corp., Nike Inc., Procter & Gamble Co., RadioShack Corp., Southwest Airlines Co., Target Corp., Whirlpool Corp. and Whole Foods Market Inc. Companies removed from the list in the last year include Circuit City Stores Inc. and Hilton Hotels Corp., while those added include the Washington Post Co. and Abercrombie & Fitch Co.

You can invest in the S&P 500 easily via an index fund such as the low-cost Vanguard 500 Index. Learn more at

» READ MORE: www.fool.com/mutualfunds/

mutualfunds.htm.