A
Accountant
One who records and/or examines
the finances of individuals or businesses.
Accounting earnings
A company's earnings as
reported on its income statement (profit and loss
account).
Accounting insolvency
A situation in which
total liabilities exceed total assets. A company with a negative net worth
is insolvent on the books.
Accounting liquidity
The ease and speed at
which assets can be converted to cash.
Accounts
payable
Money owed by a company to
suppliers.
Accounts receivable
Money owed to a
company by customers that have purchased goods and/or services on credit.
Accounts receivable is listed as an asset on the balance sheet, as it is a
number that will (presumably) be turned into cash by the company as the
receivables are paid off.
Accounts receivable
turnover
A measure of how quickly customers pay their bills.
Accounts receivable turnover is sales for the period divided by the
average accounts receivable. Also called receivables turnover.
Accrual
basis
An accounting method where income is reported when
earned and expenses are reported when incurred. This is in contrast to
cash-basis accounting, which reports income when it is actually received
and expenses when they're actually paid.
Accrual
bond
See Zero Coupon Bond.
Accrued
expenses
Expenses incurred during a given accounting period
for which payment has not yet been made.
Accrued
interest
Interest that has accumulated on a bond since the
last interest payment was made.
Accumulated
dividend
A dividend that is due and owed to a preferred
shareholder, but has not yet been paid.
Accumulated
earnings
Retained earnings.
Accumulation
Buying
shares over a period of time. For an individual investor, this just means
buying additional shares of a stock you already own. For an institution,
however, it may mean making a series of purchases rather than one large
purchase that could drive up the market price.
Accumulation
period
In retirement parlance, the years when one is making
regular contributions to a retirement plan or deferred annuity. The period
is considered to end when the income payments begin.
Acid-test ratio
See Quick
ratio.
Active management
Any investment
strategy that involves picking individual securities with the goal of
either beating the market's returns, or lessening the risk of following
the market.
Aggressive
growth fund
A collective investment scheme that seeks
long-term capital growth by investing primarily in stocks of fast growing
smaller companies or narrow market segments, such as "the technology
sector" or "the Internet sector." Sometimes called a capital appreciation
fund.
Amortisation
The systematic repayment
(e.g., monthly, quarterly, or yearly) of a debt or loan, such as a bond or
mortgage, over a specific time period.
Analyst
A
financial professional who analyses securities to determine their
investment merits, including possibly a "fair" or "intrinsic" value for
them. The term is generally applied to almost any professional investor
who does research of some kind.
Annual effective
yield
The measure of the actual annual rate of return on an
account after interest is compounded.
Annual
report
The corporate financial statement that shareholders
eagerly await each year.
Annualise
To make a
period of less than a year apply to a full year to facilitate comparative
analysis.
Annuity
A contract between an
insurance company and a person that provides for periodic payments to the
individual or designated beneficiary in return for an investment.
Typically, an annuity agrees to provide payments to the purchaser of the
contract (annuitant) beginning at some point in the future.
Appreciation
An increase in the price or value
of an asset.
Ask
The price at which a
prospective seller is willing to sell a security.
Asset
Anything that has monetary value.
Typical personal assets include stocks, real estate, jewelry, art, cars,
and bank accounts. Corporate assets are found on the company's balance
sheet and include cash, accounts receivable, short- and long-term
investments, inventories, and prepaid expenses.
Average
maturity
The average of all maturity dates for securities in a
money market or bond fund. The longer the average maturity, the more
volatile a fund's share price will be, moving up or down as interest rates
change.
B
Balance Sheet
A condensed financial statement
showing the nature and amount of a company’s assets, liabilities and
capital on a given date. The
balance sheet shows what the company owned, what it owed, and the
ownership interest in the company of its
shareholders.
Balanced fund
Any collective investment
scheme that provides a combination of equities, bonds, and/or money market
instruments.
Bankruptcy
When a company is
unable to pay its debts, it is bankrupt.
Basis
point
Most often used relating to changes in interest rates.
One basis point is 1/100 of a percentage point.
Bear
A person with a generally pessimistic
market outlook or a pessimistic view on a sector or specific stock.
Bear market
When the overall market loses
value over an extended period of time. There is no "official" definition
of what makes a bear market, though many feel a drop of at least 10% is
needed. A drop of something less than 10% is often called a "correction"
(even though the term "correction" is never used when the market moves up
10%).
Beta
A measure of the relative volatility
of a stock or other security as compared to the volatility of the entire
market. A beta above 1.0 shows greater volatility than the overall market,
and a beta below 1.0 is less volatile.
Bid
The
price a prospective buyer is willing to pay for a security.
Bid-ask spread
The difference between what a
buyer is willing to pay (bid) for a security and the seller's asking price
(ask).
Blue-chip stocks
Really good, large
companies that have been around long enough to have a solid history of
rewarding shareholders (ex. Coca-Cola, IBM, General
Electric).
Board of directors
A group of people
elected by a company's shareholders to oversee the management of the
company. The board members meet several times each year, are paid in cash
and/or equity, and take on legal responsibility for corporate
activities.
Bond
An interest bearing or
discounted debt security issued by corporations and governments. Bonds are
essentially loans by the investor to the issuer in return for interest
payments.
Bond fund
A collective investment
scheme that invests in bonds.
Book value
A
company's assets, minus any liabilities and intangible assets. Book value
is literally the value of a company that can be found in the balance sheet
and is often represented as a per-share value by taking the company's
shareholder equity and dividing by the current number of shares
outstanding.
Bull
A person with a positive or
optimistic outlook for the general market, a market segment or industry,
or for particular shares.
Bull market
A market
that has been gaining value over a prolonged
period.
Buy-and-hold
A strategy that employs
buying shares of companies with the intention of keeping those holdings
for a long time, preferably indefinitely, and participating in the
long-term success of being a partial owner of the business underlying the
shares.
C
Call option
An option contract that grants
the buyer the right, but not the obligation, to buy the optioned shares of
a company at a set price (the "strike price") for a certain period of
time. If the stock fails to meet the strike price before the expiration
date, the option expires worthless. You buy a call option if you think the
share price of the underlying security will rise, or sell a call option if
you think it will fall. Selling an option is also referred to as
''writing'' an option. The option seller is called the writer.
Capital
A business's cash or property, or an
investor's pile of cash.
Capital
appreciation
One of the two components of total return,
capital appreciation is how much the underlying value of a security has
increased. Dividend yield is the other component of total
return.
Capital gain/loss
The difference
between the price at which an asset is sold and its original purchase
price.
Capital growth
An increase in the price
of a share or bond. Sometimes called capital
appreciation.
Cash and cash equivalents
It
refers to the amount of money that a company has sitting in the bank. It
may also include marketable securities, such as government bonds. Cash
equivalents on the balance sheet may include securities that mature within
90 days.
Cash flow
A measure that tells an
investor whether a company is actually bringing cash in to the company's
coffers.
Cash flow statement
A financial
statement reflecting the monies that go into and out of a business, and
the timing of those movements. The cash flow statement reports on cash
inflows and outflows in a company's operations, investments, and financing
activities.
Cash investments
Short-term debt
instruments such as commercial paper and Treasury bills that mature in
less than a year. Also known as money market accounts or cash
reserves.
Certificate of deposit (CD)
An
insured, interest-bearing deposit at a bank, requiring the depositor to
keep the money invested for a specific length of
time.
Certified Public Accountant (CPA)
A
professional who is licensed to practice public
accounting.
Churn
Churning is unconscious or
conscious overtrading by a broker in a customer's account. Since brokers
are most often compensated by the number of transactions made on a
customer's behalf, there is temptation to trade too frequently, whether
that's in stocks, bonds, or collective investment
schemes.
Closed-end fund
A collective
investment scheme that has a fixed number of
shares.
Closing price
The last trading price of
a stock when the market closes for the day.
Collective
Investment Scheme
These are financial products where money
from a number of different investors are pooled and then invested by a
fund manager according to specific criteria. The scheme or fund is divided
into segments called ‘units’, which are to some degree similar to shares.
Investors take a stake in the fund by buying these units – they will
therefore become unitholders. The price of a unit is based on the value of
the investments the fund has invested in (Net asset value).
Compounding
When an investment generates
earnings on reinvested earnings.
Convertible
security
A preferred stock or corporate bond that can be
exchanged for shares of the company's common stock at a predetermined
price or rate.
Correction
A short-term drop in
stock market prices. The term "correction" comes from the notion that,
when this happens, an overpriced individual stock, market segment, or
stocks in general are returning back to their "correct" values.
Cost/benefit analysis
An attempt to determine
the feasibility of embarking on a project by quantifying its anticipated
costs and benefits.
Coupon/coupon rate
The
interest rate that a bond issuer is obligated to pay the bond holder until
the bond matures.
Crash
A market crash is a big
drop in market value. It is what many shorter-term focused investors
always worry about. The stock market never goes up in a straight line, so
there will always be crashes. It can take a few days, months, or even
years for a market to recover after a crash.
Cumulative
total return
The performance of an investment over a stated
period of time.
Current assets
Assets that are
easily convertible to cash. Cash, short-term investments, and accounts
receivable are asset categories that should result in cash within the next
year.
Current liabilities
Debt or other
obligations that are payable within a year.
Current
ratio
The current ratio provides a speedy indication of a
company's ability to meet short-term debt obligations. The higher the
ratio, the more liquid the company is, and the better able it is to take
care of any short-term debt. To determine the ratio, take current assets
and divide by current liabilities.
Current
yield
As applied to bonds, the annual interest rate divided by
the current market price.
Cyclical stock
Stock
of a company whose performance is generally related (or thought to be
related) to the performance of the economy as a whole. Paper, steel, and
the automotive stocks are thought to be cyclical because their earnings
tend to be hurt when the economy slows and are strong when the economy
turns up. Food and drug stocks, on the other hand, are not considered
"cyclicals," as consumers pretty much need to eat and care for their
health regardless of the performance of the economy.
D
Daily high
The highest price reached by a
stock (or index or commodity) during a given day.
Daily
low
The lowest price to which a stock (or index or commodity)
dropped during a given day.
Day order
A buy or
sell order that, if unfilled, expires automatically at the end of the day
on which it was placed.
Day trader
Day traders
are in and out of the market many times during the course of one trading
session and often do not hold a position in any stocks
overnight.
Days sales outstanding (DSO)
A
measure of how long it takes a company to collect money that it is due.
The formula to calculate DSO for one quarter is: accounts receivable /
(sales / 90).
Days to cover
A measure of how
many shares of a company have been sold short. It is calculated by
dividing the number of shares sold short by the average daily trading
volume. When you short a stock, you want the days to cover to be low,
around seven days or less.
Debenture
A debt
obligation that is not backed by
collateral.
Debt
A liability that must be
repaid.
Debt-equity swap
A transaction in
which a corporation exchanges newly issued stock (equity) for already
existing bonds (debt).
Debt-to-equity
ratio
Calculated by dividing long-term debt by shareholders'
equity. A measure of a company's leverage, this ratio shows the
relationship between long-term funds provided by creditors and funds
provided by shareholders. A high ratio may indicate high risk, and a low
ratio may indicate low risk.
Diversification
Investing in separate asset
classes (stocks, bonds, cash) and/or stocks of different companies in an
attempt to lower overall investment risk.
Dividend
A share of a company's earnings paid
to each shareholder.
Dividend yield
The annual
percentage rate of return paid in dividends on a share of stock. To figure
out the dividend yield (or just "yield"), divide the annual dividend by
the current share price of the stock.
E
Earnings
The money
that is left over after a company pays all its bills. Also known as net
income or net profit.
Earnings per share
(EPS)
A company's earnings, also known as net income or net
profit, divided by the number of shares outstanding.
EBITDA
(earnings before interest, taxes, depreciation, and
amortisation)
Otherwise known as the middle line or
operational cash flow, it is not a replacement for earnings per share.
Rather, it is a crucial ingredient, along with the company's debt, in
evaluating the company.
Emerging markets fund
A
collective investment scheme that invests in countries with developing
economies such as those in Latin America and Asia (excluding Japan).
Emerging markets funds tend to be quite volatile due to political and
economic instability.
Ex-dividend date
A
synonym for ‘without dividend’. A share is described ex-dividend (xd or
ex-div) when a potential purchases will no longer be entitled to receive
the company’s current dividend, the right to which remains with the
vendor.
F
Face
value
See Par Value.
Fiduciary
An
individual, corporation, or association that is charged with managing or
investing another's assets.
Fiscal year
A
12-month accounting period.
Fiscal year-end
The
end of a 12-month accounting period.
Fixed-income
fund
A collective investment scheme that invests in bonds,
CDs, preferred stock, or other fixed-income
instruments.
Free cash flow
The cash that's
left over after everything -- bills from suppliers, salaries, new
equipment to expand the business -- is said and done. Theoretically, free
cash flow is the amount of cash a business could issue to shareholders in
the form of a dividend check.
Fundamental
analysis
The method of evaluating a company by assessing its
financial statements, earnings, sales, and
management.
Futures/futures contracts
A
contract to buy or sell an amount of a commodity for a specific price at a
specific point in the future.
G
Global
fund
A collective investment scheme that invests anywhere in
the world.
"Going public"
Performing an
initial public offering. That is, offering shares of your company to the
public so that they may buy them.
Growth and income
fund
A collective investment scheme that pursues long-term
growth of capital as well as current dividend income from
stocks.
Growth stocks
Companies believed to be
growing earnings and sales faster than the average company in the market.
Growth stocks usually pay little or no dividend, as they are still at a
stage in their businesses where they are reinvesting most or all of their
earnings into the further development of new areas of the business.
H
High-yield bonds
Bonds that are rated as
below investment grade. The issuers of these bonds -- which are judged to
be at a higher risk of default -- have to pay an attractive dividend to
compensate investors for the additional risk.
High-yield
fund
A collective investment scheme that invests in bonds with
low credit ratings. Because of the risky nature of high-yield bonds,
high-yield funds have greater volatility than the average bond fund.
I
Income fund
A collective investment scheme
that invests in bonds and stocks with higher-than-average dividends.
Index
An unmanaged selection of securities
whose collective performance is used as a standard to measure investment
results. Examples include the Dow Jones Industrial Average, the Standard
& Poor's 500, FTSE100, etc.
Index fund
A
passively managed collective investment scheme that seeks to match the
performance of a particular market
index.
Inflation
A rise in the prices of goods
and services.
Initial public offering (IPO)
A
company's first offering of ordinary shares to the public.
Insider trading
Trading done by a person with
access to key non-public information.
International
fund
A collective investment scheme that invests in securities
traded in foreign markets.
Inventory
Finished
or near-finished products that a company has not yet sold. It's considered
an asset because it can be sold or liquidated for money. But, from an
investor's point of view, inventory is often more like a liability because
it represents a momentary failure on the company's part to convert its
business into cash. Investors ideally like to see inventory growth
comparable to, or less than, sales growth.
Investment
grade
A bond whose credit quality is considered to be among
the most secure by any independent bond-rating agency. A rating of Baa or
higher by Moody's Investors Service or a rating of BBB or higher by
Standard & Poor's is considered investment grade.
J
K
L
Load
A
sales commission paid when purchasing shares of a collective investment
scheme (called a front-end load) or when redeeming shares of a collective
investment scheme (called a back-end load).
Long-term
capital gain
A profit on the sale of shares, collective
investment scheme shares, or other securities that have been held for more
than one year.
Long-term assets
A long-term
asset is one that is consumed or used over a number of accounting cycles,
from more than one year to 40 years. The long-term asset accounts include
assets such as land, buildings, equipment, and intangibles such as
goodwill.
M
Market capitalisation (market cap)
A
company's total equity market value, calculated by multiplying the price
of a single share by the total number of shares
outstanding.
Maturity/maturity date
The date on
which the issuer of a certificate of deposit or a bond agrees to repay the
principal to the buyer.
Merger
The unification
of two or more companies.
Money market fund
A
collective investment scheme that invests in very short-term,
high-liquidity investments. Similar to a savings account, though usually
offering better interest rates.
N
Net asset value (NAV)
The price of each share
of a collective investment scheme. It is calculated by subtracting the
fund's liabilities from its total assets, and dividing that figure by the
number of shares outstanding. The NAV is the amount of money that an
investor would receive for each share if the collective investment scheme
sold all of its assets, paid off all of its outstanding debts, and
distributed the proceeds to shareholders.
Net
income
Gross income minus total expenses gives you net income.
You'll find this information on the income statement.
Net
investment
Gross, or total, investment minus
depreciation.
Net profit
The bottom line. This
is how much money the company made in profits. It can also refer to net
profit margin, which is a percentage telling you how many cents on each
dollar is pure profit.
Net profit margin
Net
income as a percentage of sales. You get this by dividing net income by
sales. Since it's a percentage, it tells you how many cents on each dollar
of sales is pure profit.
Net quick assets
Cash,
accounts receivable (which is money owed to the company from its
customers), and marketable securities, minus current
liabilities.
Net revenue
Net revenue is
revenues (sales), minus returns, discounts, and
allowances.
Nominal returns
Investment returns
before adjusting for inflation.
O
Open-end fund (SICAV)
A collective investment
scheme that has an unlimited number of shares available for purchase. Most
collective investment schemes are open-ended.
Operating
cycle
The time it takes to sell a product and collect cash
from the sale. An operating cycle can last from several weeks to a number
of years.
Operating expenses
The cost of doing
business. Operating expenses are deducted from revenues, and the result
is, hopefully, profits.
Option
A call option is
a contract in which a seller gives a buyer the right, but not the
obligation, to buy the optioned shares of a company at a set price (the
strike price) for a certain period of time. If the stock fails to exceed
the strike price before the expiration date, the option expires worthless.
A put option is a contract that gives the buyer the right, but not the
obligation, to sell the stock underlying the contract at a predetermined
price (the strike price). The seller (or writer) of the put option is
obligated to buy the stock at the strike price.
P
Par value (bond)
The stated value of a bond
as printed on its certificate or the amount the issuer must repay when the
bond reaches maturity. A par bond is one selling at its face
value.
Payment date
The date that dividend
checks go out.
Portfolio
All the securities held by an individual, institution, or
collective investment scheme.
Portfolio
manager
Any individual(s) in charge of the investment
decisions for a portfolio.
Preference
shares
Preference shares pay a dividend on a regular
schedule and are given preference over ordinary shares in regard to the
payment of dividends or any liquidation of the company. Their share prices
tend to remain stable, and will generally not carry the voting rights that
ordinary shares do.
Price-to-book
ratio
Shareholders' equity divided by the number of shares of
stock outstanding.
Price-to-earnings ratio
(P/E)
The share price of a stock, divided by its per-share
earnings over the past year.
Principal
The
original cash put into an
investment.
Proceeds
The cash received from
selling an investment. Net proceeds are the cash pocketed after
subtracting the purchase price, including all fees and
commissions.
Put
A put option is a contract
that gives the buyer the right, but not the obligation, to sell the stock
underlying the contract at a predetermined price (the strike price). The
seller (or writer) of the put option is obligated to buy the stock at the
strike price. Put options can be exercised at any time before the option
expires. You buy a put if you think the share price of the underlying
stock will fall, or sell one if you think it will rise. You don't have to
own the stock to buy a put. You can buy a put, wait for the price to fall
below the strike price, then buy the stock and immediately resell it for
the higher strike price. The person who sold the put gets stuck with
buying the stock at the higher price.
Q
Quick
ratio
Current assets minus inventories divided by current
liabilities. By taking inventories out of the equation, you can check and
see if a company has sufficient liquid assets to meet short-term operating
needs.
Quotation
The price being bid (by a
prospective buyer) or offered (by a potential seller) for a
stock.
R
Real return
The inflation-adjusted returns of
an investment.
Real yield
Since the interest
payment on an individual bond is the same every year, the bond's future
payments are worth less and less as inflation erodes the value of the
respective currency. To account for this degradation, economists talk
about the "real yield" of a bond, which is the nominal, or stated,
interest rate minus the inflation rate.
Retained
earnings
Income a company has earned, less the dividends it
has paid. The key is the word "retained," which implies that income
remains in the business, rather than being distributed to shareholders as
dividends.
Return on equity (ROE)
Return on
equity is a measure of how much in earnings a company generates in four
quarters compared to its shareholders' equity. It is measured as a
percentage. For instance, if XYZ Ltd made Lm1 million in the past year and
has shareholders' equity of Lm10 million, then the ROE is
10%.
Return on invested capital
Return on
invested capital (ROIC) is a measure of financial performance and a
financial performance forecasting tool.
Revenue
Money that a company collects from customers for the sale of
a product or service. When you subtract out all costs from revenues, you
get profits or earnings.
Risk tolerance
The
measurement of an investor's willingness to suffer a decline (or repeated
declines) in the value of investments while waiting and hoping for them to
increase in value.
Risk-adjusted return
A
measure of how much risk a portfolio has employed to earn its
returns.
S
Secondary Market
When stocks or bonds are
traded or resold, they are said to be sold on the secon
