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Glossary

A

Advance Corporation Tax (ACT)
Early instalment of UK corporation tax. It forms a minimum tax on companies that earn most of their profit overseas.
AGM
Annual General Meeting. The meeting for shareholders at which routine matters, such as the election of directors, approval of reports and accounts, are put to the vote of shareholders.
American Depositary Receipt (ADR)
Certificate issued by US banks to facilitate trading for US shareholders in the shares of non-US companies.
Assets
Fixed assets include land, machines and buildings; current assets consist of cash, money owed, stock, investments and work in progress; intangible assets are goodwill, trademarks, patents, etc; liquid assets are funds kept in cash or in a form that can be quickly and easily turned into cash.

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B

Base rate
Annual interest rate on which lending charges are calculated by British banks.
Basis point
Usually one hundredth of a percentage point (0.01 per cent), used in quoting movements in interest rates or yields on securities.
Bear
A person who expects prices of shares and/or stock markets to fall.
Bear market
A period of falling share prices; a pessimistic state of affairs. See also bull market.
Bid price
The price at which securities in the market may be bought.
Blue chip
A stock considered reliable with regard to dividend income and capital value.
Bond
A certificate of debt issued to raise funds. Bonds typically pay a fixed rate of interest and are repayable at a fixed date.
Bond ratings
Gradings by debt rating agencies such as Standard & Poor’s or Moody's Investors Services to classify the investment-worthiness of a company's debt.
Bonus issue
The issue of new shares to an existing shareholder, but at no extra cost. A means for the company to distribute historic retained profits to shareholders.
Brokers forecast
Estimates of future company performance issued by stockbrokers and bank analysts.
Bull
A person who expects the price of shares, and/or stock markets, to rise.
Bull market
A period of rising share prices; an optimistic state of affairs. See also bear market.

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C

Capital gain
Profit made on the sale of shares, commodities, property or land; in the UK, capital gains tax may be payable on the profit.
Cash flow
Measure of the actual cash generated by a business rather than the accounting profit. In the UK typically pre-tax profit plus depreciation, amortisation and other non-cash charges. In the US, net income with depreciation charges added back.
Closed-end investment funds
Investment funds with a fixed share capital. As opposed to open-ended funds which expand or contract according to investor demand.
Closed period
The period prior to the company’s release of its Interim or Preliminary results, during which the directors are not permitted to trade in the shares of the company. Normally two months.
Consensus forecasts
A market average of stockbrokers' and bank analysts' forecasts of the future financial performance of a company.
Convertible bond
Bond that can be converted into shares of the issuing company.
Coupon
The rate of interest payable on a fixed-interest security, traditionally a detachable coupon.
Cum dividend (cum cap, cum all (see also Ex:))
Purchase of a share cum dividend means that the buyer of a share is entitled to the next dividend payment; cum rights means that the purchaser is entitled to shares from a forthcoming rights issue; cum cap means that the purchaser is entitled to a scrip issue; cum all means that the purchaser is entitled to all of these. Opposite of ex:
Current assets
Assets of a company which can be realised in cash, sold or consumed within one year. Typically the sum of cash, cash equivalents, receivables, inventories, prepaid expenses and other current assets.
Current liabilities
Liabilities of a company that the company expects to satisfy within one year. Typically accounts payable, short term debt, notes payable, taxes payable, dividends payable and other current liabilities.

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D

Debt/equity ratio
A ratio which describes the leverage or gearing of the company and is calculated as total debt divided by common shareholders' equity expressed as a percentage.
Depreciation
The reduction in the balance sheet value of a company asset to reflect its loss of value through age and wear and tear.
Dividend cover
The number of times a company could pay its most recent net dividend out of its net profit (profits after tax).
Dividends
The proportion of a company's profit that it pays to its shareholders, usually declared as a dividend per share (DPS). In the UK the dividend is normally paid in two parts: an interim dividend payment and a final dividend once the final results are known.

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E

Earnings
Profit available to ordinary shareholders, after all operating expenses, interest charges, taxes and preference dividends have been deducted. Excludes extraordinary items.
Earnings per share (eps)
Earnings divided by the number of ordinary shares outstanding. Diluted earnings per share adjusts the number of shares to reflect the potential number of shares outstanding after the exercise of options or convertible debt.
EGM
Extraordinary General Meeting. A meeting of shareholders which may be called to approve special events such as a take-over, or major acquisition.
Employee Stock Ownership Plan (ESOP)
A trust established by a company for the allocation of shares to employees. Usually a tax efficient way to provide this motivational benefit.
Equity
The voting capital in the company, represented by the ordinary shares.
Ex dividend, ex rights, ex cap, ex all
Purchase of a share Ex dividend (xd) means that the buyer of a share is not entitled to the next dividend payment; ex rights means that the purchaser is not entitled to shares from a forthcoming rights issue; ex cap means that the purchaser is not entitled to a scrip issue; ex all means not entitled to any of these. Opposite of cum.

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F

Flotation
The process of listing a company's shares on a stock exchange.
Futures contract
Contract which requires the delivery of a commodity or currency at a specified value and date in the future.

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G

Gearing
Used to describe the relationship between debt and equity and is calculated by dividing the company debt by common shareholders equity. A highly geared company is one that carries a lot of debt.

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H

Hedging
Reducing exposure to risk of loss resulting from fluctuations in exchange rates, commodity prices, interest rates etc.
Holding company
Company whose main assets are shareholdings (usually controlling) in other companies.

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I

Initial public offering
The process of taking a privately owned company public, by listing its shares on a stock exchange.
Institutional investor
Large financial institutions such as pension funds, unit or investment trusts and insurance companies.
Intangible assets
Describes assets that do not have a physical, tangible existence. Examples of intangible assets could include goodwill, brand value or patents etc.
Interest payable
This is the interest that is due to be paid within one year and as such falls within current liabilities on the company balance sheet.
Interim results
Unaudited first half figures that provide an indication of the company's trading and profit performance since the last full year accounting period.
Inventories
Also known as stock, this relates to items that have been manufactured or acquired for resale, work not yet completed and raw materials. Appears as a current asset on the company balance sheet.

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J

Joint venture
Co-operation on a project or business between two or more corporate bodies.

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L

Leveraged buy-out
Borrowing money to buy out a company, using the company's assets as collateral for the borrowing. The loans are typically repaid from the company's cash flow or by selling off assets.
Liabilities
The debts of a company and other financial obligations; the opposite of assets.
LIFFE
London International Financial Futures and Options Exchange.
Liquidity
The proportion of cash or cash equivalents in a company's assets. Sometimes used as a measure of the near term financial health of a company. Also a measure of the volume of shares being traded, which may affect the ability of buyers or sellers to build/unwind large holdings without a substantial impact on the price.
Long term debt
All interest-bearing financial obligations which mature in more than a year.

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M

Margins
Profit margin is profit as a percentage of revenue (or turnover). It is calculated before interest charges and tax.
Market capitalisation
Value at current market prices of a company's equity capital. It is calculated by multiplying the current share price by the number of shares outstanding.
Market price
The price at which a share can currently be traded in the market.
Mid price
The mid point between the bid and offer price quote in the market.
Mutual fund
The US name for a unit trust.

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N

Net income
Income (profit) shown after all operating and non-operating income and expense, reserves, income taxes, minority interest and extraordinary items but before preferred and ordinary dividends.
Nominal return
Return that takes no account of the effects of inflation.

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O

OEICS
An open-ended investment company, with a single price for buying and selling.
Offer price
The price at which securities may be sold in the market.
Operating profit
The difference between revenue (or turnover) and the costs incurred during operations (total operating expenses).
Option
The right (but not the obligation) to buy or sell securities at a given price (exercise or strike price) before a given date (expiry date).
Ordinary share
The most common class of share representing the owners interest in a company.

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P

P/E ratio
Ratio or multiple calculated by dividing the price per share (p) by the earnings per share (e). A simple measure for comparing the relative valuations of different companies.
Placing
Raising money by issuing new shares and 'placing' them, generally in substantial amounts, with major investors.
Preference shares
Shares with a fixed dividend. The holders of preference shares are entitled to their dividend before ordinary shareholders and rank above ordinary shareholders should the company be wound up. Preference shares are share capital but not equity share capital.
Prelims
The first release of a company's results for the financial year to the stock exchange.
Pretax profit
All income (or loss) before tax.
Profit
The surplus of revenue generated over expenses incurred for a particular accounting period. Operating profit refers to the profit generated before interest and tax have been taken into account.
Prospectus
A document, published prior to the issue of shares to the public, which explains all aspects of a company's business, detailing financial and other information about the company and the securities being offered for sale.

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R

Real return
Return adjusted to take account of inflation.
Receivables
A current asset that represents amounts due to the company from the sale of goods and services on credit.
Retail Price Index (RPI)
A broad basket of goods/services whose price is calculated monthly and which provides a broad measure of the level of inflation.
Return on assets
Ratio which measures the return a company generates from its total assets.
Rights issue
Offer of shares to existing shareholders to raise money.
Risk premium
The excess return over a risk-free asset (e.g. a gilt) which investors will require to compensate themselves for the higher risk associated with holding an asset like an equity.

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S

Scrip issue
A book-keeping transaction that does not affect the value of the shareholders interest or raise any money for the company; it is a means for a company to transfer money from reserves into permanent capital. Can also be known as a capitalisation issue or bonus issue.
Securities
A financial instrument issued by a company and traded on a stock exchange.
Securities and Exchange Commission (SEC)
The statutory body that regulates the US securities industry.
Securities and Futures Authority (SFA)
The regulatory body for the securities and futures markets in the UK. Formed in 1991 through a merger of the Securities Association and the Association of Futures Brokers and Dealers.
Share capital
Common shares outstanding.
Share option
See Option.
Short
The term to describe the position of investors that have sold shares they do not possess, in the hope of buying them later at a lower price.
Short term debt
The portion of debt that is payable within one year. Falls under current liabilities on the company balance sheet.
Spread
Usually the difference between the Bid and Offer prices.
Stock split
The term used to describe the division of shares into a larger number of shares with lower unit value. There is no change to the proportional holding of shares.

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T

Tangible assets
Tangible fixed assets represents property, plant and equipment, after the deduction of depreciation.

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Y

Yield
The Rate of return gained on an investment. It also refers to the dividend payable on a share (and is expressed as a percentage of the market price).

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Z

Zero-coupon bond
A type of bond that pays no interest during its life and matures at face value. The investor's return comes from the fact the bond is sold at a deep discount.

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