Definitions.docx - Ning by wuzhenguang


									                                Glossary of Financial Terms

Active fund manager

Someone who manages a fund by selecting individual shares, aiming to do better than the stock market.
Contrasts with a Tracker Fund. Most active fund managers do not beat the market.


A professional whose job it is to evaluate risk. Many actuaries help insurance companies decide what
premiums to charge or what rates they should be paying to people who want to buy an Annuity.

Additional Voluntary Contributions (also known as AVCs).

Additional payments paid into company pension schemes by employees who want to improve the
benefits they will get on retirement.


A personal representative appointed to administer the estate of a deceased person.

Advance corporation tax

Basic rate tax paid on dividends by a company to the Inland Revenue on behalf of the shareholder.

Advances, debtors
This is the Banking equivalent of stocks, being the money advanced to customers as financial loans or

Advisory Stockbroker

A stockbroker who advises you on what shares your buy and sell. He will typically charge more than an
EXECUTION ONLY stockbroker who merely carries out your instructions.


Stands for the Association of Investment Trust Companies.


Member of the Alternative Investment Market


Professionals who work for the big brokerage and merchant banking houses whose job it is to analyses
and report on national economies, individual companies and various sectors of a stock market.

Annual General Meeting (AGM)

The meeting of shareholders held to approve the accounts and to re-appoint directors’ and auditors.
Normally held 21 days after publication of the annual report. It must be held within 18 months of the
previous AGM. A meeting that should be attended by shareholders as an opportunity to question
directors’ on business and performance prospects and results.
Annual Percentage Rate (known as APR)

The total amount it costs you to borrow money worked out on a yearly basis. It includes not just the
interest rate you are paying, but also any fees, such as valuation fees to building societies or annual fees
for credit cards. Annual Percentage Rate (known as APR) - the total amount it costs you to borrow
money worked out on a yearly basis. It includes not just the interest rate you are paying, but also any
fees, such as valuation fees to building societies or annual fees for credit cards.

Annual Report & Accounts

The directors’ report to shareholders setting out, in both text and financial terms, details of the
company’s performance during the past year and the state of its finances and assets as at the latest
reporting date, the Balance Sheet date.

Annual Report

A yearly report produced by a company or a fund describing its performance throughout the year, with
comments from the chairman and executives on that performance.


A regular income, usually lasting for life, which has been purchased with a capital lump sum. Typically,
you will buy an annuity with your pension fund when you choose to retire.

Annuity rates

The rate applying when an annuity is purchased.
APCIMS (Association of Private Client Stockbrokers and Investment Managers)

The official body of Stockbrokers and fund managers specializing in the provision of investment services
for private clients.

Arbitrage and Arbitrageur

A form of speculation on currencies, shares or bonds. The arbitrageur (also known as an arb) will often
try and take advantage of different prices of shares or currencies in different market, locking in a small
percentage profit.

Asset Management

Another way of describing the process of managing other people’s money. An asset manager is a fund
manager who manages your money for you, hopefully making it grow.


A general term which can refer to physical items like property or even shares or investments.
Alternatively, it can refer to invisible (or intangible) things such as a brand name or the goodwill of a

Associated Companies

Where the company has an interest in another company that represents more than 20%, but less than a
majority, of the voting rights in that company’s share capital, then this is deemed to be an investment in
an "Associated Company" and the profits of the investment are consolidated into the results of the
investment holding company. Under a 20% interest only dividends received will feature in the holding
company’s accounts. Over a 50% interest, the investment is deemed to be a subsidiary company and its
results and net assets will be fully consolidated in the holding company’s own accounts
At Best

An instruction you can give to your broker. It basically authorizes them to make the requested trade at
the best price possible at the time of trading. The alternative is to place a limit on the order


A check on the accounts of a limited company, carried out by an accountant who is supposed to be
independent of the company. The accountant (known as an auditor) has to say whether the company’s
accounts fairly reflect the financial performance of the company.


An outside accountant employed to make routine checks on a business to ensure the company’s
accounts are being kept properly.

Balance sheet

The statement of the capital position of a company at any one time. It shows what it owns (assets) and
what it owes (its liabilities).


An investor who is negative towards shares, believing prices will fall. A Bear market is one where share
prices across the entire market are generally, and consistently, falling.

Bear and bull markets
A bear market is one where prices are falling usually across the whole market for a prolonged period of
weeks, months or even years. A bull market is one with a rising trend. Investors who think the market is
about to fall are bearish while those who think the market will rise are bullish.

Bearer bonds

A bond or share whose ownership is not registered. Whoever has physical possession is considered to be
the owner.

Bid Offer Spread

The difference between the buying and selling price of shares or units in a unit trust. The "bid price" is
the price you can sell at (the price the market will bid you for your shares); while the "offer price" is the
price you can buy at (the price the market offers to sell to you at).

Bid Price

The price the market maker will pay you for your shares when you sell (see Spread).

Blue chip Shares

In a very large well established and highly regarded company. It is named after the highest value chip in

A bond is a certificate of debt issued by companies and governments to raise cash. It usually pays
interest and can be traded in a market. A bond is longer term than a and usually guarantees to repay the
capital at an agreed future date. UK Government bonds are known as gilts or gilt-edged securities
because in the nineteenth century, There are several time periods for UK gilts short (under five years to
maturity), mediums (between five and fifteen years) and longs (which mature after fifteen years).


Additional sums of money added at regular intervals, usually of one year, to a savings policy. Once
added, the annual bonus cannot be taken away.


A short-hand term, used to describe either a stockbroker or an independent financial adviser. A
stockbroker buys and sells shares on your behalf. An independent financial adviser usually advises you
on a range of different savings and investment products. He is supposed to be independent because he
is not tied to one particular investment company.


An investor who is positive towards shares, believing prices will rise. A Bull market is one where share
prices across the entire market is generally, and consistently, rising.

CAC 40

The index of the 40 largest French companies, typically used as a shorthand indication of how the French
stock market is performing.

An amount of money, a lump sum, that can be invested in assets or is available to invest.

Capital Employed

The funds employed by the company in its activities. This represents the value, in the Balance Sheet, of
the company’s share capital, reserves and debt. It can be expressed either before or after intangible
assets, dependent upon the circumstances and requirement.

Capital gains

The increase in the capital value of investments or assets.

Capital Gains Tax

Tax charged on gains you make from dealing in shares.

Capital secure

A term used to denote capital which is safeguarded from the volatility that affects equity-based

Capital transfers

Assets passed on to someone other than a spouse which is subject to inheritance tax.

Capped Rate Mortgage
One where the interest rate on your mortgage is guaranteed not to increase over a certain level (it is
capped), but will fall if interest rates fall.

Cash Flow Statement

The statement in the Annual Accounts that indicates, for the financial period, the sources of all cash,
both from operations and from external sources of finance, and how this has been used for trading,
capital preservation, investment and taxation purposes.


In a Balance Sheet context applicable to insurance companies only, this is the aggregate of cash balances
for the company AND its insurance funds.

Cash securities

The value of all liquid assets employed in the business, either as ready cash or invested in short term
securities and readily convertible into cash.

Change on the week

The change in price from the market close on the last trading day in the previous week. Note On the first
day of trading in a week the day change and week change can differ, as the day change is taken from the
market opening, whereas the week change is from the previous close - market forces can lead to a
difference between the close and open prices, although usually only by a small margin.

Graphs of share and market (index) performance used to determine relative trends and, based on
historic movements, identify likely future moves. The key aspect of Technical Analysis.


The practice of dealing in shares or other securities purely to generate commission for the person doing
the churning, not for the client. Strictly illegal

Collective funds

Any scheme where investors pool their resources to spread their investment risks. Popular forms of
collective funds include unit and investment trusts in Britain and mutual funds in America.


The charge made by your stockbroker for conducting your buy or sell instructions. This may either be a
percentage of the value involved or, for small deals below a stated and agreed value, a fixed rate.

Commutation of a pension

A government concession to take a certain tax-free lump sum out of an accumulated pension fund.

Compound growth

Method of growth in which the interest is added back to the capital at each stage to increase the total
all the time.

Non-redeemable, i.e. open-ended, gilt-edged stock. It has no maturity date.


Liabilities Potential liabilities that the company MAY face in the future if certain circumstances should
arise. Indicated in the Notes to the Accounts it will include, for example, the likely costs arising from
guarantees given to third parties.

Contract Note

The record the investor receives from his stockbroker confirming the terms of the deal that the
stockbroker has undertaken on their behalf.

Corporate bond

A fixed interest loan raised by a company which guarantees to repay the capital on an agreed future

Corporate Governance

The term used, following recent Government sponsored reports, to describe the policies and procedures
that the company’s directors’ employ in their conduct of the company’s affairs, and their relationships
with shareholders to whom they are responsible as managers of the shareholders interests in the
company, and of its assets

A short sharp fall in the stock market or in a particular share.

Creative Accounting

The term used to indicate accounting and financial reporting practices which, whilst not illegal, are
intended to convey a circumstance or position that is either misleading or illusory, creating a position of
profitability or soundness that may not be totally valid.


Credit is given by banks when they advance loans to their customers and businesses when they allow
their customers to take goods and defer payment for them.


Applicable to insurance companies only this is the aggregate sum of all short term liabilities of the
company AND its insurance funds.

Creditors long

This is all liabilities payable more than one year after the Balance Sheet date. This includes provisions
and deferred taxation, loans and debt, including convertible debt, repayable more than one year after
the Balance Sheet date.

Creditors short
This is all current liabilities payable on demand or within one year of the Balance Sheet date. For Banks
this also includes short term bank liabilities such as deposits.


A new system for settling and registering share purchases which does away with the need for share
certificates. You can still ask for a share certificate if you prefer - but many stockbrokers will charge extra
for providing one.

Cum Dividend

Literally means, with dividend. If you buy a share cum dividend it means you are entitled to receive the
next dividend paid on it. The opposite of ex-dividend which means you buy without the right to receive
the dividend that has just been declared on the share.

Current Assets

The value of the assets held at the Balance Sheet date that are represented by cash, or can be expected
to be converted into cash within the next 12 months.

Current Liabilities

The value of those liabilities at the Balance sheet date that the company is required to settle (pay) either
on demand, or within the next 12 months.


The German stock market index of large companies. See also FTSE 100 and Dow Jones Industrial.
Germany also has an index for newer, smaller companies, called the Neuer Market.

Amounts owing to the company, including the value of sales made under credit, where settlement from
the customer is still awaited.

Debtors others

Insurance companies only. This is the aggregate of all short term sums due to the company and its
insurance funds.


To fail to pay a debt.

Defined contribution scheme

Money purchase scheme, the contributions go into a pot whose growth depends upon the investment
performance of the fund; the fund is then used to purchase an annuity.


The opposite of inflation; when general prices in the economy are falling.


The loss in value of an asset with time or through usage.

Complicated instruments. Basically they give you the right to buy or sell a share, currency, bond or other
instrument without having actually to own it. OPTIONS and FUTURES contracts are derivatives.

Discount Broker

A stockbroker or financial intermediary who charges less commission than the norm or actually return
commission, usually by adding it to your investment. The term has been used to refer to financial
advisers who rebate commission they earn on sales of unit trusts and Peps.

Div per share

Dividends are regarded as a crucial investment measure. It is the declared net dividend per share
payable to registered shareholders for the financial period. This is the income a shareholder receives on
each share invested in the company.

Dividend cover

The indicator as to the rate that the company may be paying its dividends out of its earnings, and its
ability to continue to pay dividends at that rate.


The sum paid by the company to its shareholders as their direct financial reward from holding the
company’s shares. It is the income received from an investment in the company’s shares.
Dividend yield

The ratio between the dividend and what was actually paid for the share.

Dow Jones

Industrial Average ("The Dow"). The 30 large American companies whose performance, presented as an
index, is the most common measurement of how well the US stock market is performing.

Earnings Per Share (eps)

The relationship of the profit, after tax, attributable to each share in issue. The key component of
company performance featured in the price earnings ratio (P/E ratio or PER). The main subject of broker
research on future corporate performance and a key factor in arriving at share and corporate value.

Economic cycle

This is a round of economic events that proceed in an irregular succession.


Professionals who study the behavior of the economy.


EPS is computed after including all exceptional and extraordinary items, both of a trading and non-
trading nature, and after deducting tax and minority interests.
Equalization of assets

A process by which spouses can share out their assets into equal sized portions to avoid paying large
amounts of inheritance tax if the otherwise wealthier partner dies before the other. It can also be used
to avoid or reduce liability to capital gains tax.


Commonly used to mean the ordinary shares of a company. They are freely traded stocks and shares in
publicly quoted companies that do not carry a fixed rate of interest; instead they entitle their holders to
a share in the growth of the company through an annual dividend payment. The equity holders are the
company’s owners.


When appended to the share price, means "excluding". Thus a share price quoted ex dividend (xd or ex
div.), means that you will not receive the announced dividend when you buy the shares. Conversely, you
will still receive the dividend when you sell the shares xd, even though you do not hold the shares
anymore at the actual time of the dividend payment.


Literally without dividend. When a share goes ex-dividend the anyone who buys it will not receive the
dividend which has recently been declared.

Execution-only services
Even if you have done the research and know what you want to buy, you still have to use a financial
intermediary, but the purchase should be cheaper because the advisor does not have to do the work.

Execution-Only Stockbrokers.

Stockbrokers who buy and sell shares on your behalf on your instructions but do not give you advice.
They provide a cheap, often no-frills service. Some keep you hanging on the phone for ages. So choose
one with care.


A person appointed to administer someone’s estate after their death. It is usual for the person making a
will to nominate two executors to carry out this duty.

Exit charge

A charge you pay for selling or transferring an investment or packaged financial products. Many Personal
Equity Plan Providers will levy an exit charge if you want to transfer your Pep to someone else.

Fixed assets

Physical elements and items used in the operation of the business and will include all plant & machinery,
land and buildings (both leasehold and freehold). A guide to the asset backing for the company’s
liabilities and debt

Fixed investments.

Investments held for long term business or investment purposes. Taken in conjunction with fixed assets,
they provide the tangible asset backing for the company’s liabilities and debt.

When a company decides to launch on the stock market the process is often referred to as a flotation.
The company will issue shares to institutions and sometimes to the general public.

Front-end Loading

The practice of levying high charges on you when you buy a financial product. Many personal pension
policies, endowment policies and other packaged financial products, levy front end load charges, making
it harder for your money to perform well.

FRS3 earn per share

Financial Reporting Standard 3 (FRS3) issued by the Accounting Standards Board. Under UK General
Accepted Accounting Practices, and in accordance with FRS3 issued by the Accounting Standards Board,
all companies must provide in their Annual Report an indication as to the earnings per share (eps) for
the reporting period. This

FTSE 100 index

Monitors the performance of the top 100 publicly quoted companies by market capitalization (market
value) on the UK stock market. It is weighted to take account of the largest and smallest sized
companies within the hundred and is updated throughout the day. The initials stand for Financial Times
Stock Exchange; completing the range of indices is a joint venture between the Financial Times
newspaper and the London Stock Exchange.

FTSE 250
This index works in a similar way. It monitors the performance of 250 medium-sized companies that
together comprise this index.

FTSE 350

This index covers the performance of the FTSE 100 and FTSE 250 shares. All three indices are updated
continuously throughout the working day.

FTSE All-Share index

Covers about 850 shares on the UK market. It is updated at the start of every working day.

FTSE Index

Three indices comprise the FTSE All Share index - FTSE100, FTSE Mid 250 & FTSE Small Cap. A fourth
index, the FTSE Fledgling, covers newly listed and other listed companies not included in the other

FTSE Small Cap

This is an index that covers a range of the small companies traded on the UK stock market.


Fully listed on the main London Stock Market

Fund Manager
A professional manager of investments in a Pension Fund, Insurance Company, Unit Trust etc.

Fundamental Analysis

A method of researching investment potential by concentrating on the value of the company and its
actual, and expected, business and financial performance of the company, based on the value of its net
assets and on its historic, and forecast, profit record.

Futures contracts

These give you the right to buy or sell instruments such as currencies or commodities at a future. For
sophisticated investors only.


The relationship between the size of the borrower’s debt and the assets he has bought with the help of
the borrowed money. High gearing means high borrowing relative to a person’s contribution to the
value of the asset. Investment trusts use gearing – they borrow money to invest in shares, hoping to
generate a greater profit than the cost of borrowing.

Gilt-edged bonds

British government loans which carry a fixed interest.

Gilt-edged investment funds

A managed fund that only invests in gilt-edged stocks.
Gilt-Edged Securities

UK Government bonds or loan stocks. Debt securities or instruments issued by the Government paying,
usually, a fixed rate of interest and regarded, because of the Government backing, as the safest form of
capital retention. Hence, low risk but also, potentially, low reward.

Gilt-edged stocks

British government loans which carry a fixed interest.


Interest or dividends for investors, before deduction of income tax.

Gross Domestic Product (GDP)

The amount of goods and services produced by a country in one year.

Growth Companies

Those companies that are expected to have continual growth, year on year, in their earnings per share.

Hang Seng Index

The index of 33 companies shares measuring the performance of the Hong Kong stock market.

As in "hedging your bets", this is an investment that reduces the risk of losses in one security, by
offsetting in a related one.

Horizontal Ratio

Analysis Using financial ratios to provide comparison of a company’s performance across a series of
different financial periods (years).

Illiquid assets

Assets or securities which cannot be sold easily.

Income fund

A unit or investment trust that aims to provide high income.

Independent financial adviser (IFA)

An adviser committed to offering ‘best advice’ on a wide range of investments and financial products
available in the marketplace.


Indication as to the FTSE index of which the company is a constituent.

System by which the value of securities and/or interest payments are linked to inflation, particularly
index-linked gilts, annuities or National Savings products.


These are funds which use computers to produce a performance as close as possible to a particular
index of stocks. Also known as Tracker funds, they are hugely popular in the US and gaining in popularity
here in the UK

Individual Savings Account (ISA)

A new tax free investment and savings vehicle introduced by the Labor government to replace Personal
Equity Plans and Tessa’s. You can put £7000 into the first ISAs, and thereafter £5000 a year. Investments
which qualify for inclusion in an ISA are stocks and shares, bonds, cash, insurance policies and collective
funds such as investment trusts and unit trusts. If anyone actually understands the "Maxi" ISA's please
let me know


A percentage measure of the amount by which the prices of goods and services rise in the economy,
over a period of time, usually one year.

Initial Public Offering (or IP0)

The term used in the US to describe the flotation of a new company on the stock market.
Insider Dealing

Dealing in the shares of companies when you know something about them which has not been made
public and which you know will affect the price of the shares when it becomes generally known. Illegal.


Usually meaning financial institutions, the pensions and insurance companies in the UK. They handle
huge sums of money on behalf of their clients, the policy holders and investors.

Intangible Assets (intangibles)

The company assets that is usually non-monetary in nature and without physical form but which
represent a right or expected future benefit. Examples are Goodwill on acquisition (being the value
placed on the acquired company’s reputation and market presence), Brands, Patents, Intellectual


A regular payment made usually twice yearly to savers who keep their money in deposit accounts with
building societies or banks.

Interims (int)

The company’s results for, normally, the first six months of its reporting period (usually its financial
year). Also the identification of the dividend declared and paid on the results for this period.

Putting money into real financial assets with the hope of increasing the size of the original investment
through future growth at the same time as receiving a regular and rising income.

Investment bond

An equity based investment issued by an insurance company.

Investment Club

A group of people who club together to buy shares. (friends/colleagues/acquaintances) who gather
together for the purpose of investing in the stock exchange.

Investment Trust

A closed-end investment fund which is a company listed on the Stock Exchange and whose purpose is to
invest in other shares, often specializing in specific types of company, geographical area or industrial


Initial Public Offering. Public offering is the first time that a company's stock is made available to the

January effect

A Market fluctuation so called because of the tendency for certain markets to rise between the end of
the year and the end of the first week in January.
Key features document

A document which financial companies are obliged to provide you with when you buy things such as an
endowment or savings policy. It sets out the charges you pay and the effect those charges will have on
your investments over time.


An amount of money owed to other people, a debt.

Limit order

This is an instruction given to a broker that sets conditions on making certain trades. A limit order
specifies that the broker is not to buy a certain security, unless it is at or below a certain price. Orders
for selling can be done as well, whereby the price must be matched or exceeded before any transaction
takes place.


A market for a financial commodity where there are many buyers and sellers so that it is easy to deal.
FTSE 100 companies are typically the most liquid in the UK market. Investors who hold cash are said to
be liquid, as cash is the easiest commodity to use for buying any other asset.

Liquid assets

Cash applicable to Banks it is the value at the balance sheet date of all assets that are either represented
by cash or are transferable into cash at short notice.

The portion of an investment portfolio that is not fully invested, but is represented by cash holdings.
Also, the levels of continual buy and sell activity making up the market demand for the shares and
indicating the ease with which investors can undertake transactions.

Listed Company

Another way of describing a company whose shares are quoted on the stock market.

Long Term Insurance Funds

Applicable to insurance companies only, this is the value of the Long Term Insurance Funds as at the
Balance Sheet date, being the capital value of the long term policy holders’ interests.

Managed fund

Broadly based investment fund run by a professional manager in a pension or insurance company.

Market capitalization

A company’s total value, that is, the number of its shares in issue multiplied by the share price at any
one time.

Market Maker
A Stock Exchange member firm that is obliged to make a continuous two-way price in the shares it
follows. This is a commitment to offer to buy and sell the securities it trades in.


The agreed joining together of two companies, usually in the same industry, to provide a new,
combined, entity with control still reflected in the ownership shares of the original companies.

Mid Price

The median (mid point) of the buying and selling spread (bid / offer spread) quoted by the market
makers. The price shown in the share price pages and market reports within the financial media, but not
the price at which you could necessarily expect to conclude a deal to buy or sell. The price at which you
buy will be higher and the price at which you sell will be lower than the mid price in almost all

Minority Interest

That part of a subsidiary company that the investing company does not itself hold, or control. If the
company has an interest in 87% of the share capital of another company, then that other company is a
subsidiary and 87% of its profits and assets will be featured in the consolidated accounts of the share
owning company. The 13% not owned directly, will be featured in the consolidated accounts as a
Minority Interest.


Stands for Mortgage Interest Relief At Source. Basically, the bank or building society calculates the tax
relief you are due on your mortgage and deducts it before working out your monthly repayments.

Mkt cap
Market capitalization Market capitalization is the number of shares in issue multiplied by the share price
at the time the market capitalization was calculated.


A form of company structure where the members (usually borrowers, savers or policy holders) own all
the assets of the company. It applies to building societies and some insurance companies, such as
Scottish Widows and Equitable Life.

Mutual funds

In the UK we call them unit trusts. They are pooled funds, investing in the stock market and other
instruments. Hugely popular in the US where the growth of mutual funds has been a factor behind the
rise in the US stock market.

Market Value Adjuster (MVA)

The MVA gives the insurer the right to not pay out the full value of the investment in certain
circumstances such as a stock market crash.

National Savings

Low-risk savings schemes run by the UK government.

Negative equity

The difference between the initial prices paid for a property and its current value if the latter is lower.

After deduction of income tax.

Net worth

The value of your assets after deducting the full extent of all your debts (liabilities).

New Issue

A company coming to the stock market for the first time ever.

Nikkei index

Index for the Japanese stock market.

Nominal value

The numerical value of an item, ignoring the impact of inflation.

Nominee Account

An account used by stock broking firms to hold your shares. More and more people are using nominee
accounts since it makes the whole business of buying and selling shares cheaper and easier.
Non-redeemable gilts

Gilts without a maturity date.

Norm earn per share

Under current UK Generally Accepted Accounting Practices the company’s earnings per share are
reported after including all exceptional and extraordinary credits and charges of a trading and non
trading nature. Computed from the Annual Report & Accounts an adjusted, standardized value for
earnings per share to provide a comparable basis for intercompany comparison. From an investment
point of view this "normalized earnings per share (norm earn per share) includes three important
characteristics. It reflects the underlying trading performance by excluding non-trading and exceptional
results. It can be used as a measure of performance against expectations. It clarifies the historic record
of operating performance.


An unregulated, off exchange, alternative to the official Stock Market targeted at smaller companies,
with a potentially higher risk, but consequent prospects of greater reward.

Offer Price

The price the Market Maker will require in order to sell to you the shares you seek to buy (see Spread).

Open Ended Investment Company

A new type of collective fund, similar to a unit trust but with a single price quoted for buying and selling.
Many unit trusts have converted to OEICs.
Open market option

A scheme for a person whose pension has matured to purchase his annuity in the open market, not just
from the company with which he built up his pension fund.


Another type of derivative contract giving you the right to buy or sell shares or other financial
instruments. Again only for sophisticated investors.

Ord cap, reserves

The net assets of the company attributable to ordinary shareholders, being the value of funds raised
from share issues together with all profits reinvested in the business, after repayment of dividends.

Ordinary shareholders’ funds

The money belonging to the ordinary shareholders in a publicly quoted company.

Ordinary Shares

The commonest form of shares. Holders are the risk bearing owners of the company. They receive
dividends that vary in amount, being subject to the company’s underlying profitability and the directors’
recommendations. These, in turn, are based on their expectations as to future cash requirements for the
company’s continued operation and development.

Other ins funds
Applicable to insurance companies only, this is the value of the Insurance Funds reflecting short term
policies, being the capital value of holders’ interests in such policies.

Par Value

The face, or nominal, value attributed to each of the company’s shares. Part of the security’s title. This
has no relationship to either the value of the company or to the quoted price.

Patient Money

The money left for investment purposes, after making full allowance for housing costs and living and
emergency financial requirements.

PEG Factor

The factor used to indicate the relative attraction, and consequent value enhancing potential, from
investing in a growth company. It indicates the relationship between the price earnings ratio (PER) and
the earnings per share growth rate. A PER of 15, with an earnings growth rate for the company of 30%,
gives a PEG factor of 0.5 (15/30).

Penny Share

The term usually applied to companies whose shares have a very low price, normally under 50p per
share. Companies whose shares have speculative appeal, represent greater risk and are often issued by
former, high riding companies, now deemed to be on harder times.

A savings scheme whereby the contributions create a fund which from a specified date will return an
income to the saver. Although contributions are generally tax exempt, tax will have to be paid on the
eventual income derived from the fund.

Personal Equity Plans (PEP’s)

Tax free investment vehicles for private investors. There are limits on the size of the initial capital sums
that can be invested in each tax year.

Portfolio Manager

Someone who manages your money for you, making the specific decisions on what to buy and sell and
holding your money at his firm.


The total investments held in different companies or investment trusts by an individual investor or

Pretax profit

The figure reported by the company in its Profit & Loss Account reflecting the results of all business
activities and decisions for the financial period.

Preference Shares

Shares in the company usually paying a fixed rate of dividend and, usually, carrying no voting rights.
Whilst ranking ahead of ordinary shares, they effectively form unsecured debt, often having a fixed date
or period for redemption of the capital sum they represent.
Prefs, minorities

The value of any preference capital raised by the company, together with the value of minority interests
in the capital and revenues of subsidiary companies not wholly owned.

Prelim/Preliminary Statement

The announcement made by the company to the Stock Exchange on its annual results, earnings and
proposed dividend and made prior to the publication and release of the full

Price Earnings Ratio (P/E)

The share price divided by the earnings per share produces the price earnings ratio. It is used as a tool to
measure whether a particular share is cheap or expensive


The amount of cash left in a business after deducting all the expenses from the revenues earned.
However charges can eat up the paid up value.


The UK Government supported agency set up to encourage, and support, investment in the stock
market by private individuals. The key supporter of Investment Clubs.

The formal document issued by, or on behalf of, the company when it is first seeking entry to the Stock
Exchange’s official List. It describes the company’s business background, assets and financial
performance. It probably also features an official forecast on future performance expectations.
Prospectuses, or offer documents, will also be published for any subsequent issues of new shares, such
as a rights issue.


The sums that companies include in their Balance Sheet for prospective, future, liabilities that cannot
yet be fully quantified.

Publicly quoted companies.

Companies that are listed on the stock market.

Purchasing power

The amount of goods and services you can buy with your money at any time.

Quantitive and Qualitive analysis

The two methods of calculating the value of a security. The first relies on all numerical factors such as
revenues, earnings and margins. The second relies on methods such as staff morale, brand value and

After taking account of inflation.

Real assets

Assets which hold or increase their value over time, in spite of inflation.

Real financial assets

Assets in financial investments that tend to hold or even increase their value over time, in spite of

Real growth

The growth in value of an asset after deducting inflation.

Real rate of return

The capital growth plus income earned on an asset after deducting for inflation.


A downturn in activity across the economy which lasts more than six months.

Relative Strength
The relative strength, for a given period, indicates the performance status of the company’s share price,
relative to the performance of an underlying, benchmark index, for the market over the same period.


Money put aside out of the profits of a company to build up the internal resources the company holds
for future use, including expansion.

Retail Prices Index

The official measure of inflation in the economy it is calculated by weighting the cost of goods and
services to approximate to a typical family’s spending patterns.

Rights Issue

An additional issue of shares by the company to existing share holders and at an advantageous,
discounted, price. A means for the company to raise new funds for further development or to finance a
new acquisition for cash. A 2 for 5 rights at 145p means that the existing share holder has the right to
acquire a further 2 shares for every 5 currently held at a new cost of 145p per share acquired.


This word has various interpretations. Broadly, it is the amount of money which an investor stands to
lose from any investment.


Return on capital employed. ROCE is a key statistic reflecting the rate of return that the company’s
management has obtained, on the shareholders’ behalf, by their management of the company’s assets.
Scrip Issue (Bonus Issue)

An issue to existing shareholders of new shares, at no cost. Usually intended to improve marketability of
the shares and reduce the share’s quoted value to a more reasonable level, increasing the number of
shares in issue and enhancing the liquidity in the market. A 2 for 5 scrip issue, for example, means the
issue of 2 new shares to the existing shareholder for every 5 currently held.


Another way of describing shares or bonds.

Shareholders’ Funds

The level of the shareholders capital invested in the business. It represents the original issued value of
the company’s share capital and the total of all reserves created since its incorporation, either from
trading surpluses or from asset realizations and re-valuations.


Part ownership of a business or company.

Short term assets

The Banking equivalent of debtors. This is the value as at the balance sheet date of all financial assets
employed in the business.

A shorthand way of describing a small company quoted on the stock market.


The difference between the Market makers buying (offer) and selling (bid) prices.

Stamp Duty

Government tax on the purchase of shares. Stamp Duty is not paid on the eventual sale of the shares.


Indicates the market on which the company’s equity capital is traded.

Stock market

The market for equities, or ‘shares’, in public companies. In London called the Stock Exchange. A buyer is
actually purchasing a share in the ownership of a company.


Stockbrokers are professionals who buy and sell shares on behalf of their clients. Private individuals and
institutions are not allowed to deal in shares directly with the market makers, who are the people that
set the prices. Stockbrokers act as intermediaries between buyers and sellers. See also Broker

The combined value of raw materials, work in progress or under construction, and finished goods held.

Subordinated loans

Applicable to Banks, subordinated loans are loans made by the company where there is a charge or
conversion capability. That means that in repayment terms the charge on the debt falls between normal
loans and share capital.

Subsidiary Company

When the company in which you are investing, itself owns more than 50% of another company, then the
company in which the investment is held is a subsidiary company and all its trading results and assets
will be consolidated into the group results of the investing company. The surplus of the original
acquisition price, over the book value of assets acquired, is Goodwill on acquisition, an intangible asset
that is usually written off directly against the capital and reserves of the acquiring company.

Surrender value

A policy is given a value by the insurance company which assumes that the policy will run to maturity.
The surrender value will be lower because before paying out, the company deducts all the costs that
would have accrued if the policy had run to maturity.


Arrangement whereby the managers of a company offer to buy out the shareholders of another

Tangible Assets
The combined total of fixed assets and long term investments.

Technical Analysis

A method of researching investment potential by concentrating on the share price and its relative trends
and performance, rather than the underlying financial and business characteristics of the company
issuing the securities.


Tax exempt special savings account, a government sponsored scheme for investing up to a total of
£9,000 over a period of five years with interest paid free of tax.

Tied agent

A financial advisor who works for a single company and is legally bound to offer advice regarding only
that company’s products. He cannot therefore offer impartial advice over the whole field of financial

Tip sheet

A newsletter usually for private investors, which contains recommendations on specific companies in
which to invest. Usually produced to follow a specific investment style or criteria.

Total Return

Capital growth plus the dividend income received on an investment in real financial assets.
Tracker Funds

Professional investment funds that merely seek to emulate the investment performance of a specific
share index, by usually, investing in only the companies that make up the index and in the same
proportion that each company comprises of the index.

Transfer Value

The value of your pension or savings plan should you want to transfer it to another company. In the
early years the charges levied can be so high that it takes a long time for the amount of money you have
paid into the pension or plan to be worth as much as the transfer value.


A legal document or part of a will stipulating how the estate or part of it should be distributed.


A person appointed to administer a trust.


The sales, or gross revenue, of the company during the financial period. This data is not appropriate to
Banks or Insurance companies and is therefore not presented.

UK General Accepted Accounting Practices

UK growth and income trusts

Forms of unit trust which invest in companies quoted on the London Stock Exchange which will give
investors exposure to either a high rate of growth or a high annual dividend payment.


The practice of guaranteeing to buy shares in a company if nobody else wants them. The underwriters
receive a fee for their guarantee and hope the shares prove so popular that they do not end up owning
them. Financial institutions such as pension funds often participate in underwriting. They are then
known as underwriters. This is also a term used in the insurance market to mean taking on a particular
risk. The underwriter is the insurer who takes the risk, and is paid a premium, often from the general
public, for doing so. In this context an underwriter is just another way to describe an insurance
company. Unearned income

Unit trusts

A form of investment where investors’ money is pooled in order to purchase a spread of shares to
spread the risk. This enables an investor to have exposure to a larger range of companies than individual
resources alone might allow.

Value-added tax (VAT)

A form of indirect taxation borne by traders and consumers. It is levied on goods and services. If a
business has more than a certain level of annual turnover it has to be registered for VAT with the
Customs and Excise.
Variable rates of interest

The Rates of interest vary, according to the general levels of interest applying in the economy.


A measure of the frequency with which share prices move up or down.


A tradable security providing the holder with the right to buy specific shares at a set price on a future
date. Warrants are much like call options: they give you the right to buy a share at some stage in the
future at a preset price (the exercise price), but because warrants are "geared" investments, they
provide an exciting often hair-raising way of playing the stock market. Unlike call options, which severely
punish investors who get their market timing wrong, warrants usually have reasonably long lives. This
means investors have more time for things to fall into place. For example, a warrant investor may take
the view that Asian markets will provide superior returns over the next five years but has no idea how
they will perform over the coming months.

Wasting assets

Assets whose value declines over time, and with use.


The annual dividend or interest income relative to the value of the underlying security on which it is
received. This is expressed as the percentage the income per share bears to the share price. Featured
either as a gross or net of tax value, dependent upon the tax status of the shareholder.

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