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. Actuary. 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. Administrator 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 equivalent. 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. AITC Stands for the Association of Investment Trust Companies. AIM Member of the Alternative Investment Market Analysts 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. Annuity 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. Assets 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 business. 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 Audit 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. Auditor 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). Bear 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 poker. Bonds 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). Bonus 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. Brokers 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. Bull 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. Capital 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 investments. 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. Cash 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. Charts 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. Churning 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. Commission 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. Consoles Non-redeemable, i.e. open-ended, gilt-edged stock. It has no maturity date. Contingent 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 date. 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 Correction 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 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. Creditors 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. CREST 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. Dax 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. Debtors 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. Default 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. Deflation The opposite of inflation; when general prices in the economy are falling. Depreciation The loss in value of an asset with time or through usage. Derivatives 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. Dividend 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. Economists Professionals who study the behavior of the economy. EPS 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. Equity 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. Ex 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. Ex-dividend 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. Executor 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. Flotation 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 indices. FTSE Small Cap This is an index that covers a range of the small companies traded on the UK stock market. Full 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. Gearing 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. Gross 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. Hedge 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. Index Indication as to the FTSE index of which the company is a constituent. Indexation System by which the value of securities and/or interest payments are linked to inflation, particularly index-linked gilts, annuities or National Savings products. Index-Trackers 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 Inflation 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. Institutions 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 Property. Interest 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. Investing 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 sector. IPO Initial Public Offering. Public offering is the first time that a company's stock is made available to the public. 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. Liabilities 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. Liquid 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. Liquidity 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. Merger 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 circumstances. 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. MIRAS 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. Mutual 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. Net 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. OFEX 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. Options 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. Pension 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. Portfolio The total investments held in different companies or investment trusts by an individual investor or organization. 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 Profits 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. PROSHARE 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. Prospectus 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. Provisions 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 management. Real 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 inflation. 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. Recession 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. Reserves 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. Risk This word has various interpretations. Broadly, it is the amount of money which an investor stands to lose from any investment. ROCE 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. Securities 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. Shares 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. Small-cap A shorthand way of describing a small company quoted on the stock market. Spread 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. Status 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. Stockbroker 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 Stocks 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. Take-over Arrangement whereby the managers of a company offer to buy out the shareholders of another company. 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. Tessa 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 investments. 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. Trust A legal document or part of a will stipulating how the estate or part of it should be distributed. Trustee A person appointed to administer a trust. Turnover 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 GAAP 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. Underwriting 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. Volatility A measure of the frequency with which share prices move up or down. Warrant 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. Yield 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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