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									                   Financial Terms related to Stock

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Acquisition of stock

   • A merger or consolidation in which an acquirer purchases the acquiree's stock.

Adjustable rate preferred stock

   • Abbreviated ARPS. Publicly traded issues that may be collateralized by mortgages
   and MBSs.

American stock exchange

   • Abbreviated AMEX. A market located in New York City that handles approximately
   one-fifth of all securities trades within the United States.

   • Abbreviated AMEX. The second-largest stock exchange in the United States. It
   trades mostly in small-to medium-sized companies.

Auction rate preferred stock                     2|Page

   • Abbreviated ARPS. Floating rate preferred stock, the dividend on which is adjusted
   every seven weeks through a Dutch auction.

Authorized stock

   • The number of shares of stock that a corporation is permitted to issue. This number
   of shares is stipulated in the corporation's state-approved charter, and may be
   changed only by a vote of the corporation's stock-holders.

Beta equation stocks

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   • The beta of a stock is determined as follows:[(n) (sum of (xy)) ]-[(sum of x) (sum of
   y)][(n) (sum of (xx)) ]-[(sum of x) (sum of x)]where: n = # of observations (24-60
   months)x = rate of return for the S&P 500 Index y = rate of return for the stock

Blue chip stock

   • Stock in a well-established, financially-sound and stable company that has
   demonstrated its ability to pay dividends in both good and bad times, and has as a
   reputation for quality management, products, and services.

Capital stock

   • Refers to all the common and preferred shares, if any, for a corporation.

   • Ownership shares of a company, consisting of all common and preferred stock.

Common stock

   • These are securities that represent equity ownership in a company. Common
   shares let an investor vote on such matters as the election of directors. They also
   give the holder a share in a company's profits via dividend payments or the capital
   appreciation of the security.

   • A share of ownership in a corporation; stockholders participate in the profits or
   losses of a company through dividends and changes in the stock s market price.

   • Is the shareholder's equity stake in a corporation. Sometimes, there are different                     3|Page

   classes of stock that may have greater or lesser voting rights than the ordinary
   common shares. For many years the New York Stock Exchange only permitted one
   class of common stock for a listed corporation.

   • A class of stock in a company, normally with voting rights. Corporations may have
   several classes of common stock, as well as Preferred Stock, or they may have a
   single class of common stock. Common stockholders are on the bottom of the ladder
   in a corporation's ownership structure, and have rights to a company's assets only
   after bond holders, preferred shareholders and other debt holders have been

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Common stock equivalent

   • Abbreviated CSE. All contingent securities that derive a major portion of their value
   from their conversion privileges or common stock characteristics.

   • A convertible security that is traded like an equity issue because the optioned
   common stock is trading high.

Common stock market

   • The market for trading equities, not including preferred stock.

Common stock ratios

   • Ratios that are designed to measure the relative claims of stockholders to earnings
   (cash flow per share), and equity (book value per share) of a firm.

Common stock/other equity

   • Value of outstanding common shares at par, plus accumulated retained earnings.
   Also called shareholders' equity.

Conflict between bondholders and stockholders

   • These two groups may have interests in a corporation that conflict. Sources of
   conflict include dividends, distortion of investment, and underinvestment. Protective                    4|Page

   covenants work to resolve these conflicts.

Conversion or stock value

   • The value of a convertible security measured in terms of the market price of the
   common shares into which it can be converted.

Convertible exchangeable preferred stock

   • Convertible preferred stock that may be exchanged, at the issuer's option, into
   convertible bonds that have the same conversion features as the convertible

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   preferred stock.

Convertible preferred stock

   • Preferred stock that can be converted into common stock at the option of the

Cost of a new issue of common stock

   • Determined by calculating the cost of common stock after considering both the
   amount of underpricing and the associated flotation costs.

Cost of preferred stock

   • The relationship between the cost of the preferred equity and the amount o funds
   provided by the preferred share issue: found by dividing the annual preferred share
   dividend, by the net proceeds from the sale of the preferred stock.

Cumulative preferred stock

   • Preferred stock for which all passed (unpaid) dividends in arrears must be paid
   along with the current dividend before payment of dividends to common

   • Preferred stock whose dividends accrue, should the issuer not make timely
   dividend payments. Related: non-cumulative preferred stock.

Cyclical stock                     5|Page

   • A stock in an industry particularly sensitive to swings in economic conditions.
   Examples are housing and autos.

Direct purchase stock

   • Over one hundred companies have registered with the Securities and Exchange
   Commission to sell shares of their stock directly to investors. Investors typically
   participate in that company's Dividend Reinvestment Plan.

Direct stock purchase programs

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   • The purchase by investors of securities directly from the issuer.

Diversified common stock fund

   • A mutual fund that invests its assets in a wide range of Common Stocks. The
   fund's objectives may be growth, income, or a combination of both. See also: Growth
   Fund; Mutual Fund.

Dividend yield stocks

   • Indicated yield represents annual dividends divided by current stock price.

Employee stock fund

   • A firm-sponsored program that enables employees to purchase shares of the firm's
   common stock on a preferential basis.

Employee stock ownership plan

   • Abbreviated ESOP. A company contributes to a trust fund that buys stock on behalf
   of employees.

Exchange of stock

   • Acquisition of another company by purchase of its stock in exchange for cash or

Growth fund or growth stocks                     6|Page

   • A fund that invests in stocks with prices that are above average in relation to their
   current earnings because they are considered to have above-average growth

Growth stock

   • A company with excellent prospects for above-average future increases (or growth)
   for sales, earnings, and price. Look for a company that is a leader in its industry.

   • Common stock of a company that has an opportunity to invest money and earn
   more than the opportunity cost of capital.

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Income stock

   • Common stock with a high dividend yield and few profitable investment

   • A stock that pays regular and steady income, typically of well established
   companies, such as utilities and others whose businesses generate steady cash

Intrinsic value common stock

   • Inherent worth.

Letter stock

   • Privately placed common stock, so-called because the SEC requires a letter from
   the purchaser stating that the stock is not intended for resale.

Listed stocks

   • Stocks that are traded on an exchange.

Margin account stocks

   • A leverageable account in which stocks can be purchased for a combination of
   cash and a loan. The loan in the margin account is collateralized by the stock and, if
   the value of the stock drops sufficiently, the owner will be asked to either put in more                       7|Page

   cash, or sell a portion of the stock. Margin rules are federally regulated, but margin
   requirements and interest may vary among broker/dealers.

New york stock exchange

   • Abbreviated NYSE. Also known as the Big Board or The Exhange. More than 2,00
   common and preferred stocks are traded. The exchange is the older in the United
   States, founded in 1792, and the largest. It is located on Wall Street in New York

   • The largest stock exchange in the United States. It is a corporation, operated by a

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   board of directors, and it is responsible for setting policy, supervising Exchange and
   member activities, listing securities, overseeing the transfer of members' seats on
   the Exchange, and judging whether an applicant is qualified to be a specialist.

Non cumulative preferred stock

   • Preferred stock whose holders must forgo dividend payments when the company
   misses a dividend payment. Related: Cumulative preferred stock

Noncumulative preferred stock

   • Preferred stock for which passed (unpaid) dividends do not accumulate.

Nonparticipating preferred stock

   • Preferred stock whose shareholders receive only the specified dividend payments.

Par value stocks

   • Is the accounting term for the capitalization of the equity. It is usually arbitrary.

Participating preferred stock

   • Preferred stock that provides for dividend payments based on certain formulas
   allowing preferred shareholders to participate with common shareholders in the
   receipt of dividends beyond a specified amount.

Philadelphia stock exchange                      8|Page

   • Abbreviated PHLX. A securities exchange where American and European foreign
   currency options on spot exchange rates are traded.

Preference stock

   • A security that ranks junior to preferred stock but senior to common stock in the
   right to receive payments from the firm; essentially junior preferred stock.

Preferred equity redemption stock

   • Abbreviated PERC. Preferred stock that converts automatically into equity at a

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   stated date. A limit is placed on the value of the shares the investor receives.

Preferred stock

   • A security that shows ownership in a corporation and gives the holder a claim, prior
   to the claim of common stockholders, on earnings and also generally on assets in
   the event of liquidation. Most preferred stock pays a fixed dividend that is paid prior
   to the common stock dividend, stated in a dollar amount or as a percentage of par
   value. This stock does not usually carry voting rights. The stock shares
   characteristics of both common stock and debt.

   • The third major source of long-term financing for corporations that broadens the
   firm's capital structure, raising financing without giving up ownership or incurring
   obligations. Preferred shares get their name because they have some form of
   superior preference to either or both earnings and assets upon corporate dissolution
   that is superior to (preferred) the common share class. Preferred shares usually
   carry a stated value, a fixed dividend and a cumulative feature in addition to the
   aforementioned preferences.

   • A class of ownership in a corporation with a stated dividend that must be paid
   before dividends to common stock holders. Preferred shareholders have a claim,
   prior to common stockholders, on earnings and assets in the event of liquidation.
   Preferred stock does not usually have voting rights.                      9|Page

   • This is similar to common stock, however, it pays a fixed preferred dividend similar
   to debt. They maybe cumulative or noncumulative. Also, the maturity may be fixed or

   • Is an equity security which has a priority relative to ordinary common shares for
   dividends and return of par amount in the event of a corporate dissolution. Often,
   preferred shares are nonvoting equity interests. However, a default in the payment
   of that issue's preferred dividend or other covenant breach may temporarily give the
   preferred holders voting powers. Preferred shares can have convertible, cumulative,

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   participating, voting, or other special features.

Preferred stock agreement

   • A contract for preferred stock.

Privately owned stock

   • All common shares of a firm owned by a single individual.

Repurchase of stock

   • Device to pay cash to firm's shareholders that provides more preferable tax
   treatment for shareholders than dividends. Treasury stock is the name given to
   previously issued stock that has been repurchased by the firm. A repurchase is
   achieved through either a dutch auction, open market, or tender offer.

Reverse stock split

   • A method used to raise the market price of a firm's stock by exchanging a certain
   number of outstanding shares for one new share of stock.

   • A proportionate decrease in the number of shares, but not the value of shares of
   stock held by shareholders. Shareholders maintain the same percentage of equity
   as before the split. For example, a 1-for-3 split would result in stockholders owning 1
   share for every 3 shares owned before the split. After the reverse split, the firm's
   stock price is, in this example, worth three times the pre-reverse split price. A firm                      10 | P a g e

   generally institutes a reverse split to boost its stock's market price and attract

Safety stock

   • Extra inventories that is held to prevent stockouts of important items.

Small ordinary stock dividend

   • A stock dividend that represents less than 20 to 25 percent of the common stock
   outstanding at the time the dividend is declared.

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   • Holders have residual claims to firm and they are the owners. Holders allowed to
   elect the board of directors which hires, fires, and sets the compensation of top
   executives. Returns to common stock occurs with dividends declared by the board
   and capital gains on sale of stock. Preferred stock has both debt and equity
   characteristics. Pays fixed dividends (like debt) and dividends may be skipped (like
   stocks). Holders of preferred stock do not vote at the annual shareholders meetings.
   All preferred dividends must be paid before common dividends can be paid.

   • Ownership of a corporation which is represented by shares which represent a
   piece of the corporation's assets and earnings.

Stock dividend

   • The payment to existing owners of a dividend in the form of stock.

   • A payment of additional stock to shareholders, rather than a cash dividend. Such
   payment increases the number of shares held but does not alter a shareholder's
   proportional investment in the company.

   • Payment of a corporate dividend in the form of stock rather than cash. The stock
   dividend may be additional shares in the company, or it may be shares in a
   subsidiary being spun off to shareholders. Stock dividends are often used to
   conserve cash needed to operate the business. Unlike a cash dividend, stock                     11 | P a g e

   dividends are not taxed until sold.

Stock exchange

   • A formalized secondary market for financial securities that allows investors to buy
   and sell preferred and common shares. For example the Toronto Stock Exchange
   (TSX), NASDAQ, and New York Stock Exchange (NYSE).

   • Formal organizations, approved and regulated by the Securities and Exchange
   Commission (SEC), that are made up of members that use the facilities to exchange
   certain common stocks. The two major national stock exchanges are the New York

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   Stock Exchange (NYSE) and the American Stock Exchange (ASE or AMEX). Five
   regional stock exchanges include the Midwest, Pacific, Philadelphia, Boston, and
   Cincinnati. The Arizona stock exchange is an after hours electronic marketplace
   where anonymous participants trade stocks via personal computers.

Stock index option

   • An option in which the underlying is a common stock index.

Stock market

   • Also called the equity market, the market for trading equities.

Stock option

   • An incentive allowing management to purchase stock at the market price set at the
   time of the grant. Options, generally extended to management, that permit purchase
   of the firm's common stock at a specified price (often at a substantial discount from
   current market value) over a stated period of time.

   • An option in which the underlying is the common stock of a corporation.

Stock purchase plans

   • An employee fringe benefit that allows the purchase of a firm's stock at a discount
   or on a matching basis with a part of the cost absorbed by the firm.                       12 | P a g e

Stock purchase warrant

   • An instrument that gives its holder the right to purchase a certain number of shares
   of common stock at a specified price over a certain period of time.

Stock quote

   • A list of representative prices that are bid and asked during a particular trading day
   for a certain stock. Stocks are quoted in points (where one point equals $1), and
   1/8ths of a point, (where 1/8th equals 12.5 cents). Stock quotes are listed in the
   financial press and most daily newspapers. See also: Bond Quote.

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Stock replacement strategy

   • A strategy for enhancing a portfolio's return, employed when the futures contract is
   expensive based on its theoretical price, involving a swap between the futures,
   treasury bills portfolio and a stock portfolio.

Stock repurchase

   • A firm's repurchase of outstanding shares of its common stock.

Stock selection

   • An active portfolio management technique that focuses on advantageous selection
   of particular stocks rather than on broad asset allocation choices.

Stock split

   • A method commonly used to lower the market price of a firm's common shares by
   increasing the number of shares belonging to each shareholder.

   • Directors of a company may order a stock split to make the shares more affordable
   for small investors. If a shareholder holds 100 shares at the current share price of
   $40, and the stock splits 2 for 1 (2 new for 1 old share), the new share price would
   be $20, and the shareholder would then hold 200 shares. In both cases, the total
   value of all shares would remain at $4000. All historical per-share items (such as                      13 | P a g e

   price per share and earnings per share) are adjusted by data providers to account
   for the stock split. Total sales and net income figures do not change. Stock splits by
   themselves do not add any value to an investor's portfolio. However, only companies
   that have experienced growth in their share prices will typically split their shares.
   See also: Reverse Split.

   • Occurs when a firm issues new shares of stock but in turn lowers the current
   market price of its stock to a level that is proportionate to pre-split prices. For
   example, if IBM trades at $100 before a 2-for-1 split, after the split it will trade at $50

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   and holders of the stock will have twice as many shares than they had before the
   split. See: split.

Stock swap transaction

   • An acquisition method in which the acquiring firm exchanges its shares for shares
   of the target company according to a predetermined ratio.

Stock symbol

   • Also known as Ticker Symbol. A unique symbol assigned to a security. NYSE and
   AMEX listed stocks have symbols of three characters or less. NASDAQ-listed
   securities have four or five characters

Stock ticker

   • This is a lettered symbol assigned to securities and mutual funds that trade on U.S.
   financial exchanges.

Stock's multiple

   • See Price-Earnings Ratio.


   • An individual or firm that charges a fee or commission for executing buy and sell
   orders submitted by another individual or firm. (2) The role of a firm when it acts as                       14 | P a g e

   an agent for a customer and charges the customer a commission for its services.


   • Holder of equity shares in a firm.

Stockholder equity

   • Balance sheet item that includes the book value of ownership in the corporation. It
   includes capital stock, paid in surplus, and retained earnings.

Stockholder's books

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   • Set of books kept by firm management for its annual report that follows Financial
   Accounting Standards Board rules. The tax books follow IRS tax rules.

Stockholders' equity

   • See Shareholders' Equity.

   • The residual claims that stockholders have against a firm's assets, calculated by
   subtracting total liabilities from total assets.


   • Running out of inventory.

Stocks and bonds hedge funds

   • Are combinations which are analogous to Balanced Mutual Funds but, depending
   on the underlying charter, can use higher degrees of leverage or derivatives.

Treasury stock

   • Shares which have been repurchased from shareholders. The stock is held in the
   treasury and is listed on the company's Balance Sheet. It is available for retirement
   or resale. It is issued but not outstanding.

   • Common stock that has been repurchased by the company and held in the
   company's treasury.                     15 | P a g e

   • Is the amount of stock held by a corporation after its issuance. When it is held by
   the corporation, it is nonvoting and no dividends are paid. These shares may be
   reissued subsequently for various purposes. At that time, they regain their voting
   rights and dividend status. These shares may also be permanently retired. See
   Authorized Shares and Issued Shares for related terms.

Value fund or value stocks

   • A fund that invests in stocks with prices that are below average in relation to their
   current earnings because they are considered to have below-average growth

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