Financial Terms related to Stock This document is part of the valuable contents available at www.ftpall.com, a free online glossary with more than five thousand financial and business terms. This document can be copied and distributed freely Find thousands of financial terms at www.ftpall.com respecting its original format. It is forbidden its transcription, translation or change on its format without authorization of its author or editor. STOCK 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 www.ftpall.com 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 Find thousands of financial terms at www.ftpall.com • 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 www.ftpall.com 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 Find thousands of financial terms at www.ftpall.com satisfied. 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 www.ftpall.com 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 Find thousands of financial terms at www.ftpall.com preferred stock. Convertible preferred stock • Preferred stock that can be converted into common stock at the option of the holder. 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 shareholders. • Preferred stock whose dividends accrue, should the issuer not make timely dividend payments. Related: non-cumulative preferred stock. Cyclical stock www.ftpall.com 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 Find thousands of financial terms at www.ftpall.com • 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 shares. Growth fund or growth stocks www.ftpall.com 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 prospects. 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. Find thousands of financial terms at www.ftpall.com Income stock • Common stock with a high dividend yield and few profitable investment opportunities. • A stock that pays regular and steady income, typically of well established companies, such as utilities and others whose businesses generate steady cash flows. 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 www.ftpall.com 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 City • The largest stock exchange in the United States. It is a corporation, operated by a Find thousands of financial terms at www.ftpall.com 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 www.ftpall.com 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 Find thousands of financial terms at www.ftpall.com 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. www.ftpall.com 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 perpetual. • 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, Find thousands of financial terms at www.ftpall.com 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 www.ftpall.com 10 | P a g e generally institutes a reverse split to boost its stock's market price and attract investors. 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. Find thousands of financial terms at www.ftpall.com Stock • 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 www.ftpall.com 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 Find thousands of financial terms at www.ftpall.com 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. www.ftpall.com 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. Find thousands of financial terms at www.ftpall.com 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 www.ftpall.com 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 Find thousands of financial terms at www.ftpall.com 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. Stockbroker • 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 www.ftpall.com 14 | P a g e an agent for a customer and charges the customer a commission for its services. Stockholder • 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 Find thousands of financial terms at www.ftpall.com • 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. Stockout • 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. www.ftpall.com 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 Find thousands of financial terms at www.ftpall.com prospects.
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