Glossary of Finance and Investing Terms

Account Statement

A statement of investment activity and investment position that is periodically sent by brokerage firms to their customers.

Accounts Payable

The amount that the company has been billed but has not yet paid. This is money owed to its regular business creditors from whom it has bought goods and services.

Accounts Receivable

Amount billed to customers and due from them but not yet collected.

Accrued Expenses

These are expenses due but for which no bill has yet been received. Expenses such as employee wages owed prior to payday, utility charges not yet billed, interest due but unpaid, etc.

Accumulated Depreciation

The decline in useful value of a fixed asset due to wear and tear from use, passage of time or obsolescence. This number is added to each period and thus is "accumulated".

Active

Describes a security in which there is substantial trading.

American Depository Receipt

A receipt for shares in a non U.S. corporation. The shares are held by a U.S. bank in its vault. Although the owners do not have physical possession of the shares, they do have all the rights of ownership.

American Stock Exchange

The "AMEX" handles the trading for companies that are smaller than those traded on the NY stock exchange. It also handles the trading for many stock options.

Arbitrage

Simultaneously purchasing and selling different assets that are substantially the same to take advantage of short term price differences that exist between the assets in different markets.

Ask

The quoted price at which a security will be sold.

Asset

Something of value that is owned by an individual or organization.

Assets

All the property such as cash, inventories or claims against others that is owned by a business and can be applied to cover liabilities.

Asset-Turnover Ratio

The Asset-Turnover Ratio is a good measurement of how well the organization uses its assets. This ratio is calculated by dividing Total Assets into Net Sales. The higher this ratio is, the better the organization is at using assets to generate sales revenue.

Average

A composite measure that can give insight into the movement of the overall market or a particular market segment.

Balance Sheet

A Balance Sheet shows the company's financial condition at a specific point in time. The Asset side is equal to the side containing Liabilities and Equity. The sides "Balance".

Balance Sheet Equation

The Balance Sheet equation states that the assets of the corporation must be equal to the claims against the corporation. The claims are what is owed plus what is left for the owners after deducting what is owed from the assets. Assets = Liabilities + Equity

Banker's Acceptances

A banker's acceptance is an obligation of a bank to pay to the holder a certain number of dollars on a certain day.

Basis Point

One-hundredth of one percent.

Bear

An investor who believes a certain security or the entire securities market is headed for a decline.

Bear Market

A long period of declining security prices.

Bid

The price being offered by a potential buyer for a security.

Big Board

A slang term meaning the New York Stock Exchange (NYSE).

Blue Chip

The shares of stable, profitable, and well known companies that have a long history of steady revenues and dividend payments.

Bond

A bond represents a debt that is owed by the issuer of the bond to the owner of the bond.

Bond Rating

A grading of a bond issuer's ability to meet scheduled interest and principal payments.

Bottom

The lowest value to which the stock market or a particular stock will fall.

Broker

An individual or firm that acts as an intermediary between a buyer and a seller.

Buildings

Buildings owned by the company usually to house manufacturing or office space.

Bull

An investor who expects the price of a stock or the general stock market to increase in value.

Bull Market

A long period of rising security prices.

Buy-and-Hold Strategy

Holding securities for long periods in the belief that the securities will appreciate in value in the long term. This strategy minimizes transaction costs and avoids selling on temporary declines.

Buyback

A firm's repurchase of its own securities.

Call

An option that permits the owner of the call to purchase a certain asset at a specified price until a certain date. The redemption of a bond prior to the bond's scheduled maturity.

Capital

Wealth in the form of money or property, owned, used, or accumulated in business by an individual, partnership, or corporation. Wealth, in whatever form, used or capable of being used to produce more wealth.

Capital Gain

The amount by which the proceeds from the sale of an asset exceed the asset's cost.

Capital Gain Tax

A tax on the capital gain from assets that are sold.

Cash

Bills and coins. Money readily available that will be accepted as a medium of exchange.

Cash Account

A brokerage account that requires cash payment for security purchases.

Cash Disbursements

Cash spent by the company during the reporting period.

Cash Disbursements for Income Tax

Cash sent to various government agencies to comply with public laws.

Cash Disbursements for Interest on Loans

Cash spent on payment of interest for any loans the company had during the period.

Cash Disbursements for Operating Expenses

Cash spent by the company for all the different items necessary to operate the business for the period.

Cash Disbursements for Product

(see Product Purchases)

Cash Disbursements for Property, Plant, Equipment

Cash spent on assets that will last for more than a year - longer-term assets like land, equipment, etc.

Cash Flow Statement

A Cash Flow Statement shows where cash comes from, what it is spent on during the reporting period and the net increase or decrease in cash owned by the company during this period.

Cash Receipts

All cash received by the company for the reporting period.

Cash Receipts from Borrowing

Cash received from loans the company has received from lending sources like banks.

Cash Receipts from Investors

Cash received from investors who have purchased an interest in the company.

Cash Receipts from Sales

Cash received from the sales of goods and/or services to customers.

Certificate

Evidence of ownership of shares of a stock or of a bond.

Certificate of Deposit

A certificate made out in the owner's name showing that a certain amount of money is on deposit at a bank and is earning interest at a specified rate.

Change in Cash

The net increase or decrease in cash owned by the company from the beginning of the reporting period to the end. Cash receipts less cash disbursements.

Close

The last price at which a security trades or the last valuation of a stock price average during a trading session.

Collectibles

Art, rugs, rare coins, sports cards, porcelain, etc. Various classes of physical objects that are deemed valuable.

Commercial Paper

Short-term unsecured debt issued by a corporation with a usual maturity of 270 days. It is sold at a discount and redeemed at face value.

Commodities

Basic items or staple products such as agricultural or mining products - grain, cotton, metals, etc.

Common Stock

A class of stock that has a low priority to share in the assets of a corporation in the event of liquidation.

Composite Tape

A security price reporting system that includes trading from all the organized exchanges and from the over-the-counter market.

Compounding

The amount of interest is computed not only on the principal amount owed or borrowed but also on the interest that is owed on the principal amount. This has the effect of "compounding" increases in the principal as interest is computed on a continually increasing principal amount

Confirmation

Written acknowledgment that a security order to buy or sell has been executed.

Conversion Price

The price at which shares of common stock will be exchanged for a convertible security.

Convertible Debentures

A company may issue Preferred Stock which can be converted into Common Stock or long-term notes that are convertible into Common Stock (called convertible debentures).

Convertible Security

A security that is convertible into a different security. For example convertible preferred stock may be converted into common stock.

Corporate Bonds

This is an "IOU" issued by the corporation. The corporation pays interest on the bond periodically and pays the entire amount (called principal) when due. Bonds are included in long-term debt on the Balance Sheet.

Corporation

A business that has its own rights and obligations that are separate from the owners of the business.

Cost of Sales

What it costs to produce the product or service. The amount of material, labor and any other production costs directly attributable to producing the product or service.

Coupon

The annual rate of interest paid on a debt security as calculated on the basis of the security's face value.

Currency

The money in circulation in any country. The medium of exchange in use in a country.

Current Assets

Cash and those assets which will be turned into cash in the near future - within the next year.

Current Liabilities

All debts that are due within 12 months.

Current Ratio

The total Current Assets divided by the total Current Liabilities. This is a good measure of the company's ability to pay its debts in the immediate future.

Current Yield

The rate of return to be earned from an investment's expected annual cash payment and the investment's current market price.

Day Order

An order to buy or sell a security that will be automatically canceled if not filled by the end of trading on the day the order is entered.

Dealer

An individual or organization that purchases assets for and sells assets from its own portfolio.

Debenture

A corporate debt security that has no specific asset pledged as collateral.

Debt to Equity Ratio

Total Liabilities divided by Total Shareholder Equity. The ratio of how much money is borrowed versus how much is invested. This is helpful in determining whether or not the company has too much debt to easily pay back.

Declaration Date

The date when a firm's officers announce the amount and date on the firm's next stock dividend.

Deed

An official document which, when delivered, transfers ownership of an interest in property.

Defensive Stock

A stock that tends to resist declines in the stock market.

Deferred Tax

The amount of taxes that eventually must be paid despite temporary tax incentives given by the government.

Delivery

Transfer of a security to the seller's broker.

Depreciation and Amortization

Depreciation is the decline in value of an asset due to its being used. Amortization is the decline in value of an intangible asset such as a patent good for only 20 years.

Derivative

A financial instrument that depends on another related instrument for its value. For example a stock option is an option to buy a particular stock at a named price. In this case the option would be the derivative and it derives its value from the related stock.

Deutschmark

The unit of currency of Germany.

Diamonds

The hardest mineral known consisting of nearly pure carbon in crystalline form used in industry for cutting and as valuable jewelry.

Discount

The amount by which the market value of a preferred stock or a corporate bond is below its par value.

Discount Broker

A broker that buys or sells securities for its customers for commissions that are less than those charged by most full-service brokerage firms.

Discount Brokerage Firm

A brokerage firm that executes security trades for commissions that are less than those charged by most full-service brokers.

Diversification

Spreading money invested and risks among different and/or unrelated types of companies or investments. Thus if one investment or group of investments goes down in value the others need not necessarily follow and could even be increasing in value.

Dividend

A payment from profits that is distributed to shareholders.

Dividend Reinvestment Plan

A corporate plan in which stockholders may elect to have the corporation utilize any dividend payments to purchase additional shares of stock.

Dividends and Interest

Income that the company makes by investing in securities or having money on deposit in banks.

Dollar

The unit of currency used in the United States, Canada, Hong Kong, New Zealand, Australia and some other countries.

Dollar Cost Averaging

An investment plan in which an individual makes an equal dollar investment at each of several points over a period of time thus averaging the purchase price.

Down Payment

The amount of money paid towards the purchase price of a piece of real estate at the time of purchase.

Dow Jones Industrial Average

A trademark for one of the oldest and most widely quoted measures of stock market price movements. Used to help predict trends in the stock market.

Earnings

The amount of excess after all expenses have been deducted from sales. This is what is available to pay the company's investors or re-invest in operations for expansion.

Earnings Per Share

The net income of a corporation after taxes divided by the number of common shares the company has outstanding.

Earnings per Share Ratio

Net Income divided by the number of shares of a company participating in the profits. This gives a good indication of the earnings ability of a company.

Economy

The management of the resources of a country, community or business. The system of production, distribution and consumption.

Equity

The financial interest that the shareholders own in the company. Also called Net Worth, as it is what is left after Liabilities are subtracted from Assets.

Equity - Real Estate

The value of property beyond the total amount owed on the property. The value of the owner's interest in the property.

Eurodollars

U.S. dollars that are on deposit outside the U.S.

Ex-Dividend

Pertaining to stock that no longer carries the right to receive the next dividend payment.

Ex-Dividend Date

The first date a buyer will not receive the next dividend. If you buy on or after this date you do not get any pending dividend and thus the dividend would not be included in the price of the stock.

Federal Deposit Insurance Corporation, (FDIC)

This is a U.S. government agency that insures deposits in member banks up to a maximum of $100,000 per account. If a bank goes out of business, the FDIC will guarantee each of its depositors accounts up to $100,000.

Federal Reserve System

A centralized banking system in the U.S. under a Board of Governors with supervisory powers over twelve Federal Reserve Banks each of which is a central bank for its district. It was established to regulate banking and the economy by controlling the supply of money and credit.

Financial Ratios

Ratios constructed using the various numbers found on Financial Statements. They are used to estimate the financial strengths and weaknesses of a company.

Fiscal Year

A fiscal year is defined as a period consisting of 12 consecutive months, 52 consecutive weeks, 13 four-week periods or 365 consecutive days after which the accounting period is closed. A fiscal year does not always start and end on a calendar year.

Fixed Income Security

A security that makes a fixed periodic payment to the owner of the security.

Flat

Pertaining to a bond that is traded without accrued interest.

Franc

The unit of currency of France, Switzerland and Belgium.

Full Service Brokerage Firm

A brokerage firm that provides customers with a wide range of products and services including advice concerning what securities to buy and sell.

Furniture and Fixtures

The furniture and any fixtures (e.g. signs, shelves, etc.) owned by the company.

Futures

Short for "Futures Contract" which is an agreement to take delivery of a commodity at a specified time and place.

General & Administrative Expense

Executive salaries, office staff payroll, office expenses, rent, phones, utilities, etc.

Gold

A precious metal used in the manufacture of coins, jewelry, etc.

Gilder

The unit of currency of the Netherlands.

Going Public

The initial sale of stock to the public by a firm that has been privately held.

Good-Till Cancelled

An order to buy or sell a security that remains in effect until executed or until canceled by the investor who placed the order.

Gross Domestic Product (GDP)

Gross Domestic Product (GDP) is the total value of all the final goods and services produced in a country. This number is used as a statistical indicator of overall production.

Gross Margin

Sales minus Cost of Sales. It's called "Gross" because it does not take into account other types of expenses which must be calculated before "Net Income" is calculated.

Growth Fund

An investment fund with an investment objective of long term capital growth.

Growth Stock

The common stock of a company that is expected to have above-average growth in revenues and profits.

High-Grade

Pertaining to the security of an issuer with good credit quality.

Inactive Security

A security that seldom trades or that trades in small amounts.

Income Before Tax

This is the amount of excess of sales over expenses on which the company must pay taxes. It is also called Profit Before Tax.

Income Statement

An Income Statement measures the performance of a business over a period of time.

Income Tax

This is the amount of money that the government charges the corporation for profits that it makes. The better you do, the more you pay.

Income Taxes Payable

Money owed various taxing agencies but not yet paid.

Increase or Decrease in Cash for the Year

The net increase or decrease in cash owned by the company from the beginning of the reporting period to the end. Cash receipts less cash disbursements.

Index

An index is simply a number that is a statistical measurement of overall performance. The index of various stock exchanges attempts to measure the overall performance of all stocks traded on that exchange. For example, the NY Stock Exchange index attempts to measure the overall performance of all stocks traded on the NY Stock Exchange.

Index Fund

A mutual fund that maintains a portfolio of stocks that attempts to match the performance of an entire market.

Inflation

An increase in the amount of money and credit in relation to the supply of goods and services. An increase in the general price level as a result of too much money in circulation in relation to the supply of goods in services.

Initial Public Offering

A corporation's first offering of common stock to the broad public.

Institutional Investor

An organization that invests large amounts of money. Examples are a bank trust department or an insurance company.

Intangibles

Assets having no physical value yet having substantial value to the company. An example would be a patent or an exclusive license to provide phone service in an areas.

Inventory

Inventory is composed of three classes of materials: raw materials to be used in the product, goods in the process of being manufactured and finished goods ready for shipment to the customer.

Issue

1. A particular class of an organization's securities. 2. To sell securities in the primary market. (First time the security is sold as different from the secondary market where the securities are resold and continually traded.)

Interest

Money paid for the use of money and expressed as a percentage rate per unit of time. Example - 10 % per year paid for the use of $1000 is $100 per year interest.

Interest Expense

This is interest paid to those who loaned the company money.

Investment

Money or other forms of wealth or energy placed into a business, real estate, stocks, bonds, etc. for the purpose of obtaining a return usually in the form of income or a profit.

Investment Banker

A firm that provides assistance to organizations who are in need of raising funds to finance their activities..

Investment Company

A firm that pools and then reinvests funds that have been invested by individuals.

Investor

An individual or group that puts money into business, real estate, stocks, bonds, etc. for the purpose of obtaining an income or profit.

Junk Bond

A bond with a low credit rating (or, no credit rating) in which there is some doubt that the terms of the bond will be satisfied.

Kroner

The unit of currency of Denmark and Sweden.

Land

Real estate owned by the individual or company.

Leverage

The purchase or sale of securities using borrowed funds or credit with the expectation of earning substantial profits.

Leveraged Buyout

The acquisition of a corporation by a group of investors using mostly borrowed funds that are secured by the assets of the corporation being acquired.

Liabilities

All the debts and legal obligations for which a business owes and must pay.

Liability

Any debt or legal obligation that is owed and must be paid for. Any claim on the assets of the organization.

Limit Order

An investor's order to execute a security trade only at a specified price or better.

Limit Price

The price specified on a limit order.

Lire

The unit of currency of Italy.

Listed Security

A security that has been admitted to trading on one of the organized securities exchanges.

Liquidation

Sale of all the assets of the company. This is done if and when the company goes broke. The assets are sold and the proceeds used to pay off creditors.

Liquidity

The degree to which there is a large amount of cash or assets that are readily converted into cash.

Load

The fee that investors are charged when they acquire shares of a mutual fund.

Long Term Debt

Long term loans (also called bonds) on which the company pays interest and eventually must pay in full.

Long Term Liabilities

All debts owed that are due long term (over one year).

Low Load Fund

A mutual fund with a relatively low sales fee that ranges from one to three percent of the amount invested.

Machinery

The machines owned by the company used to make the product or otherwise assist the company's business.

Margin

The amount of unencumbered money or value that must be deposited in order to purchase or to maintain a security position.

Margin Account

A brokerage account that permits an investor to buy securities on credit or to borrow against the securities already deposited in the account.

Major Turn

A reversal in the intermediate or long term direction of the stock market's movement.

Marketable Securities

Securities that have been purchased with excess cash and are rapidly convertible to cash when needed.

Market Order

An investor's order to immediately execute a security trade at the best possible price.

Market Price

The price at which a security trades in the secondary market. (Secondary market refers to the buying and selling that goes on after the initial public sale of the security.)

Market Timing

Frequent trading of securities in order to take advantage of short-term price movements.

Market Value

The price at which an investment is bought or sold. The value of the investment at the time of purchase or sale as proven by the fact that the price asked results in a sale.

Money

Any substance or article stamped by a government authority and used as a medium of exchange and measure of value.

Money Market

The market for short term securities such as negotiable certificates of deposit and treasury bills.

Mortgage

The pledging of property to a creditor as security for the payment of a debt.

Most Active List

The listing of securities that have exhibited the greatest volume of trading during a certain period of time.

Municipal Bond

A debt security issued by a state, city, county, or some other political subdivision. Usually these bonds are exempt from taxes on the interest earned.

Mutual Fund

An investment fund that pools the money of many individuals who buy shares in the fund, and invests the pooled money in other investments.

Negotiable CDs

A certificate of deposit whose ownership can be easily transferred.

Net Asset Value

The market value of each share of a mutual fund, computed by subtracting the fund's liabilities from its total assets and dividing the remainder by the total number of outstanding shares.

Net Change

The amount by which a security's closing price is different from the closing price in the previous trading period.

Net Income

The amount of excess after all expenses have been deducted from sales. This is what is available to pay the company's investors or re-invest in operations for expansion. Net Income is also called Earnings.

Net Sales (Revenue)

The total of sales billed after deducting any returns or bad debt.

Net Worth

The value of all assets less the amount of money owed on the assets.

New Issue

A security that is being offered to the public for the first time.

New York Stock Exchange

The market place where securities of large, established U.S. companies are bought and sold. The oldest and largest organized securities exchange in the United States.

No Load Fund

A mutual find that is sold without a sales charge.

Notes Payable

Money owed to a bank, individual, corporation or other lender.

Odd Lot

A quantity of securities that is less than a standard trading unit. Less than 100 shares of a common stock are considered an odd lot.

On the Sidelines

This describes an investor who has decided to delay, for whatever reason, investing funds in securities traded in the stock market.

Opening

The beginning of a securities trading session.

Operating Expenses

This is the total of other expenses incurred in getting the product or service sold and delivered to the customer. This is usually divided into Selling Expenses and General/Administrative Expenses.

Operating Income

Gross Margin minus the Operating Expenses. This figure shows what the company is making or losing prior to expenses not directly involved with making and delivering the product or service.

Option

A contract that allows a person or group to either purchase or sell an asset at a specified price until a specified date.

Original Maturity

The time between when a bond is issued and when the bond is scheduled for maturity.

Other Income/Expense

This is money earned or expenses incurred by the company with actions not directly involved in making or delivering the product.

Overbought

Describes a stock market that has recently experienced a significant rise in prices and that is likely to decline in the near future.

Oversold

Describes a stock market that has recently undergone a significant decline in prices and is likely to experience increases in the near future.

Over the Counter

The market created by linking stock brokers for the purpose of buying and selling securities that are not traded on a major organized exchange like the New York Stock Exchange or American Stock Exchange.

Paid-in Capital

The amount paid in by the shareholders over and above the "par" value of the shares. Par value is the value on the face of the shares and is usually lower than what is paid for the shares when they are sold.

Palladium

A rare silver-white metal of the platinum group.

Partial Execution

Execution of less than the full amount of an order to buy or sell a security.

Par Value

A security's stated value as printed on the security certificate. In the case of a bond, this is also called face value.

Payment Date

The date on which a dividend or interest payment will be made to a security's owner.

Pay-out Ratio

The proportion of Net Income that a firm pays out in cash dividends.

Penny Stock

A low-priced stock whose ownership generally entails substantial risk.

Peso

The unit of currency of Mexico.

Platinum

A precious metal used in jewelry, catalytic converters for reducing exhaust contamination, acid proof containers, etc.

Point

A measure of change in the price of a security or of a market average.

Portfolio

A group of investments held by an investor. For example, a mix of stocks, bonds, mutual funds, real estate, gold, etc. all taken together would make up a portfolio of investments.

Post

The location on the floor of an organized exchange at which a particular security is traded.

Preemptive Right

The right of a stockholder to maintain proportional ownership of a firm by acquiring a portion of new shares that are being sold to the public.

Preferred Stock

Shares of business ownership that give the owner of the stock priority (over common stock holders) with respect to dividends and to assets in the event of liquidation.

Premium

The amount by which the market value of a preferred stock exceeds its par value. Also the market price of an option to buy or sell a stock.

Prepaid Expenses

Payments for items that will not be immediately used and are therefore not charged immediately as an expense. For example, 6 months worth of office supplies are purchased and at the end of the reporting period only 2 months have been used. The additional 4 months are a Prepaid Expense.

Pound

The unit of currency of the United Kingdom and Ireland.

Price-Earnings Ratio

Current market price of a publicly traded company divided by the earnings per share. This is an indicator of how the company is valued by the stock market relative to its ability to earn.

Primary Market

The first time a company's shares are sold, they are sold into the primary market. This is the market that is made up of the first owners of the shares. Whenever the shares are resold, this is called the secondary market.

Principal

A bond's face amount.

Product Purchases

Cash spent by the company on those items necessary to directly produce the product or service.

Profit

1. The amount of financial gain obtained from the use of capital in a transaction or series of transactions in relation to the amount of capital invested. 2. The sum remaining after all costs are deducted from the sales of a business.

Profit Margin

Net Income divided by Net Sales. This is the main ratio to show how well the company is doing. Sometimes referred to as "The Bottom Line."

Profit Taking

Widespread selling of a stock or of securities in general following an extended rise in value.

Property, Plant and Equipment

Those assets that are used over and over again in order to manufacture the product, display it, warehouse it or transport it.

Prospectus

A formal document containing relevant facts concerning an issue of securities

Proxy

Written authorization to act for a stockholder.

Put

An option that gives the owner the right to sell a particular asset at a specified price until a given date.

Publicly Traded Company

A business with shares of ownership that are traded on an organized exchange or in the over the counter market and that are available for purchase.

Quotation

A listing or statement of the value of a security.

Quick Ratio

The total of Cash, Marketable Securities and Accounts Receivable divided by the Total Current Assets. In other words, those items that are very rapidly converted into cash with which Current Liabilities can be paid.

Range

The high price and low price which a security or a market average has attained during a given period.

Rating

The grading of the credit quality of a debt obligation.

Rating Agencies

Companies that grade the credit quality of debt obligations.

Ratio

A ratio is the relation in number or degree between two things. For example $200 in earnings related to 100 shares is 200 divided by 100 or $2 earned for each of the 100 shares. The earnings per share ratio is thus expressed as 2/1.

Real Estate

Land including the buildings or improvements on it and its natural assets such as water, minerals, etc.

Real Estate Broker

A licensed individual who acts as an agent or intermediary in negotiating contracts between a real estate seller and buyer.

Real Estate Investment Trust

A trust in the form of a pool of money that invests in real estate or related investment vehicles like mortgages. One buys shares in the trust rather than directly purchasing the real estate.

Record Date

The date on which an organization determines who holds securities for the purpose of paying dividends, sending financial statements, and so forth.

Redemption

The retirement of a security by the security's issuer.

Regional Exchange

An organized securities exchange that specializes in the securities of companies located in the region of the exchange.

Registered Representative

A brokerage firm employee who is registered with the Securities and Exchange commission to handle investor accounts.

Registration

The preparation of a securities issue for public sale.

Registration Statement

A formal document filed with the Securities and Exchange Commission by an organization planning to publicly issue securities.

Rent

Payment for the temporary possession or use of a house, land or other property that is made by the tenant or user to the owner of the property.

Repurchase Agreements

The sale of a security from a seller to a buyer with the simultaneous agreement from the seller to repurchase the security at a fixed price on a specified future date.

Retained Earnings

Retained Earnings accumulate as the company earns profits and reinvests or "retains" profits in the company.

Return on Assets Ratio

Return on Assets is calculated by dividing Operating Income (income before interest and taxes) by Total Assets and multiplying by 100. This percentage is then used to determine how well the organization is using its assets compared to how much it costs to borrow money.

Return on Equity Ratio

Net Income divided by Total Shareholder Equity times 100. This is an indicator of how well the company is using the money invested in it so that it can bring a return to its investors. As investors have alternatives to where they can place their cash, it is important for this ratio to be attractive.

Return on Investment

The amount of profit earned from an investment. Usually expressed as a percentage where the profit is divided by the amount of capital invested and multiplied by 100.

Revenue (Net Sales)

The total of sales billed after deducting any returns or bad debt.

Rights Offering

The distribution to existing stockholders of rights to purchase shares that are part of a new common stock issue.

Round Lot

The standard unit of trading for a particular type of security. For example 100 shares of stock could be a round lot.

Secondary Market

The market in which outstanding securities are traded. This term differentiates from the primary or initial market when securities are sold for the first time.

Secondary Stock

The common stock of a smaller company that is not generally an industry leader.

Sector Fund

An investment fund that concentrates on investing in securities having a common industry or sector. For example, a sector fund may buy only stocks in the banking industry.

Security

Refers to the actual stock or bond certificate. For stocks the security shows partial ownership of the company. For bonds the security shows the issuer's pledge to repay the amount of the bond at a stated interest rate.

Selling Expense

Advertising, promotional materials, sales commissions, sales-related travel and entertainment, trade shows, etc.

Short Sale

The sale of a security that is not owned but is borrowed. The seller borrows the stock and sells it. If it goes down in price it can be bought back at a lower price, the stock returned and the difference is profit.

Silver

A precious metal used in coins, jewelry, electrical connections, photographic processing, etc.

SIPC (Securities Investor Protection Corporation)

A government sponsored organization that insures cash and securities held in brokerage accounts.

Specialist

A member of an organized securities exchange who makes a market in one or more securities.

Speculator

An individual who is willing to take large risks in order to earn above-average returns. Speculators generally hold securities for a relatively short period of time.

Split

An increase in the number of shares of stock outstanding without an accompanying increase in assets. In other words there are more shares outstanding after a split and no sales for investment cash have occurred.

Spread

The difference between the bid and the offering price for a security.

Standard & Poors 500 Index

A comprehensive stock index that is calculated using the market values of the common stock of 500 companies.

Stock

Shares of ownership of a corporation.

Stock Dividend

A dividend that is comprised of additional shares of stock which are distributed to a corporation's owners.

Street Name

Registration of an investor's security in the name of the brokerage firm that is holding the security.

Technical Rally

A short term rise in the stock market that is an interruption in a longer term downtrend.

Tender Offer

An offer to purchase stock from investors.

Top

The highest value to which the stock market or a particular stock will rise.

Total Assets

All the asset figures added together produce the Balance Sheet item called Total Assets.

Total Equity

Total value of the Shareholder's Equity including Stock and Retained Earnings.

Total Liabilities

Current and long term debt added together.

Total Liabilities + Equity

The Total Liabilities added to the Total Equity. This figure equals the Total Assets and brings the Balance Sheet into balance.

Treasury Bill

A short term (one year or less) debt security issued and guaranteed by the U.S. Treasury.

Treasury Bond

A longer term debt security (over 10 years) issued and guaranteed by the U.S. Treasury.

Treasury Note

A longer term debt security (1-10 years) issued and guaranteed by the U.S. Treasury. Longer than a T-Bill and shorter than a T-Bond.

Title

A right to ownership of real estate.

Unlisted Security

Describes a security that trades in the over the counter market and has not been approved for trading on an organized securities exchange.

Up-trend

A series of increases in value for a specific stock or for the overall market.

Value Investing

The purchase of securities using the market value of the assets that are owned by the firms that have issued the securities as a guide to real value.

Volume

Units of trading in a security or in the overall market for a specified period.

Voting Stock

Stock that gives the owner of the stock the right to vote for the firm's directors.

Warrant

A security that allows an investor to purchase a specific number of shares of stock at a predetermined price.

Working Capital

Current Assets less Current Liabilities. Called "Working Capital" because it is the capital that has been put to work in the business and has taken the form of Inventory, Accounts Receivable, Cash, etc.

(No X's in this glossary.)

Yen

The unit of currency of Japan.

Yield

The rate of return on an investment.

Yield to Maturity

The annual rate of return to be earned from buying a debt security at the current market price assuming that the security will be held until the scheduled maturity.

Zero Coupon Bond

A bond that is issued at a large discount from face value and that makes no periodic interest payments.