Glossary

Are you a little confused by the stockmarket terminology you hear? The list below is not exhaustive but attempts to explain the most frequently used terms.

"A" shares

A class of ordinary shares with different rights, normally affecting voting. Companies can issue shares classed as A and B etc.

ADR

American Depository Receipt - This provides overseas investors in a way to invest in shares which they cannot buy directly. The ADR reflects any movement in the value of the shares.

Adjusted EPS

Fully diluted earnings excluding goodwill, amortisation and exceptional items (net of tax) %weighted average of fully diluted number of shares.

Amortisation

Reduction in value of an intangible asset or a lease. Basically the same as depreciation (which is used in connection with tangible assets) but the accounting treatment of it varies, because of the difficulty in valuing intangibles.

Asset Value

The total assets (property, stock, cash balances etc.) of the company minus all the liabilities in the balance sheet (loans, creditors, bank overdrafts etc.) minus all the prior capital (including debentures, loan stocks and preference shares.

Bargain

A purchase or sale on the stock exchange, sometimes known as a contract.

Bear Market

Market where prices are falling and expected to fall further in the short to medium term.

Best Price

Also known as Market Price. An instruction to buy an investment in the market for the best price available at the time the instruction was made rather than at a specific price.

Blue chip companies

A company regarded as solid and well established and consequently a safe investment.

Bonds

A type of investment normally issued by the government, which usually guarantees regular payment of interest and repayment of capital on a specified future date; also called a fixed-interest security. These instruments are being increasingly issued by corporations.

Bubble

A bubble describes the scenario where equity prices are rising quickly on grounds that seem to be unrelated to the equities fundamental value. The term is used because, like a bubble, the prices will reach a point at which the ‘bubble’ bursts and collapse dramatically.

Bull market

Market where prices are on the rise and expected to continue this trend in the short to medium term.

Call Option

A call option contract confers the right, though not the obligation, to buy a fixed number of shares at a specified price within a predetermined period of time.

Capital Gain

The increase in price of an asset or investment above the purchase price ignoring any income from the asset.

Capital Gains Tax (CGT)

A tax on the increase in value of assets sold in a particular year.

Capital Acquisitions Tax (CAT)

CAT is a tax payable by anyone who benefits from a will or a gift. The threshold at which tax is payable will vary depending on the value of the gift and the relationship between the donor and the recipient. When the value of the gift exceeds the threshold applicable given the relationship between donor and recipient, CAT is payable on the balance at a rate of 20%. Whether the recipient has received prior gifts from any other donor may also be a factor considered when calculating CAT liability.

Closing Price

The last quoted buyers' and sellers' price recorded at the end of the trading session for each day.

Contract Note

Written confirmation of the purchase or sale of an investment issued immediately the bargain is transacted.

Custodian

A body, normally a bank or financial institution, entrusted with holding stocks or investments on behalf of third parties for safekeeping.

Debt/Equity

Gearing. Net debt % shareholders' funds

Demerger

The splitting of a company, often originally formed as a result of a merger, into two or more separate companies. It gives the existing shareholders shares in both companies.

Derivative

An instrument derived from securities, currencies or commodities, or an index or indicator representing any of these, the price of which will move in a direct relationship to the price of the base instrument or index.

Dividend

The cash distribution to shareholders out of company profits, usually paid twice yearly.

Dividend Yield

Dividend per share % price.

EBIT

Earnings before interest and tax

EBITDA

Earnings before interest, tax, depreciation, amortisation and exceptional items.

Effective Tax Rate

Tax (adjusted for exceptionals) % profits before tax (adjusted for exceptionals)

EGM

Extroadinary General Meeting. Any meeting other than the annual general meeting of a company called during the year is termed an EGM.

Enterprise Value

Market capitalisation + net debt + preference shares

EPS

Earnings Per Share - This number is calculated by dividing a company's earnings (i.e. profit after tax) by the total number of ordinary shares in issue.

Equities

Another name for shares or stocks

ESOP

Employee Share Ownership Scheme

Execution Only

The relationship between a client and an investment broker or independent financial advisor where the broker purely acts on the client's instructions and not in an advisory capacity.

Ex Dividend

Prior to announcing each dividend, companies set a date on which shares will be sold without entitlement to the dividend. Before that date they are said to be 'cum dividend'. Therefore, if you sell shares before the ex-dividend date you will not be entitled to receive the dividend. If you sell shares after the ex-dividend date, you will be entitled to receive the dividend.

Ex Rights

The buyer of the security is not entitled to the rights issue.

Ex Scrip

Means that the security is priced without the right to the scrip issue.

Fill or Kill

Term used by dealers for an order to offer a trade for either immediate fulfilment or abandonment.

Futures

An investment instrument that involves a contract to buy or sell a fixed quantity of a particular commodity, currency or security for delivery at a fixed date in the future at a fixed price. Unlike an option, a futures contract involves an obligation to purchase or sell.

Flotation

The issuing of shares in a company to the public for the first time on a stockmarket. This is also known as an IPO (initial public offering).

Free Cash Flow

Operating cashflow less payments to providers of finance, taxation, capital expenditures and non-operating non-cash items.

Gilts

The familiar name given to government securities.

Gearing

The most common use of the term 'gearing' is to describe the level of a company's debt compared with its equity capital, and usually it is expressed as a percentage. So a company with gearing of 60 per cent has levels of debt which are 60 per cent of its equity capital.

Illiquid

Stock which is not readily convertible into cash, as it is not traded actively and would be difficult to sell as there is not a ready market for it.

Inflation

The amount in percentage terms by which prices rise over a period of time in an economy. Inflation reduces the purchasing power of money.

Interest Cover

EBIT % net interest expense

Limit

An order to a broker which is restricted so far as the price level at which it may be transacted is concerned.

Listed company

A company whose shares have been admitted to the stock exchange and which has had to comply with the Exchange's listing requirements.

ISEQ

The Irish Stock Exchange official equity index. The index's base was 1,000 on January 4,1988 and comprises the ISEQ™ Overall and two sub-indices, the ISEQ™ Financial and the ISEQ™ General

Mutual Fund

The American equivalent to unit trusts where effectively investors pool their money and invest using the expertise of a professional fund manager.

NAV

Net Asset Value - Shareholders' funds % year end number of shares

Net Debt

Short term and long term debt less net cash

New Issues

Shares being issued on a stock exchange for the first time.

Non Cash Working Capital

Debtors plus Stock less Creditors

Operating Profit

Profit on ordinary activities excluding goodwill amortisation

Operating Cash Flow

Operating profit adjusted for non-cash items relating to operating activities

Operating Margin

Operating profit divided by group turnover

Option

An option is the right, but not the obligation, to buy (call option) or sell (put option) an investment holding at a predetermined price (called the exercise price or strike price) at some particular date in the future.

P/E (PRICE / EARNINGS RATIO)

Price % adjusted EPS. The current share price divided by the last published earnings per share, where earnings per share is net profit divided by the number of ordinary shares. The P/E ratio is a measure of the level of confidence investors have in a company (rightly or wrongly) - generally, the higher the figure the higher the confidence.

Penny Share

A penny share is a low value share in a company that doesn’t have a significant operating history and has limited tangible assets. Companies that have real assets, such as equipment and inventory, and are engaged in some real business, such as manufacturing are not regarded as true penny share companies.

P/Op Cashflow

Price % operating cashflow

PBT

Profit before tax

Portfolio

A collection of investments held by an individual, which may consist of a mixture of shares, bonds, property and cash (deposits).

Private Placing

A placing of new or existing shares in a limited or public limited company with a pre-selected individual or institution or group of individuals and not available generally either to the public or other institutions.

Registrar

The person (normally a bank) responsible for keeping a register of shareholders (members) and issuing certificates for individual quoted companies. They also deal with all other shareholder administration including dividend distribution, rights and scrip issues etc.

ROACE

Return on average Capital employed. EBIT (excluding goodwill amortisation and exceptionals) % average capital employed (includes goodwill written off to date)

ROAE (net)

Attributable profit excluding exceptionals % average equity

Sales

Turnover from company activities

Scrip Dividend

A dividend that is automatically paid as an issue of new shares instead of cash.

Scrip Issue

Also known as a bonus issue or free issue, a scrip issue is an issue of free shares to the existing shareholders of a company by capitalising the company's reserves. The free shares are issued in proportion to existing issues, e.g. a '1 for 3 scrip issue' means that 1 free share is issued for every 3 shares in a the holding of each shareholder. The market price of the shares adjusts to the point at which the total value of the shareholdings is the same as it was immediately prior to the scrip issue.

Selling Short

To sell short is to sell a security, which one does not hold in the hope of buying it back at a lower price to make a profit.

Share

The risk-sharing part of a company's capital; also referred to as stocks or equities.

Share Split

Where the share price of a company's shares has become large, due to the growth of its value, it is often considered appropriate to issue additional shares for a lower value so that they become a more palatable size. Called a stock split in the USA. there is no 'real' difference in the value of the shares.

Spread

This is the difference between the buying and selling price of a share, i.e. the bid-offer spread. This can vary depending on the demand for the investment and the volumes in which it is normally traded.

Stag

Investor who applies for a new issue in the expectation of realising a profit as soon as dealing in shares begins.

Stamp duty

A government tax on the purchase (but not the sale) of shares.

Stock

A share is the smallest tradeable unit of a company's share capital. Stock can be subdivided and traded in any amount.

Unit Trust

A trust formed to manage securities on behalf of a number of small investors giving the combined benefits of diversification, security and a sufficient weight of assets to ensure cost-effectiveness and merit the attention of leading fund managers. The trustee is normally a major bank and is the legal holder and custodian of the securities.

Valuation

A summary of an investment portfolio showing the values and costs as at a given date.

Warrant

Warrants are securities issued by a company, which give their owners the right to purchase shares in the company at a specific price at a future date. The warrants are tradable in their own right, and their value will go up and down as the price of the shares to which they relate goes up and down. Warrants have no right to dividends and no voting rights, so their value is tied entirely to the relationship between their exercise price and the share price of the company.

Yield

A general term for the rate of income from an investment expressed as an annualised percentage and based on its current capital value.