acid test

A stern measure of a company's ability to pay its short term debts, in that stock is excluded from asset value. (liquid assets/current liabilities) Also referred to as the Quick Ratio.

Anything owned by the company having a monetary value; eg, 'fixed' assets like buildings, plant and machinery, vehicles (these are not assets if rentedand not owned) and potentially including intangibles like trade marks and brand names, and 'current' assets, such as stock, debtors and cash.

asset turnover
Measure of operational efficiency - shows how much revenue is produced per £ of assets available to the business. (sales revenue/total assets less current liabilities)

balance sheet
The Balance Sheet is one of the three essential measurement reports for the performance and health of a company along with the Profit and Loss Account and the Cashflow Statement. The Balance Sheet is a 'snapshot' in time of who owns what in the company, and what assets and debts represent the value of the company. (It can only ever nbe a snapshot because the picture is always changing.) The Balance Sheet is where to look for information about short-term and long-term debts, gearing (the ratio of debt to equity), reserves, stock values (materials and finsished goods), capital assets, cash on hand, along with the value of shareholders' funds. The term 'balance sheet' is derived from the simple purpose of detailing where the money came from, and where it is now. The balance sheet equation is fundamentally: (where the money came from) Capital + Liabilities = Assets (where the money is now). Hence the term 'double entry' - for every change on one side of the balance sheet, so there must be a corresponding change on the other side - it must always balance. The Balance Sheet does not show how much profit the company is making (the P&L does this), although pervious years' retained profits will add to the company's reserves, which are shown in the balance sheet.


In a financial planning context the word 'budget' (as a noun) strictly speaking means an amount of money that is planned to spend on a particularly activity or resource, usually over a trading year, although budgets apply to shorter and longer periods. An overall organizational plan therefore contains the budgets within it for all the different departments and costs held by them. The verb 'to budget' means to calculate and set a budget, although in a looser context it also means to be careful with money and find reductions (effectively by setting a lower budgeted level of expenditure). The word budget is also more loosely used by many people to mean the whole plan. In which context a budget means the same as a plan. For example in the UK the Government's annual plan is called 'The Budget'. A 'forecast' in certain contexts means the same as a budget - either a planned individual activity/resource cost, or a whole business/ corporate/organizational plan. A 'forecast' more commonly (and precisely in my view) means a prediction of performance - costs and/or revenues, or other data such as headcount, % performance, etc., especially when the 'forecast' is made during the trading period, and normally after the plan or 'budget' has been approved. In simple terms: budget = plan or a cost element within a plan; forecast = updated budget or plan. The verb forms are also used, meaning the act of calculating the budget or forecast.

capital employed
The value of all resources available to the company, typically comprising share capital, retained profits and reserves, long-term loans and deferred taxation. Viewed from the other side of the balance sheet, capital employed comprises fixed assets, investments and the net investment in working capital (current assets less current liabilities). In other words: the total long-term funds invested in or lent to the business and used by it in carrying out its operations.

The movement of cash in and out of a business from day-to-day direct trading and other non-trading or indirect effects, such as capital expenditure, tax and dividend payments.

cashflow statement
One of the three essential reporting and measurement systems for any company. The cashflow statement provides a third perspective alongside the Profit and Loss account and Balance Sheet. The Cashflow statement shows the movement and availability of cash through and to

the business over a given period, certainly for a trading year, and often also monthly and cumulatively. The availability of cash in a company that is necessary to meet payments to suppliers, staff and other creditors is essential for any business to survive, and so the reliable forecasting and reporting of cash movement and availability is crucial.

cost of debt ratio (average cost of debt ratio)
Despite the different variations used for this term (cost of debt, cost of debt ratio, average cost of debt ratio, etc) the term normally and simply refers to the interest expense over a given period as a percentage of the average outstanding debt over the same period, ie., cost of interest divided by average outstanding debt.

cost of goods sold (COGS)
The directly attributable costs of products or services sold, (usually materials, labour, and direct production costs). Sales less COGS = gross profit. Effetively the same as cost of sales (COS) see below for fuller explanation.

cost of sales (COS)
Commonly arrived at via the formula: opening stock + stock purchased - closing stock. Cost of sales is the value, at cost, of the goods or services sold during the period in question, usually the financial year, as shown in a Profit and Loss Account (P&L). In all accounts, particularly the P&L (trading account) it's important that costs are attributed reliably to the relevant revenues, or the report is distorted and potentially meaningless. To use simply the total value of stock purchases during the period in question would not produce the correct and relevant figure, as some product sold was already held in stock before the period began, and some product bought during the period remains unsold at the end of it. Some stock held before the period often remains unsold at the end of it too. The formula is the most logical way of calculating the value at cost of all goods sold, irrespective of when the stock was purchased. The value of the stock attributable to the sales in the period (cost of sales) is the total of what we started with in stock (opening stock), and what we purchased (stock purchases), minus what stock we have left over at the end of the period (closing stock).

current assets
Cash and anything that is expected to be converted into cash within twelve months of the balance sheet date.

current ratio
The relationship between current assets and current liabilities, indicating the liquidity of a business, ie its ability to meet its short-term obligations. Also referred to as the Liquidity Ratio.

current liabilities
Money owed by the business that is generally due for payment within 12 months of balance sheet date. Examples: creditors, bank overdraft, taxation.

The apportionment of cost of a (usually large) capital item over an agreed period, (based on life expectancy or obsolescence), for example, a piece of equipment costing £10k having a life of five years might be depreciated over five years at a cost of £2k per year. (In which case the P&L would show a depreciation cost of £2k per year; the balance sheet would show an asset value of £8k at the end of year one, reducing by £2k per year; and the cashflow statement would show all £10k being used to pay for it in year one.)

A dividend is a payment made per share, to a company's shareholders by a company, based on the profits of the year, but not necessarily all of the profits, arrived at by the directors and voted at the company's annual general meeting. A company can choose to pay a dividend from reserves following a loss-making year, and conversely a company can choose to pay no dividend after a profit-making year, depending on what is believed to be in the best interests of the company. Keeping shareholders happy and committed to their investment is always an issue in deciding dividend payments. Along with the increase in value of a stock or share, the annual dividend provides the shareholder with a return on the shareholding investment.

earnings before..

Depreciation. rates. and that thereafter the buyer assumes responsibility for the goods and the costs of transport and the liability. FOB meant originally (and depending on the context stills generally means) that the seller is liable for the goods and is responsible for all costs of transport. and Amortization. Logically FOB also meant and still means that the seller is liable for any loss or damage up to the point that the goods are loaded onto the vessel at the FOB port. equipment. knowing that this price is 'free' or inclusive of all costs and liabilities of getting the goods from the seller to the port and on board the craft or vessel. and EBITDA = Earnings Before Interest. insurance and loading. (Earnings = operating and non-operating profits (eg interest. buildings. depreciation of capital items. (which is now now often linked to a port name.There are several 'Earnings Before. eg. insurance. It's in this listing because it's commonly misunderstood and also has potentially significant financial implications. FOB Hamburg or FOB Vancouver). FOB .. fixtures and fittings. building lease costs. Taxes. EBITD = Earnings Before Interest.' ratios and acronyms: EBT = Earnings Before Taxes. Depreciation is the non-cash charge to the balance sheet which is made in writing off an asset over a period. eg. An importing buyer would typically ask for the FOB price. Amortisation is the payment of a loan in instalments. because the seller is unable to charge these costs as extras once the FOB price has been stated. fixed assets Assets held for use by the business rather than for sale or conversion into cash... permanent staff wages. Taxes and Depreciation. fixed cost A cost which does not vary with changing sales or production volumes. dividends received from other investments). EBIAT = Earnings Before Interest after Taxes. eg. From the seller's point of view an FOB price must therefore include/recover his costs of transport from factory or warehouse. etc. until and including the goods being loaded at the (nominated FOB) port. The FOB expression originates particularly from the meaning that the buyer .'free on board' The FOB (Free On Board) abbreviation is an import/export term relating to the point at which responsibility for goods passes from seller (exporter) to buyer (importer). EBIT = Earnings Before Interest and Taxes.

ie. which is technically incorrect. While liability and responsibility for goods passes from seller to buyer at the point that goods are agreed to be FOB. not for agreeing payment terms. meaning that the insurance liability and costs of transportation and responsibility for the goods are the seller's until the goods are delivered to the buyer's stipulated delivery destination. used free of liability and costs of transport up to the point that the goods are loaded on board the ship. the FOB principle does not correlate to payment terms. goodwill Any surplus money paid to acquire a company that exceeds its net tangible assets value.. gross profit . In modern times FOB also applies to freight for export by aircraft from airports. even to the extent that other interpretations are placed on the acronym. but the point at which goods are 'FOB' is no longer likely to be just the port of export . While technically incorrect also. if you are an exporter. So. forecast See 'budget' above. In recent years the term has come to be used in slightly different ways. originally meant that the transportation cost and liability for exported goods was with the seller until the goods were loaded onto the ship (at the port of exportation). usually the relationship between long-term borrowings and shareholders' funds. FOB is a mechanism for agreeing price and transport responsibility. which is a matter for separate negotiation. terms such as 'FOB Destination' have entered into common use. seller has liability for can be any place that it suits the buyer to stipulate. beware of buyers stipulating 'FOB destination' . gearing The ratio of debt to equity. In summary: FOB (Free On Board). most commonly 'Freight On Board'. insurance and costs of transport until the goods are loaded (or delivered). If in doubt ask exactly what the other person means by FOB because the applications have broadened. nowadays FOB (Free On Board or the distorted interpretation 'Freight On Board') has a wider usage .the principle is the means the exporter is liable for the goods and pays transport costs up until delivery to the customer.

and usually provided by the importing company's bank to the exporter to safeguard the contractual expectations and particularly financial exposure of the exporter of the goods or services. The seller should also approve the wording of the buyer's letter of credit. which should obviously reflect the agreement between the seller and buyer. or gross profit. and often abbreviated to simply 'margin'. young companies raising capital to finance growth. In other words an IPO is the first sale of stock by a private company to the public. initial public offering (ipo) An Initial Public Offering (IPO being the Stock Exchange and corporate acronym) is the first sale of privately owned equity (stock or shares) in a company via the issue of shares to the public and other investing institutions. and 'import letters of credit'.) When an exporter agrees to supply a customer in another country. which has been in use for many years. beyond any other assurances or contracts made with the customer. is for the customer's bank to issue a 'letter of credit' at the request of the buyer. In short. Also referred to as gross profit margin. to the seller. The customer's bank charges a fee to issue a letter of credit. An IPO is effectively 'going public' or 'taking a company public'. a letter of credit is a guarantee from the issuing bank's to the seller that if compliant documents are presented by the seller to the . the exporter needs to know that the goods will be paid for. Letters of credit are often complex documents that require careful drafting to protect the interests of buyer and seller. and the customer pays this cost. The common system. (Also called 'export letters of credit. See also 'net profit'. IPOs typically involve small. For investors IPO's can risky as it is difficult to predict the value of the stock (shares) when they open for trading.Sales less cost of goods or services sold. and often should seek professional advice and guarantees to this effect from their own financial services provider. This gives the supplier an assurance that their invoice will be paid. The letter of credit essentially guarantees that the bank will pay the seller's invoice (using the customer's money of course) provided the goods or services are supplied in accordance with the terms stipulated in the letter. letters of credit These mechanisms are used by exporters and importers.

whereby the bank assures the buyer that the supplier will not refuse a contract if awarded. It is common for exporters to experience delays in obtaining payment against letters of credit because they have either failed to understand the terms within the letter of credit.buyer's bank. a letter of guarantee provides safeguard that other aspects of the supplier's or customer's obligations will be met. but also the timescales involved. It is important therefore for sellers to understand all aspects of letters of credit and to ensure letters of credit are properly drafted. It is also important for sellers to use appropriate professional services to validate the authenticity of any unknown bank issuing a letter of credit. Advance Payment Guarantee . failed to meet the terms. these are complex documents with extremely serious implications.This guarantees that any advance payment received by the supplier will be used by the supplier in accordance with the terms of contract between seller and buyer. The supplier's or customer's bank is effectively giving a direct guarantee on behalf of the supplier or customer that the supplier's or customer's obligations will be met. • There are other types of letters of guarantee. The 'compliance' of the seller's documentation covers not only the goods or services supplied. then the buyer's bank will pay the seller the amount due. While a letter of credit essentially guarantees payment to the exporter. including obligations concerning customs and tax. and as with letters of credit. etc. For this reasons suppliers and customers alike must check and obtain necessary validation of any issued letters of guarantee. . Typical obligations covered by letters of guarantee are concerned with: Tender Guarantees (Bid Bonds) . and in the event of the supplier's or customer's failure to meet obligations to the other party then the bank undertakes the responsibility for those obligations. checked. • • Performance Guarantee . letters of guarantee There are many types of letters of guarantee. approved and their conditions met.This guarantees that the goods or services are delivered in accordance with contract terms and timescales. method for. and are issued by the supplier's or customer's bank depending on which party seeks the guarantee. These types of letters of guarantee are concerned with providing safeguards to buyers that suppliers will meet their obligations or vice-versa. format of and place at which the documents are presented. or both.

short-term loans). net current assets Current Assets less Current Liabilities. or an entire business). (current assets/current liabilities) Also referred to as the Current Ratio. If negative then it's unprofitable and should not be pursued. While there are many other factors besides a positive NPV which influence investment decisions.liabilities General term for what the business owes. by measuring the relationship between current assets (ie those which can be turned into cash) against the short-term debt value. a new product line. net assets (also called total net assets) Total assets (fixed and current) less current liabilities and long-term liabilities that have not been capitalised (eg. The other side of the balance sheet will show Current Liabilities along with various Assets. NPV provides a consistent method of comparing propositions and investment opportunities from a simple capital/investment/profit perspective. liquidity ratio Indicates the company's ability to pay its short term debts. Logically if a proposition has a positive NPV then it is profitable and is worthy of consideration. along with Share Capital and Reserves make up one side of the balance sheet equation showing where the money came from. showing where the money is now. minus the cost of the investment. largely due to the interpretation of the 'discount rate' used in the calculations to enable future values to be shown as a present value. Corporations generally develop their own rules for NPV . NPV is essentially a measurement of all future cashflow (revenues minus costs. a proposition. Long term liabilities. net present value (npv) NPV is a significant measurement in business investment decisions. There are different and complex ways to construct NPV formulae. also referred to as net benefits) that will be derived from a particular investment (whether in the form of a project. Liabilities are long-term loans of the type used to finance the business and short-term debts or money owing as a result of trading activities to date .

the P/E ratio is also an expression of how many years it will take for earnings to cover the stock price investment. Step by step. Net profit normally refers to the profit figure before deduction of corporation tax. notably after deduction of fixed costs or fixed overheads. NPV is not easy to understand for non-financial people . performance. in which case the term is often extended to 'net profit before tax' or PBT. net profit Net profit can mean different things so it always needs clarifying. and with the market as a whole. More meaningful P/E analysis is conducted by looking at earnings over a period of several years. As earnings per share are a yearly total. with other company's P/E ratios in the same market sector. P/E ratios are best viewed over time so that they can be seen as a trend.wikipedia seems to provide a good detailed explanation if you need one. The P/E ratio is arrived at by dividing the stock or share price by the earnings per share (profit after tax and interest divided by the number of ordinary shares in issue). The P/E ratio is also a highly complex concept . Net profit normally refers to profit after deduction of all operating expenses. to calculate the P/E ratio: . prospects and investment risk of a public company listed on a stock exchange (a listed company). opening/closing stock See explanation under Cost of Sales. p/e ratio (price per earnings) The P/E ratio is an important indicator as to how the investing market views the health. A steadily increasing P/E ratio is seen by the investors as increasingly speculative (high risk) because it takes longer for earnings to cover the stock's a guide to use alongside other indicators. Net strictly means 'after all deductions' (as opposed to just certain deductions used to arrive at a gross profit or margin). Obviously whenever the stock price changes. so does the P/E ratio.calculations. including discount rate. P/E ratios should also be compared over time. not an absolute measure to rely on by itself. This contrasts with the term 'gross profit' which normally refers to the difference between sales and direct cost of product or service sold (also referred to as gross margin or gross profit margin) and certainly before the deduction of operating costs or overheads.

Divide the price of the stock or share by the earnings per share. but also can be monthly and cumulative. reserves The accumulated and retained difference between profits and losses year on year since the company's formation. The P&L is essentially a trading account for a period. It shows profit performance.. which often has little to do with cash. . and then a profit before tax figure (PBT). endowment or pensions investment. A fully detailed P&L can be highly complex.1. eg. 4. 5. overhead An expense that cannot be attributed to any one single part of the company's activities. quick ratio Same as the Acid Test. cost of sales/cost of goods sold. This gives you the earnings per share. Divide this by the number of shares issued. A sterner test of liquidity. 3. restricted funds These are funds used by an organisation that are restricted or earmarked by a donor for a specific purpose. which can be extremely specific or quite broad. The relationship between current assets readily convertible into cash (usually current assets less stock) and current liabilities. Establish total profit after tax and interest for the past year. This gives the Price/Earnings or P/E ratio. 2. profit and loss account (P&L) One of the three principal business reporting and measuring tools (along with the balance sheet and cashflow statement). Basically the P&L shows how well the company has performed in its trading activities. The P&L typically shows sales revenues. fixed overheads and or operating expenses. generally a gross profit margin (sometimes called 'contribution'). stocks and assets (which must be viewed from a separate perspective using balance sheet and cashflow statement). but only because of all the weird and wonderful policies and conventions that the company employs. usually a year.

profit depends on various circumstances. liability or activity. This term means different things to different people (often depending on perspective and what is actually being judged) so it's important to clarify understanding if interpretation has serious implications.research (in the case of donations to a charity or research organisation). a . In simple terms this the profit made from an investment. etc and liabilities. with which the organisation using the funds must comply. such as debt. (profit before interest and tax/capital employed x 100) return on investment Another fundamental financial and business performance measure. 'Return' generally means profit before tax. The source of restricted funds can be from government. foundations and trusts. private donations. net of depreciation. The 'investment' could be the value of a whole business (in which case the value is generally regarded as the company's total assets minus intangible assets. after all it's what most business is aimed at producing . A percentage figure representing profit before interest against the money that is invested in the business. bequests from wills. return on capital employed (ROCE) A fundamental financial performance measure.maximum return on investment. etc. otherise you might as well put your money in a bank savings account. A company's book value might be higher or lower than its market value). A glaring example of misuse of restricted funds would be when Maxwell spent Mirror Group pension funds on Mirror Group development. trademarks. philanthropic organisations. N. grant-awarding bodies. such as goodwill. In this sense most CEO's and business owners regard ROI as the ultimate measure of any business or any business proposition. The practical implication is that restricted funds are ring-fenced and must not be used for any other than their designated purpose. but clarify this with the person using the term . not least the accounting conventions used in the business. or the investment could relate to a part of a business. Strictly speaking Return On Investment is defined as: Profits derived as a proportion of and directly attributable to cost or 'book value' of an asset. Many business managers and owners use the term in a general sense as a means of assessing the merit of an investment or business decision.B. which may also entail specific reporting and timescales. or a particular project with agreed terms of reference and outputs such as to meet the criteria or terms of the donation or award or grant.

continually circulating. The main point is that the term seeks to define the profit made from a business investment or business decision. a new factory. or any activity or asset with a cost attached to it. a new piece of plant. to finance stock. commission payments. t/t (telegraphic transfer) Interntional banking payment method: a telegraphic transfer payment. commonly used/required for import/export trade. Also called a cable transfer. cable or telex. working capital Current assets less current liabilities. . share capital The balance sheet nominal value paid into the company by shareholders at the time(s) shares were issued. eg materials. debtors. between a bank and an overseas party enabling transfer of local or foreign currency by telegraph. variable cost A cost which varies with sales or operational volumes. which needs to be taken into account when arriving at the correct figures. representing the required investment. fuel. Bear in mind that costs and profits can be ongoing and accumulating for several years. shareholders' funds A measure of the shareholders' total interest in the company represented by the total share capital plus product. and work in progress. The terminology dates from times when such communications were literally 'wired' before wireless communications technology.

usually one year. Helps in determining the level of activity of currently active stocks. if shares of stock you own in a company have risen from five to ten. Most analysts specialize in a single industry or business sector. He performs investment research and makes recommendations to ins hold.American Depository Receipt (ADR) Analyst A certificate of trading on a U. stock exchange that represents shares of a foreign corpora A person with expertise in evaluating financial investments. bonds or real estate. u An increase in any investments value. Average Maturity Average P/E Ratio Average price/earnings ratio of stocks owned by a mutual fund. Assets Any possession that has value in exchange in the sense that it has buyers. For example. Do not blindly follow analyst's recommendations.S. money is the medium of all excha stock exchange is always in terms of money. The average time to maturity of securities held by a mutual fund. etc. Auction A mechanism used by the Stock Exchange to fulfill its obligation to the buyer of a security. In the stock market. Asset Allocation The process of dividing your funds among different classes on investment such stocks. Annuity Appreciate A contract sold by life insurance companies that guarantees a specified payment at some future time. Approved List The list that tells you which shares are approved for the purpose of pledging them with the bank against loan. it has " describe your blood pressure after you finds you have just invested in a dud stock. Changes in interest rates have greater impact on f . averaged over a period of time. Only these shares wil This list of approved securities is periodically revised. you should learn to make your own judgments company whose shares are recommended by the analyst's reports. You could further al foreign. It is done when the seller is unable to d question is offered by a member who has ready possession of the script. Arbitrage Buying in one exchange and selling in another to take advantage of price difference. Average Daily Share Volume The number of shares traded per day. The problem is that no two analysts are usually in agreement is a "Consensus Rating" below. you have to sign a waiver that no liability attaches to the analys true.


you are in effect lending money to the entity which issues the bonds for a specified period in return for a fixed point you get back your principal investment. Bear An operator who expects the share price to fall. Blue Chip Stock Shares of well-established and financially strong corporations. Bonds normally have a set maturity (term them.01 per cent. In simpler word. the strategy would also be reversed but be cau stock is going to reverse direction than to predict when a rising is likely to fall. the proportional ownersh Book Closure A company closes its register of members for updating the records to facilitate payment of dividends or issue of tights of bonus sha this process is done and deliveries are not affected in the clearing house. When the market expects a company the shares normally goes up. An opportunity to buy at low prices. Bear Market A weak and falling market where buyers are absent (Usually because they burnt their fingers when they held on too long to their sh correlates with recession. Hence. a ten basis point increase means th point change is 1 per cent. (For instance. Lo holding on to stocks for a long period. though the number of total shares increase. Book value Bottom line Total shareholder equity from the balance sheet divided by the number of shares outstand . Usually used to describe changes in bond yields. usually the last day between a company's assets and liabilities is termed its net worth or shareholder's equit Basis Points One basis point is 0. A long term promissory note issued by a corporati other entity such as state or municipal governments or the Central Bank of the country. Bond Rating A grade evaluating the quality of a bond. with little investment risk and a history of earnings and dividend paym a portfolio and allow for higher gain (and higher risk) speculation in other stocks. This is the reverse of the bull market. Bonus Shares Shares allotted to the existing shareholders by capitalizing the reserves into additional capital. For instance. alimony can be sai A financial statement listing a company's assets (what it owns) and liabilities (what it owes) as of a specific date.Backend load Balance Sheet Sales charge paid when selling a mutual fund . Best to allocate a portion of your annual income for the purchase of inves Bond A bond is a debt instrument issued by an entity for the purpose of raising capital. Following a bonus issue.also known as deferred load. in hope (usually) fulfilled if you wait long enough) of an upturn. Investment in such stocks is more for capital app most blue chips trade at high market prices.

The +1. Capital Gains Distribution Payments to mutual fund shareholders of profits from the sale of securities in a fund's portfolio. Capital Employed Total liabilities and equity less non-interest bearing liabilities. multiplied by the total number of shares that have been issued. equipment and other items with a useful lifetime exceeding one year are categorized as assets to be depreciated over a number of years. if stock XYZ opened at 10. Capital Turnover Annual total Revenue as a percentage of total assets. Circuit Breaker A mechanism used to restrain the market when it gets overheated. . The Exchange may relax the limit after a cooling off period of about half an hour. Change in Stock Price The change in stock price is recorded in points.50.Call Option An option where the buyer gets the right to buy the underlying security at a specified future date. Capitalization The value of a company as measured by the market price of its common shares. Cash Settlement Payment for transactions done in one settlement on the due date.50 it would be up +1. rather than being expensed in the year of purchase. and is now selling for 11. The fraction amount depends on the security being traded. The change in stock price is the difference between the opening stock price and the current price the stock is selling at. Carry Forward Settlement where positions are carried forward from one settlement to another settlement. Capital gains distributions (if any) are usually made annually. For example. Cash Flow per Share Cash flow from operating activities divided by average number of shares. Capital Gains Difference between the price at which a financial ashes is sold and its original cost (assuming the price has gone up).50 is the change in stock price. Capitalize When costs of items such as buildings.

That asset be mortgaged. financial instruments and indexes to name a few. Banks are reluctant to authorize loans against assets which have encumbrances and prefer a clear title.the bank will encase your collateral so fast you'll never know what hit you till it is too late. Types of commodities include agricultural products. Clearing House It is a legal counter party to both legs of every trade. As many brokers have different ratings systems. The previous close is the price a stock closed on the previous day. Collateral It is used to provide a guarantee for a loan. sold.S. Common Stock Equity or ownership in a corporation. In a narrow sense. Commodities Articles of commerce or products that can be used for commerce or used as raw materials in producing other goods. to another person. petroleum. the companies send back the certificates received for transfer citing reasons for their inability to do so. This represents an encumbrance on the title. but not (yet) in India . rented or otherwise transferred. Close The closing price is the last traded price for the stock on a particular day. The netted purchase and sale positions of the trading. Closed-End Fund Investors of such a fund buy shares from other share holders and sell shares to other investors. Commission A fee charged by brokers for their service in facilitating investment has to be handled through brokers registered on that exchange. The letter sent by the company is known as Company Objection. their recommendations are standardized so that a consensus can be calculated .A. metals. shares or goods and titles to immovable assets. It includes negotiable instruments. Consensus Rating This method is prevalent in the U. Members are settled through the clearing house. temporarily or permanently. Share price is determined by supply and demand for fund shares. foreign currencies. Company Objection In some cases. try defaulting on a loan .Clear Title A title to an asset proves your legal ownerships of that asset. It is the average of analyst's recommendations for single entity. If you feel that your bank works at a snail's pace. you cannot trade your boss here. No. Stockholders participate in a company's profits or losses through dividends and changes in the stock's market value. products traded on an authorized commodity exchange. Can be encased by the bank if you default in any way on repayment of interest or principle of your loan or other obligations.

Strong Buy 2. Cum Rights A share is described as cum rights when the purchaser is entitled for current rights Dalal Street A street in Mumbai.The I/B/E/S ratings are calculated using a standard set of recommendations. not moving significantly up or down. where the Mumbai Stock Exchange building is located. 4. A corporation's owners are the shareholders. Hold Under perform. A share is described as cum bonus dividend when the purchaser is entitled for current dividend. Gross profit is sales minus cost of sales. Cum Bonus A share is described as cum bonus when the purchaser is entitled for current bonus. each with an assigned numeric value: 1. A street paved with hopes and broken dreams. Convertible Bond A bond that can be exchanged for shares of stock. Cost of Sales Cost of materials and labour required to produce products or services. The owners are liable only to the extent of their investment. . This consensus recommendation appears as the mean (average) of the assigned values. Sell Each recommendation received from the analysts is mapped to one of the I/B/E/S standard ratings. Convertible/Equity Related Loan Loan convertible into equity as per pre-agreed terms. maintained by I/B/E/S. A corporation has limited stock liability. Buy 3. India. if an organization Tanks the maximum you can lose is the value of your equity holding. and 5. Corporation A business organization that. Coupon Rate The interest rate on a bond. purposes is a legal entity and has continuity of existence and easy stock transfer procedure. Consolidation A technical analysis term meaning a stock price is in trading range. for tax. that is. Assigning a numeric value to the broker text enables I/B/E/S to calculate a consensus recommendation.

a high ratio may indicate high risk. Debt to Equity (long term) Total long term debt divided by total shareholder equity. Depository Participant (DP) A DP is a representative of the depository in the system. financial institutions (FI's). Deferred Expense Balance sheet liability reflecting expenses shown on the income statement that haven't actually been paid. facilitates transfers of ownership without having to handle securities and facilitates safe-keeping of shares. Dematerialisation It is a process by which an investor gets physical certificates converted into electronic balances maintained in his account with the Depository Participant (DP).Day Order The quantity that remains untraded is not cancelled until the end of the day. custodians. transfers securities between accounts on the instruction of the account holder. Debt to Equity (Total) Total (short and long term) debt divided by total shareholder equity. can become DPs. on request in electronic from through a registered Depository Participant (DP). banks. The DP maintains the client's securities account balances and keeps him informed about the status of holdings. the shares are 'dematerialized'. A DP is offered depository services only after it gets proper registration from SEBI. It can be compared with a bank. etc. 100 crore. stockbrokers. Deferred revenue When a share is bought or sold for the purpose of receiving or effecting deliveries. According to SEBI regulations. It is comparable with a branch of a bank if a Depository is likened to a bank. Debt to Equity Ratio Long-term debt divided by shareholders' equity. Depreciation A non-cash accounting charge representing the loss in value of hard assents such as buildings and machinery over the accounting period. Minimum net worth stipulation required by SEBI for registering a DP is Rs. Default Failure to pay back a debt. It holds securities in an account. . Depositories An organization which holds securities of investors. low ratio may indicate low risk. showing the relationship between long-term funds provided by creditors and funds provided by shareholder. In other words.

Proper investment diversification is intended to reduce the risk inherent in particular securities. requires that you take into an account innumerable factors that could affect the health of the industry. live stock.or mid-term future. This.Derivatives A financial contract between two or more parties based on the future value of an underlying asset. 'highs' and 'lows' are relative not absolute. Dip A drop in the price of a stock that is temporary making it the ideal time to buy the stock. future. trucking and automobile manufacturing because each industry is significantly affected by oil prices and interest rates. currency. in turn. for instance. Of course. One usually gets into trouble when giving in to the thoroughly human instinct for the gap to increase (in case of gains) or decrease (in case of losses). Never forget. diversification is essentially for investors not traders. linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities. Cash dividends are paid out of corporate earnings and the percentage of earnings paid out varies from corporation to corporation. and vice versa. For instance. the value of a call option on reliance (derivative) fluctuates with the price of reliance stock. don't allow them to accumulate too long. bullion. This calls for clear thinking and common sense. Options and similar other instruments are examples. (Dividend rate x nominal value of share)/100. an investor would not want to combine large investment positions in airlines. Of course. you can always take an analyst's help. You can do it! Dividend Cash payment made to the shareholders out of the profits of the company. The price used is usually the market price at the end of the period under review. Dividend Yield Total of 12-months' dividend paid (historical or forecast) divided by the latest share price. the percentage of corporate earnings paid out runs from 40 to 80 per cent. The value is totally 'derived' from the value of the underlying asset such as securities. It is not mandatory for accompany to distribute dividends. Diversification The acquisition of a group of assets in which returns on the assets are not directly related over time. etc. it is not going to find many investors. An investor seeking diversification for a securities portfolio would purchase securities of firms that re not similarly affected by the same variables. but you should also learn to recognize factors that may impact a particular industry. A lot of thought goes into deciding on investment avenues because you are not looking so much at the present status of the industry but at its short. where the corporation keeps its entire earnings. even zero. Generally. A precept common to all businesses: buy low sell high. it is any hybrid contract of a pre-determined fixed duration such as forward. but many times it is less. if a company is stingy on its dividend policy. For example. Book your profits (or cut your losses) as you go. commodities. etc. A stock dividend gives the shareholders additional shares of stock or a fraction thereof. Discount The difference between a bond's face value and when to trade a security. Dividend Per Share The amount of dividend paid out per share. option. Any increase over your purchase price is a gain. At the same time. the end of a financial year. rather than cash. .

Disney. Boeing. The limit fluctuates in line with the market price of the shares. there are 30 industrial stocks thought to be representative of industrial stocks in general. In this index. But in this case it is based on the market values of shares put up as collateral against a loan. Just a few of the 30 companies in the DJIA are: American Express. Due Diligence The process whereby an in-depth examination of a company's business prospects is conducted. General Motors and IBM.Documentation The papers that are needed to process your loan application. sale or acquisition of a company is intended. Bethlehem Steel. you also have to keep in touch with global trends. transportation stocks and bonds. It is like an overdraft limit. also calculates averages for utility stocks. the Dow average is global leader and is usually reflected by exchange around the world. Chevron. . But remember. a financial and investment publisher based in New York . Usually when a merger. Dow Jones Industrial Average (DJIA) A stock index (one of many) commonly used as an indicator of changes in the general level of the stock market prices in United States . AT&T. The wonders of globalization! You don't have enough problems trying to understand the trend of Mumbai stock prices. You will not be directly concerned at what happens on the Dow. Dow Jones & Company. Is that fat fee you are paying your stock analyst looking more reasonable now? Drawing Power Valuation Valuation in stock markets affects your drawing power and hence your loan taking ability as it is reviewed from time to time as per the applicable market value adopted by the bank. Coca-Cola.

Earning Per Share (EPS) Profit after tax and minority interest divided by average number of shares. Expiry Date The date and time after which a writer of an option cannot exercise his rights. it increases you the return of the loan. In the bizarre world of loan finance. The limit allowed to the broker by his exchange or to the customer by broker. The seller remains the beneficiary. Emerging Markets Developing countries. lenders prefer that you do not repay your loan befo Equities Another name for shares. EBIT Effective before interest and taxes. If the market price is greater than the equity per share. And when a bank feels insecure. If you think you can save s EMI agreement does not contain a pre-payment penalty. Effective Interest Rates The compounded interest rate calculated on the actual inflows and outflows of cash. EMI Equated monthly installments to be paid by the borrower in repayment of the loan taken (includes principal and interest). The seller remains the beneficiary. Ex rights shares are cheaper than investment oriented players. the market believes that the by number of shares at the close of the period. It is the total value up to which one is allowed to hold o . Ex Bonus A Share is described as ex dividend when the buyer is not entitled for the dividend. The Ex Rights A share is described as ex rights when the buyer is not entitled for the Rights. Exposure When the value of your asset/product pledged with a bank against loan is reduced by market price fluctuation or for other reasons. what happens in the famous Hollywood movie 'Indecent Exposure' is nowhere the bank co Exposure Limit Extended Hours Trading Trades executed before or beyond normal market hours. Equity per Share Shows how much of a company's equity one share represents. Also known as operating income.

the Fiscal Year of the Government is 1 st April to the 31 st March of the n fiscal cannot be January 1 to December 31 to correspond with the calendar year. In India .Fiscal year is often abbreviated FY with a date. this has been known to happen in th Forex Foreign currency exchange markets. For ex year covers the period June 1 to May 31 of the following year. Float Floating Rate of Interest The number of shares outstanding minus what is owned by insiders and what the company is holding back (tre The interest rate varies with the change of interest rates over the loan period. it is also reduced when the interest rates falls (yes. it will add immensely to your co conclusions. in many English speaking countries. past and projected financial and profitability.Face Value The nominal value of a security. For example. A futures contract is a legally binding agreement to buy financial securities at fixed time in the future at a price agreed upon today. to start commercial production and marketing. find a good analys understand a balance sheet and profit and loss account. not covering market expa Any Consecutive 12-month period of financial accountability for a corporation or government. Remember. quantity and quality of a futures contract is standardiz contract is opened and is negotiated between buyers and sellers. If you are among them. . The delivery period. Futures are traded either electronically or via open outcry on a traded either electr Exchange offering the particular contract. Futures Contract An agreement between parties for specified asses for performance on a fixed day in future. most of the time. Financial Futures First Stage Capital Fiscal Year Legally binding agreements to buy or sell financial instruments at a future date (for example. if you opt for a floating bank rate it could be either good with a rise in the bank rate. Do you know how to read a people who play the market cannot analyze a balance sheet or cannot draw valid conclusions from it. b stores find it easier to wind up their yearly accounting on January 31 instead of December 31. British Babus didn't want to work throug babus. Free Cash Flow Operating cash flow minus amounts spent on plant and equipment and minus dividends Front-End Load Sales charge paid when purchasing a mutual fund. Flat Rate of Interest Percentage representation of the amount of annual interest on the total loan amount. don't want to work at all period. Fundamental Analysis A method of stock analysis based on the management of the company. treasury bo Capital provided to an entrepreneur who has a proven product. This is a British legacy. bonds stocks. While there is nothing wrong in depending on an analyst.

With a little paper work. High The highest price that was paid for a security during a certain time period. A hedger takes an equal and opposite position in the futures market to the one he holds in the equity market. the high for the day can be 20.which does not mean that you will not lose your collateral if you default on repayment. Like when you may like to cover possible loss by also backing the horse for a place. you have to look for another investment avenue where the return is less but the risk is also correspondingly less. weekly. but the high for the year can be 50. It helps to know the price history of a security over a period of time as an additional support for current buy or sell decision. If you find a good guarantor. For example. Hedging A practice of taking one market position to offset potential losses in another. The same old choice: should I sell now and make a profit or wait for a while in hope that the price will go up further? Hypothecation Pledging assets against a loan using properties such as securities as collateral for loan. He's like money in a bank. Hot Stock A stock whose price rises quickly the day it goes public. since there is no win or place.25? Sell. and monthly or for a 52-week period. Strictly for long term investors who have a vision for the future and are not interested in maximizing short term profits. but are expected to grow. Green Shoe An agreement allowing the lead underwriter to buy additional shares of an IPO at the offering price after the IPO begins trading. or wait for a further increase. Growth Stocks Stocks that pay low dividends. Gross Profit Profit a company makes on goods and services before considering overhead expenses. Gross profit is sales minus cost of sales. the lender can sell your collateral to realize his payments.10. Let's say you buy a new offering at Rs. Never let him down. In securities trading. on the first day of listing on the exchange it is quoted at Rs. This can be expressed daily.Goodwill The amount by which a company's shareholder equity exceeds the value of its hard assets. What would you do if. . Gross Margin Gross profit divided by sales. hand on to him. For example using a futures a contract to reduce the impact of price fluctuations in a cash or physical market. Guarantor A person who promises to pay your debts if you are unable to pay them yourself. but not transferring legal ownership to the lender .

financial institutions. a surge in construction activities or higher government taxes? There could be a number of reasons. there really are such stocks. For the common man. etc. The BSE Sensex is based on 30 stocks as is New York 's Dow average. this means he pays more for what he uses. Contrary to what you might think after some time on the stock exchange. buy more or sell? Try and figure it out. If you can't le Inflation Rate An important economic indicator. Payment made at periodic investments on a A measure of a company's ability to pay interest on its debt (operating income divided by interest expense Intrinsic Value . in number. each of them havin industry. So. For the stock market player. But remember you have to keep an eye on th mean ?for ever?. are a miniscule percent of the total lis capitalization. etc. W inflation do you part if you have good base of income stocks. It is representative of the market sentiment. Sectored indices like Industrial. For instance the trades during the first two hours or last two hours Money charged by a lender to a borrower for the use of his or her money. These 30 stocks. banking. which it's numerous levels of appeals. stocks of that exchange. Intangibles Soft assets such as patents. it could be both because there is a shortage in output. In but the system is so widespread and disparate and the judicial system. banks. when the inflation rate is 2 percent. Interest Interest Coverage Intraday Stock trading tracked in periods shorter than one day. Usually they represent about 80 to 85 percent of the market capitalization and trading. Industry Group Companies in related businesses. Insider Information Any knowledge about a company. its products. Index/Indices An index is managed and publishes either by a stock exchange or a professional financial and investment body. should you hold on to them. The rate at which prices are rising. or securities not generally available to the public gained from a source inside the company. so time consuming and cumbersome that most system is being tightened up so think twice before you place that buy order for XYZ shares. you can afford to speculate in higher risk stocks. For instance if yo large public limited organization and lets fall during a family get-together that his company is planning to buy company XYZ and you immediately place a buy o legally in most countries for anyone to make a securities trade based on what they believe to be inside trading result in large fines or imprisonment or both. Income Stocks Stocks that have consistently paid high dividends. Utili particular sector. Institutional Ownership Shares of a company owned by pension funds. mutual fund. it means it is rising at the rate of 2 percent per anything you buy will now cost you 2 percent more than it did last time. they represent anything up to 85 per cent. trademarks. Inflation Increase in the prices for goods and services.Income Statement A record of a company's sales and expenses over a particular year or quarter. If you are holding cement shares.

For corporations. Rights. By borrowing money he has achieved a higher return on his investment than if he had paid for all the stock himself. To buy or hold a long position is the state of actually owning a stock. For individuals. or commodity. Say you have pledged stocks worth Rs. If the stock goes up. Load Funds Mutual funds that carry a sales commission. The downside: most individuals pledge existing stocks with their bankers or brokers for the loan. Multiply this instance by thousands and you can imagine the margin pressure that is exerted on the market. Liquidity is one of the most important characteristics. The market value of the company rises and so do its shares. The more long-term debt there is. . Liquidity A measure of the number of shares. it refers to the ratio of debt (in the form of bonds and preferred stock outstanding) to equity (in the form of common stock outstanding) In the company's capital structure. Shareholders benefit from this financial leverage to the extent that the return on the borrowed money exceeds the interest costs of borrowing it. the greater the financial leverage. Mutual funds and other institutional buyers prefer high liquidity stocks so they can easily move in and out of positions. Limit Order A market order that specifies the highest or lowest price at which the customer is willing to trade securities. etc. he repays the broker the loan amount and keeps the profit himself. Now suppose the market value of the pledged stocks goes down to Rs.75. Load A sales commission paid when you buy (front-end) or sell (back-end) a mutual fund. or money value of shares traded daily. An order to a broker to buy a certain stock (future. Leverage Any means of increasing value and return by borrowing funds or committing less of one's own money. as when an investor borrows money from his broker ?on margin' and so is able to buy more stock than he otherwise could.) only if the price rises to a specified level. Long Position A bull position in a security.50 (50 per cent). Because of this effect. leverage can involve debt. financial leverage is popularly called ?trading on the equity'. It is the opposite of a short position. Leveraged Buy Out Take over of a public corporation using borrowed funds. The lender is immediately going to ask you to pledge more stocks (or pay cash) to bring the level up to 200 per cent of the loan.Lead Underwriter Brokerage house in charge of IPO. which is a percentage of the market value of the stocks pledged. contact. futures and option contracts also provide leverage. This decision-making is necessary to cut losses due to lower prices or sudden reverses in rising share prices. warrants. not through debt but by offering the prospect of a high return for little or no investment. security. Liability A financial obligation or debt.100 on the market against which you are given a loan of Rs. This is when the market falls and we have what is known as a ?bear' market. Depth of market to absorb buy and sell activity of even large orders at prices appropriate to supply and demand. The market must also adapt quickly to new information and incorporate that information into the stock's price.

So is taxation based on those classifications? This is one of the reasons investors buy and sell stocks around the world. Low (price) The lowest price a security or commodity has reached in a certain period of time such as a daily low or annual low. today. monthly. Trading lots can comprise 5. That's where the money will go.Long-term Gain A gain on the sale of a capital asset where the holding period was twelve months or more and profit was subject to the long-term capital gains tax. . This can be expressed daily. investor (FII). or for a 52 week period. Such number makes round lots. Long-term Investments Balance sheet item reflecting investments in other companies. 50 or 100 shares depending on the face value of shares.S. The day-even minute . anything less makes odd lots. can make more money on an investment on the BSE than the U. For example. Lot A fixed minimum number in which shares are bought and sold. but the low for the year can be 5. bourse. Helps you understand whether today's price is an aberration or a logical extensive of a trend. 10. weekly. the low for the day can be 10.the FII sees a better opportunity elsewhere in the world. The legal definition of short term and long term capital gains varies from country. etc. A U.S.

the market Market Order Market Price It is the price a particular stock is currently selling for during the operating hours of the stock market. Market Capitalization Total market value of the company on the stock exchange. Momentum Analysis Money Supply Money -market Funds Mutual funds that invest in short -term securities. The di amount sanctioned. strong earnings growth. The margin for demat shares is35 percent. The Reserve Bank of India attempts to control the growth of the economy by regulating the increas Moving Average . Authorization for a broker to buy or sell securities at t Market Sentiment A measure of the bullish or bearish attitude of the crowd. An order where no price specification is mentioned at the time of placement and market prices apply. and increasing earnings forecasts. Total number of shares multiplied by the official price quoted on Market Liquidity Use to track money flow into and out of the markets. In today's The amount of money in circulation. Usually involves looking for stocks in a strong uptrend (high relative strength). in case of IDBI Bank the shares to be offe It is in your interest to pledge the shares of an number of companies when you take a loan.On compulsorily dematerialized shares for all classes of investors. For example. If one shares worth Rs. The minimum trading lot on a stock exchange. The margin for physical shares is 50 percent (that is you can borrow only up to 50 percent of the values of your pledged shares. Minimum Number of Companies Accepted The minimum number of companies. if the value of some shares drop in the market they may be offset also profitability of a number of companies. whose shares have to be offered as security for obtaining loans. Additionally. IPO's reduce market liquid Market lots Market Open/Close Price It is the last sale price of a particular stock on the previous day.200.Margin An upfront payment made by the customer to take a position in the market. Positive cash flow can serve as an indicator that fund managers have cash to put into the markets at th flow may indicate that fund managers may need to liquidate some holdings to meet redemption requirements. His exposure limit is fixed based on the margin money brought in by him. Margins are at the sole discretion of the bank and may even Mark to Market A notional profit or loss of a long or short position as compared to the current market price.

NAV varies on a day-to-day basis since the market value o divided by the total number of units of the scheme on a specific date is the NAV. Net Profit Ratio Profit from operations as a percentage of revenue. based common stocks listed on the NASDAQ stock Market.The Index is mar security affects the Index in proportion to its market by total shares outstanding.To simplify. Non-operating Expense Expenses not due to the basic business of company. Non-operating Income Income not derived from basic business of company Normalized Earnings NSCCL NSE National Stock Exchange Profits a company can be expected to achieve taking out cyclical effects and unusual events such as one-time write-offs caused by late product re National Securities Clearing Corporation Limited.S. is calculated throughout the trading day. The Clearing Corporation of the National Stock Exchang . if you hold a unit in a mutual fund. No-load Funds Mutual funds that do not carry a sales commission.NASDAQ Composite Index The NASDAQ Composite Index measures all NASDAQ domestic and non-U. and is related Net Asset Value (NAV) Net Asset Value (NAV) is the market value of the securities held by the scheme of a Mutual Fund. the NAV Net Asset Value per Share Equity excluding minority interests. divided by number of shares.

Usually. Generally. Opening Price Opening price is normally determined by the price at which a stock finished selling on the previous day. and is based on a percentage of the last traded of the previous day. Also applies sometimes to overbought situations. Order Cancellation A facility available in the trading system where one is allowed to cancel the order placed earlier. this is where everybody starts s starts a probe. it costs less to trade in round Offer The price at which a share is available in the market. Also see Free Cash Flow. . Overbought Oversold Refers to a stock that has risen sharply in price or to the market as a whole after a period of vigorous buying which. severance pay. is the stock exchange has a upper or lower limit of 10. depreciation and amortization charges. earnings excluding special items or operatin Operating Income Sales minus all expenses except income taxes and other items not relaxed to basic business. ongoing earnings. Order Modification A facility available in the trading system where one is allowed to modify an earlier order. A single security or a market which. Offer Price The price at which a company offers its shares to the public through issue of a prospectus. it is believed has declined to an unreasonable level. Also known as core earnings. Operating Margin Operating income divided by sales. or just about anythin earnings look better. Most exchange has limits of how high or low the sto circuit. Open Order A limit order that does not expire at the end of the trading day.00 and 18. it is sometimes s The reverse of over-bought.Odd Lots Stocks sold in quantities of less than a specified minimum number. and if XYZ st maximum or minimum opening price the following day will be 22. This reduces the scope of overnight off-market Operating Cash Flow Surplus cash generated from a company's basic operations without regard to income tax entries such as depreciation and amortization. For example. Changes in levels of i also affect cash flow.00. Operating Earnings Earnings without considering certain expenses such as inventory write downs.

Calculated by dividing the share price by the reported or forecast ann the P?E ratio is 10. You are stuck with a fi the other hand. Poison Pill Steps taken by a corporation to thwart a hostile takeover attempt. The figure illustrates expectations of future company growth. the price is equivalent to ten years earnings. It is The designated day on which the members pay securities and fund to the clearin Payout Ratio Percentage of earnings paid out in dividends. Preferred shareholders are paid a head of common stock holders in the event the corporation is liquidated. These stocks offer larger returns b Pledge To deposit securities with a lender as security for money borrowed. it carries no voting rights. Frequen stocks have developed into investment-caliber issues.P/E (Price/Earnings Ratio) Shows a share's market price in proportion to its earnings. A collection of stocks. debenture. and should earnings rise significantly the preferred holder is stuck with the same fix income stream of preferred stock makes it similar in may ways to bonds. mutual funds or other securities that is owned by an inv Power of Attorney Preferred Stock Legal document which gives someone the right to act on your behalf in legal m Debt instruments. Mostly these types of stocks pay a fixed dividend regardless of corporate earnings dividends. In India they are called low-Capped stocks and BSE has a separate index find the index for these stocks outpacing the Sensex. a company could issue rights to purchase shares preferred shares giving holders the right to redeem their shares at a discount after Portfolio Post-Offering Shares The number of shares that will be outstanding after an IPO. However. selling at less than $1 a share. the greater the expectations for a com Par Value Pay In Pay Out The designated day on which the Clearing House effects payment and deliveries to The face value or the price of a share. In c same field. the ratio is the weighted average P/E. or bond that is written on the certificate. often highly speculative. For instance. Low-priced issues. Co stock according to predetermined conditions. It is like a fixed deposit in a bank. you can congratulate yourself on a wise de Premium . If interest rates fall. Penny Stocks This term is typical to the USA stock markets. For a portfolio.

For options marke other words. It is based on the previous days trading closing price set limits. A measure to check price volatility. The private placement results in the len Profit Margin Bottom line (after tax) earnings divided by sales. a loan. It is very difficult to judge initially whet activity or price rigging. It involves pledging shares with a banker or broker to raise a loan to buy mor These shares are pledged again to secure a further loan to buy additional shares of the same company in a self-feeding cycle whi price to rise further and increase the operator's profit. This probably the nearest you can get to a co buy and sell to the alternative with the highest price . is the objective o Prospectus Proxy Statement A document circulated to potential investors prior to an IPO describing a company's b Material given to stockholders when the corporation solicits shareholder votes. Private Placement The sale of securities to a small group of investors that is exempt from the elaborate requirements of a public issue. Price Earnings Growth (PEG) Ratio Commonly used for growth stocks. Private place lending institutions from whom the issuing company takes or intends to take. Publicly Held Corporation A corporation that allows anyone in the public to purchase its stock. In effect. Put Option Pyramiding An option where the buyer gets the right to sell the underlying security at a specified future da So called because it is akin to building a pyramid. after all. Programmed Trading Investment strategy that uses computers programmed to buy or sell large numbers of securities to take advantage of price disc stocks represented in those averages (see Arbitrage). you have to pay a little extra upfront if you want to be shielded from the fluctuat Price Band It sets up the upper and lower limits for share's movement on any given day.For bonds and preferred stock. In a bear market this cause . Price Rigging A process where persons collude to artificially increase or decrease the price of a security. the PEG ratio takes into consideration growth by dividing the P/E ratio by current annual gro estimates.which. or par value. the company seeks temporary delega contains details on the corporation's executive compensations plans. the premium is the amount by which the price exceeds the face.Not fully established in India .

Quick Ratio Cash and cash equivalents plus accounts receivables divided by current liabilities. . Quote Prices at which a share can be bought or sold. The highest bid to buy and the lowest offer to sell any stock at a given time.

Record Date The date on which the beneficial owner of the corporate benefits is determined. Resistance Return on Assets Return on Equity Return on investments Revenue A company's sales. Issue of new shares to the existing shareholders at a price which is normally lower than the current market price of the old shares. it is issued in a fixed ra Road Show Rollover Round Lots Stocks sold in specified share quantities.Profit after tax and minority interests as a percentage of aver After tax income (latest 12 months) divided by total of shareholders equity plus long term debt. or risen to resistance. Historical price level at which rising prices have stopped rising and either moved sideways or reversed direction. plus other long term lia Rights Issue Risk The potential to lose money (principal and any earnings) or not to make on an investment. Redemption Fee Fee charged when you sell a mutual fund. Profit from operations plus financial income as a percentage of average capital e After tax income (latest 12 months) divided by shareholders equity (from balance sheet). Presentations made by underwriters and IPO company officials to institutional buyers to create interest in the offer A point where a stock price has fallen to support. Rematerialisation Process of converting the shares from electronic form to physical form. Research and Development (R&D) Costs of developing new products and services. and then reverses the up or down trend convin . if you have not held the fund for the prescribed minimum time. usually seen as a After tax income divided by total assets.

Considered by many to be a much more accurate picture of the market in general.S&P 500 (Standard & Poor's 500 Stock Index) An index of 500 stocks widely traded on the New York Exchange.) . Security Swapping One has to pledge one's shares when availing of "loan against shares". Later on the person may withdraw some shares and pledge new ones to replace the shares he has withdrawn. it is a permitted practice. Sector Sector is another word for industry. Sales Services and products sold by a company. Scrip A holding in securities. Sales per Share Annual sales divided by the number of shares outstanding. Sales and revenue mean the same thing. They are normally conducted through the relevant exchange on which they are listed. (Unlike wife swapping. Sector Funds Mutual funds specializing in particular industry sector such as computers. the regulatory body and watchdog controlling the functioning of Stock Exchange in India . Secular Trend A very long-term trend. Commonly referred to as the "load" in a mutual fund. This is popularly called security swapping. or healthcare. Securities Documents proving debt or ownership that may be bought or sold. Sales Charge A transaction fee or commission paid for an investment instrument. technology. Secondary Market When stocks or bonds are traded or resold. Sector (or industry) fund groupings usually focus on a single industry. This index is used as a measure of performance of the overall market. or utilities. The majority of all securities transaction takes place on a secondary market. SEBI The Securities Exchange Board of India. Second Stage Capital Capital provided to expand marketing and meet growing working capital needs of an enterprise that has commenced production but does not have positive cash flows sufficient to take care of its growing needs. they are said to be sold on a secondary market. such as healthcare.

00 a share can. and therefore becomes a part owner of the corporation. and make a profit. Short-term Investments Stocks and other liquid securities. Shareholder A person who buys stock in a corporation.Book value is the shareholders equity divided by the number of outstanding shares. unless you are very sure of yourself. or receiving credit from your broker for the stocks you sell. beta stage development. Most stock transactions must be settled within three business days. Then as the price of that security declines.00 a share. Short Sale To sell a stock you do not currently own. Most stock exchange have a rigid rules regarding short selling. etc. Settlement The process of paying for stocks you purchase. Shareholders Equity The difference between the totals of assets and liabilities shown on a company's balance sheet. or future contracts sold and not covered as of particular date. commercial production or marketing. usually for product development. Carefully check all tips on short sales before deciding to act on them. but it will be accompanied by some odd looks. Shares A unit representing a measure of ownership in a corporation. Short-term Gain The profit realized from the sale of securities or other capital assets held twelve months or less. Short Position Stock options. your profit is 15. This does not mean you should walk into a Reliance office and ask for a glass of water. pilot projects. Short Covering Buying stock to return stock previously borrowed to make delivery on a short sale.Seed Capital A small amount of capital provided to an entrepreneur. A stock purchased at 10. Theoretically. as of a particular date. or 1500. if you sell short 100 shares of XYZ Corporation at 50. Short position also means the total amount of stock an individual has sold short and has not covered. . there is more risk involved with short selling because a stock price could continue to rise forever and the short seller's loss could be infinite. only fall to zero and that is the maximum loss that would be incurred. Short-term Debt Borrowing that must be repaid within one year. with the intent to buy the stock back at a lower price than you had initially sold it for. The practice of short selling involves borrowing shares of a security from your broker and immediately selling them at the current price. you buy back an equal number of shares on the open market and use them to cover the shares you borrowed from your broker. then sell the stock.00. however. typically provided by angel (venture) investors. To go short you "borrow" stock from the broker/dealer. Not for the common investor. You will get the water as a matter of courtesy. Selling Short The reverse of the usual stock market technique.00 a share and the price of the stock drops to 35. Short sellers lose when the price of the stock ascends rather than descends. A short sale can only take place on an "up tick"" or 'zero-plus tick'. not covering launch expenses. The player should ascertain these rules from a registered broker of the exchange.00. short selling is based on the anticipation that a particular security price will go down. For instance.

or portfolios (established outside India ) whether incorporated or not and corporate and individuals on whose behalf investments are proposed to be made in India by a Foreign . This is usually n\brought about by the division of existing shares. usually watermarked and patterned to make it hard to forge. a company declares a "3 for 1 " stock split. Stop Order An order to buy or sell a security conditioned on a specific price. a reverse stock split brings about the decrease in the number of shares in a corporation. the price of the stock is currently 60 a share. Sub-accounts A sub-account includes institutions (established or incorporated outside India ) and those funds. a two-for-one split means that shareholders will receive two new shares for each old share. Standard Deviation A measure of a mutual fund or stock's historical volatility. For examples. Stock Certificate The actual document that is evidence of stock ownership. making a total of three. Speculators Investors who seek large capital gains through relatively risky investments.These order types instruct the broker to execute at market once a specific price level is reached and traded at. For example. a shareholder with 100 shares before the split would have 300 shares after the split with a value of 20 a share. The shareholders equity does not change. Stock Split An increase in the number of outstanding shares in a corporation. Stock Option Contract allowing holder to buy or sell given number of shares of a particular stock at a given price by a certain date. This order is very often referred to as a "stop loss" order. As in a split the total stock holders equity remains the same. (Also called cash trading) Spread The spread is the difference between the bid price and the offer price.Solvency Ratio Equity excluding minority interests as at year-end as a percentage of liabilities and equity at year-end. Stop Loss Order An order placed with a "trigger price". Stops Can be either a buy or a sell stop. Split An increase in the number of shares outstanding. It is placed to minimize the losses and the order cab be either for a purchase or a sale. Alternately. because it prevents the security from falling below a certain price. This increase in the number of shares result in the proportionate decrease of share price. A reverse split is where the total number of shares is decreased and the stock price increases proportionally. Spot Trading Trading in commodities that will be delivered immediately. A buy is placed above current prices and a sell is placed above current prices and a sell is placed below current prices.

Technical Analysis An analysis of a stock or future based strictly on numbers. etc of a particular stock. ticker symbols can be submitted to an electronic ticker quote retrieval system to find information about a particular security instantly. Ticker symbols can be used to retrieve information from a financial publication such as your daily paper's business section. usually seen as a price chart pattern. option etc. Trailing Twelve Months (TTM) The last four reported quarters. etc. The best measure of a firm's total debt. and (2) Foreign corporate and foreign individuals who are not allowed to exceed 5 percent of the issued capital. Trader An employee of a broker/dealer or other financial institution who specializes in handling purchases and sales of securities for the firm or its clients. For example.A) will bring you information about Ford Motor Company. NRIs and overseas Corporate Bodies (OCB) are not eligible for registration as sub-accounts. Support Historical price level at which falling prices have stopped falling and either moved sideways or reversed direction. The tick becomes especially important when large market movements trigger the implementation of certain circuit breakers meant to stabilize the market. future. ?ONGC? will show you the information of the Oil and Natural Gas Commission on the National Stock Exchange of India. acquisitions. Third Stage Capital Capital provided to an enterprise that has an established commercial production and basic marketing set-up. Ticker Symbol A ticker symbol represents a particular security (company. Don't try to understand it unless you are a maths gold medalist. the symbol ?f? on the New York Stock Exchange (U. Ticker A ticker is a trading screen information display showing the current price. Tick The tick is the direction in which the price of stock moved on its last sale. A zero-plus tick means the transaction was at the same price as the one before. The method includes analysis of price patterns. Total liabilities All monies owed regardless of how classified on the balance sheet. An up-tick means the last trade was at a higher price than the one before than the price was at a higher price than one before it and a down -tick means the last sale price was lower than the one before it. . Tangible Book Value Book value minus goodwill and intangible assets. volume.S. Top A technical analysis term meaning the stock price is going down from here. option. There are two categories of sub-accounts : (1) broad-based/proprietary sub-accounts which are allowed to individually invest up to 10% of the total issued capital. product development etc.Institutional Investor.) on the exchange it is trading on and is used to retrieve information about that security from that exchange. Today. but still higher than the nearest preceding price. typically for market expansion.

Underwriter An investment banking firm committed to successful distribution of a public issue. Turnover Ratio How often a mutual fund changes its portfolio holdings. or other units of a security traded in a certain time period . The higher the turnover rate. Venture Capital Professional moneys co-invested with the entrepreneur usually to fund an early stage. Venture Capitalist An investor involved in financing a company's operations before going public. including the broker's commission and taxes. Volume The total number of shares. It is calculated by multiplying the volume traded by the average sale price. the more volatile the stock and the greater potential for wider swings in price (both ways). whom the entrepreneurs approach without the risk of ?takeover'. more risky venture. sold at a discount and redeemed at full face value. Offsetting the high risk the investor takes is the promise of high return on the investment. then. business contacts. Treasury Bills Shorts-term debt issued by the central government. bonds. on average. volatility is the annualist standard deviation of returns. Turnover Rate Turnover is the relationship between the float and the average monthly volume of a stock. he's taking all the risks on an untried idea. Some countries also provide for underwriting on best effort basis. 100 per cent turnover means a fund. in exchange for an ownership percentage. His return is high but. Value Traded This is the total monetary value of all trading in a security for the market day. Treasury Notes Debt securities issued by the central government that mature over a specified number of years. changes all the stocks in its portfolio once a year. strategic advice. A venture capitalist not only brings in moneys as ?equity capital' (that is. brand-equity. Volatility A measure of the fluctuation in the market price of the underlying security. Undervalued A stock trading below its fair value. buy) into its own books. If you have a good idea that can be commercialised and you can convince the venture capitalist of the workability of your idea and of your own ability in seeing it through. the venture capitalist will nurse you through. Commission varies with the size of the trade. He is a fixed interval investor.Transaction Costs The costs of trading securities. etc. failing which the firm would take the securities being offered (that is. Mathematically. without security/charge on assets) but also brings onto the table extremely Valuable domain knowledge.

obligation of its customer. Yield In stocks and bonds. 4. 2.00 interests annually. the bank does not fulfil the contract. including the number of times the account was past due or over limit. if a bond pays 1. the amount of money returned to investors on their investments.00) 10 per cent. New York where several major brokerage firms and stock exchanges are located. certain amount on behalf of its customers who has commercial relationship with the beneficiary. Warrant A warrant is a financial instrument issued by a bank or other financial institutions. Under finance guarantee.00/10.Bank Guarantee could be a finance guarantee or a performance guarantee.00. However. Interest and dividends paid to mutual fund shareholders as a percentage of share price (Net Asset Value). Also known as rate of return. an index or a commodity. Actually bill in the banking parlance means a bill of exchange drawn by a seller on the buyer whenever he sells goods or services on ?payment later? basis. the bank guarantees the beneficiaries (The person named in the guarantee to receive the guaranteed sum under stated circumstances). 1. and is selling for 10. The bill is routed through the bank for collection of amount from the buyer. the bank guarantees performance of a contract or goods/ services supplied under a contract by its customers. showing all transactions recorded for the period in question. it settles the claim of the beneficiary in money terms only.The payment history of an account over a specified period of time. the yield is (1. even in the later case. Bill . which is traded on a Stock Exchange's equity market. Such a transaction is also referred to as a credit transaction. 3. Dalal Street is the Indian counterpart in Mumbai. Commercial invoice is a part of the document submitted to the bank by the seller. .Wall Street A street in the city of Manhattan .A periodic record of a customer's account that is issued at regular intervals. Under performance guarantee.A standard clause in a mortgage instrument permitting the lender to demand full payment of principal from the borrower upon default of the obligation Account History . Also the effective interest rate on a bond. Bank Guarantee . Bank Statement . the buyer is required to pay on a specific date a certain amount with or without interest to him or to any other directed party. For instance. if its customers fail to deliver.Usually mistaken for commercial invoice. Warrants may be issued over securities such as shares in a company. Working Capital Current assets minus current liabilities. a currency. 5. Acceleration . A bill of exchange is an order made to the buyer by the seller that in exchange for the goods or services sold by him on credit.

Some banks do take 360 days in a year also. There is no hard and fast rule in this behalf. The banker provides this information for a fee which includes the fees that they have to remit to international credit agencies.Called in short CRR. Calculation of interest at 6% p. At times it is referred to as credit information report. e. 5 Bn.6. the basis is 365 days in a year. 8. held by the bank.000/. . Cash Reserve Ratio . Cash Credit .e.e. At other times it is also called customer?s confidential report. With the growth of commerce within a country and abroad.This is the basis on which interest is usually determined on credit facilities. subject to availability of sufficient security with the bank.through out the year. Bankers report also means the same. drawing Rs. The difference between an overdraft and cash credit account is that while the former is extended more to individuals.A credit facility under which a customer draws up to the preset limit. overdraft.06= Rs. most of the times. 450000/365=Rs. not less than Rs.10. This acts as a buffer to the bank. Step No 3. These abbreviations are commonly used in such reports.It is called by different names. This much amount is impounded and kept in the free form. And the bank cannot lend this money.a. 7. The banker provides good platform for knowing something about the business enterprise with which you are likely to deal. for this. You can seek confidential informations about your prospective customers about whom you do not have sufficient knowledge. 10000*45 days= known as product= 450000 Step No 2. 9. Step No 1.for 45 days at 6% p. This means that the bank should maintain in current accounts with the central bank or any other approved bank balances.98. cash credit etc. as in most of the countries it is called overdraft. the latter is extended only to business bodies. In India. trade is done with the organizations about which you are in the dark. The cash credit facility is unique to India. Internationally at the end of specific period the overdraft facility is withdrawn and the customer is required to pay back the amount lent by the bank. There are accepted abbreviations internationally for denoting the soundness or the lack of it of a business enterprise. and less for business. Daily Product Basis . 73. The purpose of cash credit is for working capital.a is equal to 1233*0.100 Bn and is required to maintain a CRR of say 5%. 1233/-. on annual basis.for 45 days is equivalent to drawing Rs. Determination of annual average as rate of Interest is on annual basis i. like loan. RBI decides from time to time and at present it is 5% of the deposits. Credit Report . Suppose a bank has total deposits of Rs. This means that on a 365 days per year basis. 10000/.g A bank has given a customer an overdraft facility to the extent of Rs. on a daily product basis the interest is determined as under. 1233/. The operations are similar to overdraft. Further the cash credit facility is more or less on a permanent basis so long as the business is going on. i.

the buyer?s bank will pay the amount of bill drawn by the seller on the buyer under this agreement. ?irrevocable? (cannot be cancelled by the buyer without the consent from the seller). Discount is the interest recovered upfront. agrees to extend this facility.This means that by adopting daily product basis we are converting the amount drawn for a period less than a year to its annual equivalent so that the rate of Interest. . the product is taken on a monthly basis. This means that any credit to the account after the tenth of the month is ignored for the particular month. 14. and repayment over a period of time in monthly or quarterly. 98/-. Loans against property and for the purpose of owning flats/ apartments/ houses are known as mortgage loans.Seller ?A? enters into contract with Buyer ?B?. say Rs. in the savings account. the amount of finance will be less than Rs. Discount . the buyer?s bank gives commitment of payment to the seller through his bank. Then. In case it is combined with the installment it is called equated installment. Interest may be recovered separately from the customer who is called borrower or combined with the installment. One of the terms of supply is that buyer will establish a letter of credit in favour of the seller through his bank. which. Margin Money Margin money is like a security deposit retained by the bank till the loan is fully settled. or half yearly or annual (very rarely) installments. 11. The percentage of margin requirements varies as per RBI guidelines. If interest is recovered separately it is usually on a quarterly basis.In India. Rs 98 is the discounted value of the bill for Rs. which is universally on annual basis can be applied to determine the quantum of interest. Loan . 100/-. 10. while debit is taken into account.A lump-sum amount given to the customers. 100/-. The commitment is dependent upon the seller fulfilling specific conditions as per the L/C. Under this known as ? discount?. Monthly Product Basis . 12. 2/. The following minimum credit balances 13. 100/and in case the bank gives the finance against the same.Less than face value. Letter of Credit . The buyer approaches his bank. especially in the case of those bills for which payment will be forthcoming after a specific or extended period. The conditions are: The seller should furnish proof of dispatch of goods or services and submit all the documents required under the L/C. while the difference of Rs. on certain conditions. Accordingly let us say for example. either in one installment or in two or three installments. If the value of the bill is Rs. International letter of credit are by and large. The banks sanction the credit limit after retaining a margin on the value of the security offered. the rule is interest is paid on the minimum balance in the account between the 10th and the last day of every month.

e. by which its customers at one place makes funds available to the bank and the bank in exchange. Electronic mail transfer (EMT) through computer networking (or satellite channel).An extension of current account in which the customer is allowed to withdraw more than the credit balance lying in the account. In order to determine the correct half yearly interest. Interest is charged and there is no period on non-levy of interest. 2005 Suppose the Interest is payable every half-year and accordingly this customer will be entitled to 1. This is also known as moratorium period. settlement of payments on an individual order basis are done on continuous basis. in which both processing and final settlement of funds transfer instructions take place continuously (i. not recovered for a specific period. Then divide the sum of the monthly products by 12. That is interest although levied. on real time basis). without netting debits with credits across the books of a central bank. It should be noted that during this period. 15.17. This is not so in the case of personal loans. Although there may be a period of non-recovery of Interest. RTGS system is also defined as a gross settlement system. the savings account earning 1000 3. for the half year on this work out to be Rs 8. If permitted on a regular basis. Thus we can say that RTGS system 16. . The period is longer in the case of industrial loans and minimum or absent in case of personal loans.a.5% p. In case the overdraft is given to the business enterprises and it is for day-to-day operations. you need to find out the annual equivalent of the deposit that the customer has kept in his savings account. Remittance ? A facility.Whenever a loan is taken especially for acquiring fixed assets. RTGS refers to the settlement system where. The period during which there is no repayment is known as repayment holiday period. subject to availability of sufficient security with the bank. the repayment does not start immediately. Overdraft .5 800 150 250 300 300 % pa interest in India January. Telegraphic Transfer (TT).33 and the interest at 3. 2005 February. mail Transfer (MT). International Money Order (IMO) etc. 18. This is the way the interest is found out on a monthly product basis. Again if this is the case interest on interest is recovered. It starts after the fixed assets starts giving a return especially in the case of business enterprises. Repayment Holiday . within the same country or abroad. it is known as ?working capital?. withdrawals are allowed up to a ceiling (called ?a limit?). 2005 April. The annual equivalent amount is RS 233.75 % for the half year ending June 2005. Remittance can be in the form of Demand Draft (DD). This may be a temporary accommodation to tide over temporary cash crunch or on a regular basis. 2005 June. 2005 May. 2005 March. makes the funds available to the customer or any other specified party at the required place.

Syndication ? Making arrangement for loans for borrowers. RTGS is a system where both the processing and final settlement take place on real time basis. In the above example. Syndication fees are part of non-interest income as no funds are involved in the activity. . Even if the arranging bank participates in the loan. This again acts as buffer to the bank and prevents the bank from lending the entire amounts of deposits kept with it by various customers. It gets paid separately for this activity. but would assume responsibility for getting ?in principle? sanction from all participating banks and financial institutions. For example. Making arrangement for this is known as syndication. during the day. The bank may or may not participate in the loan process. rather than just at the end of the day. In India at present it is 25%. auditor ensures himself about the quantity. An Indian company wants a foreign currency loan of 100 mn Rs. In stock and receivable audit. settlement risk consists of two components namely credit and liquidity risks. or so-called finality. treasury bills of the government and any other approved securities. One of the main attraction of the RTGS systems is that payee banks and their customers receive funds with certainty. suppose the bank is supposed to maintain SLR of 25%. composition and actual value of the stock and the debtors. e. 21. This can happen due to various reasons. Thus. Statutory Reserve Ratio ? Called in short SLR. Stock & Receivables Audit is one of the most important aspects of the overall exercise of audit of any organization. Settlement risk refers to the risk when a settlement (in a transfer system) does not take place as expected. quality. syndication is different from it. enabling them to use the funds immediately without exposing themselves to risk. 25 Bn. by granting a portion of it. This will be kept in easy-to?encash securities like. RTGS is regarded as the centerpiece of an integrated payments system.reduces settlement risk because inter-bank settlements are done throughout the day. 20. one party may default on its clearing obligations to one or more counter parties. Credit risk arises when a counter party fails to meet an obligation for full value on due date and thereafter 19.g. Should not be confused for granting of loans. this means that over and above CRR the bank is expected to keep aside an amount of Rs.