1. STOCK MARKET TERMINOLOGY Account Day or Settlement-Date Day
set aside for settlement of account, i.e., transactions between
members of a stock exchange, when delivery and payment issues are
squared. Account Statement A statement to his client from the
broker featuring all transactions. Active Market Characterized by
frequent and large volume of trading of a particular share or
shares in general. Active Shares Shares in which there are frequent
and day-to-day dealings. They are also liquid which implies they
are easy to buy or sell. A-D Index or Advance-Decline Index A
useful tool for detecting bullish or bearish trend in the stock
market in which one divides the number of traded shares which have
risen in price by those which have fallen. Ad Hoc Margin When a
member of a stock exchange has an unusually large outstanding
position the exchange collects this margin from him. Allotment
Letter A communication letter sent by the compnay or its agent
stating the number of securities and the value in reponse to the
investor's application. American Depository receipts (ADR)
Certificates issued by a U.S. Depositary Bank, representing foreign
shares held by the bank, usually by a branch or correspondent in
the country of issue. One ADR may represent a portion of a foreign
share, one share or a bundle of shares of a foreign corporation.
All or None (AoN) This is one of the Special Terms conditions. A
buy/sell order with this condition should be matched either with an
exactly opposite order or none at all. Allotment Letter Letter sent
to a successful applicant for shares and debentures conferring
ownership of a number of shares and debentures. Alpha The amount by
which a securitys return differs from the normal return for its
level of risk. Annualized Basis These returns are computed when the
available returns are for less than a year but are converted into a
notional annual value for comparison purposes. Application Money
The amount an investor is asked to pay with the application for new
issues. Appropriations A term featuring on the balance sheet of a
company showing how the net profits, i.e., after tax
2. and after provision for investment allowance reserve have
been made, are deployed in distribution of dividends on preference
shares and equity shares, transfer to general reserves, and balance
carried forward. Arbitrage Profiting from differences in price of
the same security/currency traded on two or more markets. An
arbitrageur makes money by buying in the lower market and
immediately thereafter selling in the higher market, or vice versa,
thereby making a profit. Ask Price The price at which a market
maker is prepared to sell. Assets Anything owned by a company that
has a market value. At a premium At a price higher than that
printed on the share certificate, i.e., above par. The difference
between the face value and the price at which a share is now being
issued is called the premium. At Par A price equal to the face
value of a share, i.e., if the face value of a share is Rs 10 or Rs
100 it is being issued or selling at Rs 10 or Rs 100. Auction A
mechanism utilised by the Exchange to fulfill its obligation to a
counterparty member when a member fails to deliver good securities
or make the payments. Through auction the Exchange arranges to buy
good securities and deliver them to the buyer or arranges to
realise the cash and pay it to the seller. Auction Market The
buy/sell auction for a Capital Market security is managed through
the auction market. As opposed to the Normal market where trade
matching is an on-going process, the trade matching process for
auction starts after the auction period is over. Authorised Share
Capital The maximum number of shares that a company may issue,
stated in the memorandum and articles of association of the
company. Averaging Buying a share at different times, in different
quantities, and at different prices, so that an advantageous
average price is obtained. Averaging In/Averaging Out Buying or
selling at different prices in order to build up, or liquidate, a
substantial holding over a long period. Backwardation Term for the
fees and interest due on short sales of shares with delayed
delivery, or, The payment made by the seller to a buyer for the
loan of securities for which the seller wishes to defer the
delivery.
3. Bad Delivery Delivery of a share certificate, together with
transfer deed, which does not meet requirements of title of
transfer from seller to buyer is called the Bad Delivery. Badla
Stocks are divided into 'A', 'B1', 'B2' and 'Z' group on the Bombay
Stock Exchange (BSE). The most liquid and heavily in-demand shares
comprise the 'A' group (150 on the last count). Under this system,
the buyer and seller have the option to carry forward their trades
to the next settlement without effecting delivery of shares sold or
making payment for shares bought. Simply put, badla is the price
payable by the buyer to carry over his speculative purchases to the
next settlement. The system helps traders to carry-forward long
positions without taking deliveries of stocks purchased. This helps
build large volumes on the exchanges and imparts liquidity to
stocks. Bar Charts A tool of technical analysis, these have
vertical bars representing each day's price movement. Each bar
covers the distance between the day's highest price to the day's
lowest price, with an X to mark the closing price. Basis Point
0.01%. Foe example, if the yield has gone up by 200 basis points it
means it has gone up by 2 %. Bear A stock market operator who
expects share prices to fall and keeps selling to pick up the
shares later a lower price for actual delivery, causing selling
pressure and lowering the prices further. Bear Cycle An extended
period when share prices generally keep falling and the stock
market indices keep going down. Bear Market Prolonged period of
falling share prices. Beating the Market Getting a higher return on
investments is higher than the market average. Below Par A price
lower than the face value of a share. A share of face value of Rs
10 trading at Rs eight is said to be below par. Beta Coefficient or
Beta Factor A relative measure of the sensitivity of an assets
return to changes in the return of the market portfolio. Bid Price
It is the price at which a buyer is prepared to buy shares. Blue
Chips Stocks of well known, renowed companies with a track record
of dividend payment and capital appreciation over a period of time.
Book Closures Before a company declares a dividend or issues bonus
or rights share, during the book closure
4. period, transfer of shares is registered. Only those
shareholders whose names appear on the register after the book
closure are eligible to receive dividends and bonus shares and
entitlement to rights shares. Booking Profit Making profit by
selling a share which has gone above its purchase price. Book Value
It is determined by dividing the net worth of the company (common
stock plus retained earnings) by the number of shares outstanding.
Bottom Line The net profit or loss figures in an analysis of a
company's performance. Bottom Out When shares have hit their lowest
and are slowly on their path of recovery, they have bottomed out.
Bottom up approach It is the stock picking strategy whereby the
investor looks at the companies with attractive future growth
potential and then moves on to consider the industry and the
economy factors affecting those stocks. Bourse Stock exchange.
Broker A member of the stock exchange who is licensed to buy or
sell shares on his own or on his client's behalf. He charges a
commission brokerage on the deals. Bull A stock market operator who
believes that share prices are going to rise, and keeps buying to
sell later at a profit. Bull Market Prolonged rise in the price of
shares, sustained by buying pressure. Bull Run Continued uptrend of
sharemarket. Business Cycle A period of time during which the
general economic activity expands and contracts with effects on
inflation, productivity and employment. Thus one recovery and one
recession complete a business cycle. Business Risk It is the
inherent potential of declines in earnings and slowdown in growth
in any business or industry. Buy and Hold Strategy Accumulating
shares of a company over the years for long-term growth benefits
and favourable capital gains tax on profits. It is a strategy
adopted by the investor whereby he holds on to the
5. investment having full faith in the long term investment
strategy ignoring the short term fluctuations. Buy and Sell
Strategy Active share trading strategy in which shares are bought
at dips and sold at peaks. Since the lowest dips and highest peaks
are seldom identified, it amounts to buying low and selling high,
not holding on to a share or shares for long. Buy Back Corporates
buying back its own shares or bonds from the share/bondholders Buy
Order An order to the stockbroker to buy a share or shares. Buyer's
Market Another name for the Bear Market with an excess of supply of
shares over demand, and consequent low prices. Call A notice for
payment of an installment or the entire unpaid sum of a partly paid
share. Call Option The right with the registered holder to buy a
fixed number of shares at a particular price within a fixed period,
in exchange for a premium. Capital Contributions made towards the
investment in equity and preference shares of the organisation.
Capitalisation The debt and/or equity mix that funds a firms
assets. Capital Appreciation Increase in the capital value of
shares as their price increases over a period. Capital Expenditure
Expenditure on acquiring fixed, rather than liquid assets. Capital
Gains Profit arising out of the sale or transfer of an asset with
the cost adjusted for any improvement or depreciation in the asset.
Capital Gearing The ratio of fixed interest loan and preference
shares to the ordinary share capital of a company. Capital Loss
Loss incurred when investments are sold at a price lower than their
purchase price. Capital Market Markets where the capital funds-debt
and equity are traded. Included are private placement sources of
debt and equity as well as organized markets and exchanges.
6. Capital Reserves These are undistributable reserves, arising
out of profits on the revaluation of capital assets and share
premia. Capital Structure The capital of a company consists of
issued and subscribed equity shares, redeemable preference shares,
and secured and unsecured loans. Its structure refers to the mix of
debt to equity used. Carry Forward Trading The act of postponement
of the delivery of or payment for the purchase of securities from
one Settlement to another on payment of Contango charges in which
the buyer pays interest on borrowed funds (known as Vyaj Badla) or
in which the short seller pays a charge for borrowing securities
(known as Undha Badla). Cartel A group of Individuals or businesses
that work together to influence the prices. Cash Basis Method of
accounting in which income and expenditure are entered only when
cash is received or paid out. Cash Dividend A dividend paid in cash
to a company's shareholders. Cash Flow In investments, it
represents earnings before depreciation amortization and non-cash
charges. Cash Markets Also called the Spot Market, these are
markets that involve the immediate delivery of a security or an
instrument. CB or Cum-Bonus Shares with bonus entitlement. Buyers
of such shares receive the bonus shares distributed by a company on
registration of their shares before the Record Date. CD or
Cum-Dividend With dividend. The buyer of a share at CD price is
entitled to the dividend declared if he buys the share before the
closure of the company's books, after which the price becomes
ex-dividend or XD. Chalu Upla Unofficial deal; deal not made on the
floor of the stock exchange in the regular manner. Circuit Breaker
A system to curb excessive speculation in the stock market in which
the trading is temporarily suspended when the stock price are
volatile and tend to breach the price band. Clean Balance Sheet A
balance sheet with no debt items, showing that the company hasn't
any outstandings. Clearing It refers to a process by which all
transactions between members are settled.
7. Clearing House Each stock exchange has a clearing house
attached to it to effect delivery and settle contracts between
members. Closely Held Company A company whose equity shares are
held by a small number of shareholders. Closing Price Price at
which the last transaction of a particular share was concluded in
the stock exchange. Collateral An asset pledged against a loan.
Commission The broker's fee for purchasing or selling securities or
property as an agent. Compounding When you earn interest,
dividends, or capital gains on both your original investment and on
the reinvested earnings of your investment. Contango In the carry
forward transaction the interest which the buyer pays on the
borrowed fund. Contingent Liabilities Liabilities which a company
may have to settle in the event of an unfavorable outcome of a
particular event. Contract Note Given by the stockbroker to the
buyer of the shares, signifying the contract between them to buy/
sell the shares at stated price. Consumer Price Index A
cost-of-living index which is representative of the good and
services purchased by the consumers. Contract Note A note sent by a
broker to his client stating that he has bought or sold a certain
number of shares. The unique contract number that it carries
validates the transaction done. Cornering Shares or Cornering the
Market Buying a particular share in a very large quantity so that
there is a dearth of shares in the market, and the share price can
be manipulated. Cost of Living Index A collection of goods and
services, and their associated prices, designed to reflect changes
over the time in the cost of making normal consumption
expenditures. Cost Averaging Method of accumulating assets by
investing a fixed amount in securities at different intervals. The
investor buys more assets when the price is low so as to decrease
its overall average cost Counterparty Risk The risk in a contract
that the other party may fail to honour their commitments.
8. Cross Holdings Companies under the same group of promoters
holding shares in one another's companies; a common practice in the
corporate world. Cum-Dividend or CD The buyer of a CD share is
eligible to receive the dividend for the preceding year. Cum-Rights
or CR The buyer of a cum-rights share is entitled to subscribe to
the forthcoming rights issue announced by the company. The date up
to which a share can be bought cum-rights is announced by the
company. Current Yield Dividend or interest received calculated as
a percentage of a share's or debenture's current market price.
Cyclical Shares Stocks that tend to rise and fall in consonance
with the economic conditions, e.g., housing. Daily Margin An
amount, to be decided by the stock exchange, to be deposited by a
member, on a daily basis, for the purchase or sale of securities.
The amount is to be deposited at the stock exchange. Day Order It
is an order which is valid for the day on which it was entered. If
the order is not matched during the day, the order gets cancelled
automatically. Debt-Equity Ratio The total long-term debt divided
by shareholders' equity. Delisting Striking off a company's name
from the stock exchange so that the company's shares are not
traded. Dematerialization (Demat) It is a process by which shares
in the physical/paper form are cancelled and credit in the form of
electronic balance is maintained at the Depository through a DP
(Depository Participant). Depression Economic condition
characterised by falling prices, reduced purchasing power, rising
unemployment, excess supply over demand and a general decrease in
economic activity. Derivative A financial security, such as an
option, or future, whose value is derived in part from the value
and characteristics of another security, the underlying security.
Dilution of Equity Decrease in the ownership value of a share as a
result of increasing the number of shareholders. Disinvestment
Reduction of the capital employed by selling off assets or by
neglecting to replace used up assets, usually signifying a
restriction of the operations of a company.
9. Diversifiable Risk Risk unique to a firm or industry, which
is not systematically related to the stock market in general.
Diversification An investor spreading his risk of investment by
distributing it among different investment avenue so that the loss
suffered on one investment can be offset by gains accrued on the
other so as to avoid entire wipe out of the net worth even if one
investment has performs poorly on the return front Dividend Payout
Ratio Percentage of the earnings paid to shareholders in cash.
Dividend Stripping Paying of dividends to shareholders from funds
obtained by sale of assets. Such dividends do not come out of net
profits, but from accumulated reserves. Dividend Yield Dividend per
share divided by its market price, multiplied by 100. Dow Jones
Industrial Average (DJIA) Price-weighted average of 30 actively
traded blue-chip stocks, traditionally of industrial companies Dow
Rule Point and figure technique which is buy when the rise in price
exceeds the most recent high and sell when the fall in price goes
below the most recent low. Dow Theory It holds that there is no
primary trend in the stock market, unless the movements of
industrial, transportation, and utility shares substantially follow
the same trend. Dual Listing The listing of a share in more than
one stock exchange increasing the volume and liquidity. Earning Per
Share The net income of the firm divided by the number of common
stock shares outstanding. Economic Growth Rate Annual percentage of
change in the gross national product. This is adjusted for
inflation to arrive at the real economic growth rate. Efficient
Market A market for securities in which every securitys price
equals its investment value at all times, implying that a set of
information is fully and immediately reflected in the market
prices. Efficient Portfolio A portfolio which ensures maximum
return for an accepted level of risk or a minimum level of risk for
an expected return. Either-or-Order This gives the broker a choice,
either to buy, or to sell, not both. The execution of either will
cancel the other.
10. Equities Ordinary shares of publicly held companies,
conferring a share of ownership of the company on the holder who
shares the company's profits but whose liability for its losses is
limited to the sum of his holding. Ex-Dividend Date A publicly
announced date on or after which a buyer will not be entitled to
the dividend declared on a share. The share price is usually a
shade lower on the ex-dividend date. Face Value The nominal value
printed on the face of the share,debenture or bond.Also known as
"Par Value". Financial Ratios Ratios of values obtained from a
firm's financial statements used to study the firm's health and the
price of its shares. Financial Structure Distinguished from capital
structure of a company which includes only long-term debt and
equity, the financial structure of a company is revealed on the
right-hand liabilities side of a company's balance sheet, which
includes all the items which finance the assets on left-hand side
of the balance sheet Forward Trading It refers to the trading where
contracts traded today are settled at some future date at prices
decided today. Free Market Economy or Market Economy An economic
system in which the government does not interfere in any way with
business activity. There are no price controls, no permits, no
kickbacks, no trading restrictions or foreign exchange control.
Free Reserves Accumulated retained profit of a company available
for distribution among shareholders. These reserves do not include
Capital redemption reserve, or asset revaluation reserve.
Fundamental Analysis This valuation of stocks based on fundamental
factors, such as company earnings, growth prospects, and so forth,
to determine a company's underlying worth and potential for growth
Futures Contract A contractual agreement to buy or sell a specified
quantity of a commodity, currency or shares at a particular price
on a fixed date in the future. GDR (Global Depository Receipt) It
is an instrument issued abroad, listed and traded on foreign stock
markets. A GDR is convertible into shares, which are listed and
traded on the domestic exchange, the dividend being paid in the
domestic currency. Going Long Buying a share; opposite of Going
short where the operation is that of selling.
11. Going Short Selling a share that the seller does not
actually possess, but hopes to pick up when the price has gone
further down, and so make a profit. Good Delivery A share
certificate together with its transfer deed which meets all the
requirements of title transfer from seller to buyer is called the
good delivery. Good-Till-Cancelled Order (GTC) A client's order to
buy or sell shares, usually at a specified price, which remains
valid till executed. Greenshoe A provision in an agreement with the
underwriters of an issue which states that in the event of
exceptional investor interest the issuer will authorize additional
shares or bonds for distribution. Grey Market Unofficial premium
market, in which new, not-yet-listed shares are bought and sold.
Gross Domestic Product (GDP) The value of all the goods and
services produced by a country in one year. Gross National Product
(GNP) The total value in money of all finished goods and services
produced in an economy in one full year, and all net property
income from abroad. Growth Shares The shares of the companies which
are growing rapidly in terms of turnover and profits. Such
companies show high P/Es Hedging Strategy used to offset investment
risk. Holding Period The period for which an investor has been in
possession of a share; important for the computation of CAPITAL
GAINS tax. Holding Period Return (HPR) The rate of return for the
period of holding of a share. Hot Money Money which is transferred
at short notice from one international financial center another for
fear of exchange rate fluctuations, or in response to changes in
rates of interest. Illiquid Investments Those shares, debentures,
etc., which cannot be readily converted into cash. Income shares
The shares of the companies which have low P/Es but yield good
dividend nad follow a policy of high dividend payout
12. Index A measurement of the trend of share prices. It is not
just an average of share prices, but weighted to reflect the number
of shares outstanding for an individual scrip. Index Futures A new
mode of stock market investment in which, instead of buying
individual shares one buys so many units of a recognised index.
Inflation The rate of change in a price index over a certain period
of time. Equivalently,the percentage change in the purchasing power
of a unit of currency over a certain period of time. Insider
Trading Trading in a companys shares by a connected person having
non-public, price-sensitive information. Institutional Investor
Organisations that trade large volume of securities, e.g., mutual
funds, banks, pension funds, etc. Instrument A legal document of
contractual obligation. In the Black Showing a profit. In the Red
Showing a loss. Intangible Assets Unseen and non-physical assets of
a company which are of value to it and also perhaps a cash value
e.g. trademarks, copyright, goodwill, patents, etc. Interim
Dividend An advance instalment of the dividend finally declared.
Inventory Turnover Annual sales divided by the average cost of
inventory gives the ratio of inventory turnover. IPO Initial Public
Offering; The first offering of shares of a company to the public
in the primary market. Issue Price It is the price at which new
issues are offered to the public, at par, or at a premium. Issued
Capital The amount of authorised capital issued by a company. A
part of the authorised capital may be withheld for subsequent.
Joint Venture Collaboration, but not partnership, between two
complementary companies, sometimes one Indian and the other
foreign, to make better use of each other's technology or
services.
13. Jobber Members of a stock exchange who stand ready to buy
and sell shares in which they specialise. Kerb Trading Unofficial
trading after the normal trading hours of the stock exchange. Lead
manager When new issues are floated, there may be a number of
Underwriters; the one among them who has the primary responsibility
of managing the affairs of the syndicate and the issue is the lead
manager. Leverage A company's long-term debt in relation to equity
in its CAPITAL STRUCTURE. The larger the long-term debt, the higher
the leverage. Leverage ratio The total assets divided by the
equity. It indicates the amount of assets the company employs on a
unit of equity. Leveraged company A company with borrowed funds in
its capital structure. If the debt component is more than a third
of the capitalisation, it is called a highly leveraged company.
Limit order The client gives the stockbroker a price limit above
which he cannot buy or below which he cannot sell. Limit price
Price given in a limit order. Limited liability A privilege enjoyed
by the shareholders of a limited company. If the company goes
bankrupt and does not have enough assets to meet its obligations,
the shareholders cannot be asked to pay any more. Their liability
ends when they have paid for their shares. Line charts As
distinguished from bar charts, which show everyday price movements,
line charts simply connect successive days' closing prices.
Liquidity It is the state of having cash, or possessing assets
which can be quickly converted into cash. Lot A fixed minimum
number in which shares are bought and sold. Trading lots can
comprise 5, 10, 50 or 100 shares depending on the face value of
shares. M1 A measure of money supply which includes all coins and
notes in circulation + Demand Deposits with Banks + Demand portion
of Savings Deposits with Banks + Other Deposits with RBI (deposits
of DFIs etc.). Also called "Narrow Money"
14. M2 A measure of money supply, including M1, plus Post
Office Savings Deposits. M3 A measure of money supply, including
those covered by M1, plus Time Deposits with the Banks. Also called
"Broad Money" M4 Rupee measure of money supply covering all M3,
plus All Post Office Deposits. Market capitalisation The total
market value, at the current stock exchange list price, of the
total number of equity shares issued by a company. Market forces
The forces of demand and supply which determine price in a free
market. Market lot A fixed minimum number, in which or in multiples
of which, shares are bought and sold in the stock exchange. In
demat scrips the market lot is one share. Market risk This is
inherent in the market, depending on how the economy and a
particular segment of industry is behaving. Market timing The
decision when to buy or sell a share or when to switch from one
share to another. Merger An amicable getting together of two or
more companies to form one unit for increased overall efficiency.
Moving average An average of share prices for specified periods -
one week, a fortnight, a month, a year or years - and showing
trends of price movements, rather than daily fluctuations. For
example, a weekly moving average will take a week's prices till
yesterday, and for tomorrow's average it will drop the earliest day
and include today instead. NASDAQ Short for National Association of
Securities Dealers Automated Quotation system. A computerised
system that provides up-to-the-minute price quotations on about
5,000 of the more actively traded over-the-counter stocks.
Negotiability The transferability of a document which, on changing
hands, transfers the benefit attached to the document, conferring
legal ownership. The document can be simply delivered or endorsed.
A currency note is negotiable through simple delivery, whereas a
crossed cheque & Co or a bill of exchange is negotiable through
endorsement. Negotiable instrument An instrument contractual
document which is readily transferable, e.g., a bank cheque, a
share certificate.
15. Net block Value of a company's fixed assets after
depreciation. Also called net fixed assets. Net book value The
value of an asset as it appears on the books of a company as at the
date of the last balance sheet, after depreciation has been
applied. It is not the market value of the asset. Net profit The
final profit of a company, after all deductions for interest,
depreciation and taxation have been made. It is the black bottom
line. Net worth Net worth is taken to represent shareholders funds,
i.e., equity share capital plus reserves. Net yield Profit made on
an investment after deduction of all expenses and capital gains tax
or income tax, if any. No delivery period Whenever a book closure
or record date is announced by a company, the exchange sets a no-
delivery period for that security. During this period trading is
permitted but the trades are settled only after the no-delivery
period is over. Odd lot A lot of shares other than the market lot.
Offer document Letter sent by a company making a takeover bid to
the members of target company offering to buy their shares at a
certain price. It gives details of the offer and reasons for
accepting the offer. Open outcry A feature of the exchange where
traders shout out their buy or sell offers. When these match, the
traders have entered into a contract which is recorded. Operating
ratios These measure a company's operating efficiency by comparing
various income and expenditure figures from the balance sheet and
profit and loss account. Opportunity cost Where there are
alternative investment possibilities, a company must compare the
benefit derived from choice A with the possible benefit from choice
B. Options An options confers the right to buy or sell a specific
quantity or a number of a particular asset at a specific price at
or before some date in the future. It confers on the buyer the
right but not the obligation to honour the contract. The obligation
rests only with the seller or the writer of the contract. If the
buyer chooses not to exercise his option, the maximum loss he
suffers is the premium he has paid to the writer of the contract.
Ordinary share Equity share with full voting rights and entitlement
to dividends, rights and bonus issues.
16. Other income Income other than from a company's normal
activities. Overcapitalisation Having more capital than a company
needs for business. If it a leveraged company, it will have an
unnecessarily high interest burden; also, its profits, by way of
dividends, will be thinly spread among the shareholders. Over the
counter trading Trading in those stocks which are not listed on the
stock exchange. Oversubscribed issue When there are more shares
applied for than are to be issued. In such cases a minimum number
of shares, say, 100 shares, is allotted to lucky applicants whose
names may come up in the drawing of lots Overvalued shares Shares
which have caught the investors' fancy, and who, therefore, are
willing to pay a price for them which is not justified by their EPS
earning per share or P/E ratio. Paid up capital Capital acquired by
selling shares to investors, as distinguished from capital
accumulated from earnings or from secured or unsecured loans.
Pay-in day Pay-in day is the designated day on which the securities
or funds are delivered/paid in by the members to the clearing
house. Pay-out day Pay-out day is the designated day on which
securities and funds are delivered /paid out to the members by the
clearing house. Payout ratio This is dividend per share divided by
earnings per share multiplied by 100. If the payout ratio is 40%,
it means that 40% of the company's profits after tax have been
distributed as dividend and 60% transferred to reserves. P/E ratio
or price-earnings ratio Market price per share divided by the
firm's earnings per share. A measure of how the market currently
values the firm's earnings growth and risk prospects. Price band
The daily/weekly price limits within which the price is allowed to
rise/fall. Price-to-book ratio Market price per share divided by
book value (tangible assets less all liabilities) per share. A
measure of stock valuation relative to net assets. A high ratio
might imply an overvalued situation; a low ratio might indicate an
overlooked stock. Price rigging When a person(s) acting in concert
with each other collude to artificially increase or decrease the
price of the security.
17. Point and figure chart A technical analysis graph that
records the ups and downs of individual share prices, disregarding
the element of time. Every time a share price moves up an X is put
on the graph above the previous point. Every time the share price
moves down a 0 is placed one square down in the next column. This
chart helps one study the trend of movement - up or down - of a
share price for a period of time. Portfolio Combined holding of all
the financial assets such as shares, debentures, government bonds,
Unit Trust of India certificates, bullion and other financial
assets. Premium issue The issue of shares at a price above the face
value of a share. The sum charged above the face value is the
premium. Price/book ratio Compares a stock's market value to the
value of total assets less total liabilities (book). Determined by
dividing current price by common stockholders' equity per share
(book value), adjusted for stock splits. Also called
market-to-book. Primary market A market for new issues of shares,
debentures, and bonds, where investors apply directly to the issuer
for allotment any pay application money to the issuer's account.
Distinguished from the secondary market, where investors buy listed
shares on the stock exchange through brokers. Private placement
Shares can be sold to institutional investors on a private
placement basis. When they are offered to a favoured few, they are
usually restricted shares, and cannot be sold in the marketplace
for some specified time. Profit and loss account A statement of
account of the profit and loss of a business during the accounting
period. It summarises the income, costs and expenses of the company
over the period, and together with the balance sheet, constitutes a
company's financial statement. Profit after tax or PAT This is
arrived at by deducting expenditure cost of materials,
manufacturing expenses, overheads, interest, and depreciation from
income net sales plus other income and providing for taxation and
investment allowance reserve on the amount. Profit before tax or
sales ratio Profit before tax divided by net sales and the sum
multiplied by a hundred. This is a useful indicator of how
efficiently the company is being run. Prospectus Formal written
offer to sell securities that sets forth the plans of the business
enterprise that an investor needs to make a decision. Quick assets
These are liquid or near-liquid assets, such as cash, money in
bank, gold, etc. In financial statement analyses these mean current
assets minus inventory.
18. Quick ratio Defined as current assets minus inventories
divided by current liabilities. A measure of the liquidity of a
company, showing whether the company could meet its obligations
from the current assets. Also known as the acid test ratio. Quoted
shares The shares of a company which are officially registered,
listed and traded Rally Noticeable rise in the price of a share, or
a noticeable rise in the share market index, after a period of
stagnancy or a declining trend. Random walk The hypothesis that
share prices wander in a random fashion, because the investors, in
a perfectly competitive market, have taken account of all the facts
about a share in determining its price. Further changes are
therefore caused randomly and no systematic prediction can be made.
Rate of return The dividend received divided by the price of the
share, multiplied by a hundred. The total return on an investment
is the sum of dividend received and the appreciation in the price
of one's shares. Ratio analysis A study of figures in a company's
financial statements helps an analyst to arrive at some important
ratios, such as quick ratio, debt-to-equity ratio, P/E ratio, and
many others. These are then studied in relation to one another and
conclusions drawn on the company's health. Real interest rate
Current interest rate less the rate of inflation. Real rate of
return Return on an investment adjusted for inflation.
Recapitalisation Changing a company's capital structure, by
bringing in fresh capital, either by creating new shares through
issues, or by long-term borrowing, or converting debentures into
shares which will pay dividends only when the company is able to.
Recession Fall in the country's economic activity, for at least two
consecutive quarters, as shown in a lowering of the GDP. Not as
serious as depression. Record date Record date is the date on which
the beneficial ownership of an investor is entered into the
registers of the members. Such a member is entitled to get all the
corporate benefits. Registrar or transfer agent It is the
institution that maintains a record of all the investors/unit
holders of a company/. Normally this institution also mails the
notices regarding the holding of the annual meetings and the
distribution of dividends to the unit holders. It also supplies the
annual statement to the investors representing the account
position.
19. Reserves Sums set aside from a company's profits and
surplus. Can be used to allot bonus shares, but asset revaluation
reserves, also called revaluation reserves, cannot be thus used.
Debenture redemption reserves and preference shares redemption
reserves are used for those specific purposes. Retained earnings
This part of a company's earnings which is not distributed as
dividends, but held back and accumulated for the company's growth
or contingency use. Also called undistributed profit or earned
surplus or reserves. Return on capital Earned profit divided by
capital employed, multiplied by 100 to get the percentage. Return
on equity (ROE) Net income after all expenses and taxes divided by
stockholders' equity (book value). An indication of how well the
firm used reinvested earnings to generate additional earnings.
Reversal Sustained fall of share prices from a peak or a high.
Rigging Manipulation of share prices so as to attract naive
investors to buy or sell shares. Rights issue Issue of shares at
par or at a premium by an existing company to its shareholders in a
certain proportion and additional shares, if available to their
holdings, as a matter of their right to receive preferential
treatment. Risk The possibility of loss, inherent in any
investment, which one would do well to give suitable weight to
while comparing alternative investment prospects. Rule of 72 A most
useful formula for calculating the number of years an investment
will take at a compound rate of interest to double. Divide 72 by
the compound rate of interest and you get the period of time. Or
again, if you know the period of time it takes an investment to
double, divide 72 by the number of years and you will get the
compound interest rate. Secondary market Place where already issued
and outstanding shares are bought and sold. Distinguished from the
primary market in which the issuer sells shares directly to the
investor. Scrip Share certificate. Another name for share or stock.
Securities Financial documents which give the owner specific rights
of ownership; these include equity and preference shares,
debentures, treasury bills, government bonds, units of mutual fund
and any other marketable documents.
20. Security analysis A component of the investment process
that involves determining the prospective future benefits of a
security, the conditions under which such benefits will be received
and the likelihood of such conditions occurring. Security analyst A
specialist employed by a brokerage firm, financial journal, bank or
investment body to conduct research on investment by analysing the
working and finance of individual companies or companies of an
industrial group, and make recommendations. The analyst studies the
sales and earnings growth, capital structure, P/E ratio, dividend
payouts, return on investment, and movement of share prices,
combining fundamental and technical analyses. Seller's market
Characterised by a shortage of shares in the market in relation to
their demand and consequent high prices, indicating a BULL MARKET;
the opposite of buyer's market. Selling short Sale of shares, which
one doesn't possess. See badla also. Settlement Scrip-wise netting
of trades by a broker after a trading period is over. Settlement
date Day set aside for settlement of account, i.e., transactions
between members of a stock exchange, when delivery and payment
issues are squared. Settlement guarantee It is the guarantee
provided by the clearing corporation for settlement of all trades
even if a party defaults to deliver security or pay cash. Share A
share is one unit of ownership of a company. Share certificate
Documentary evidence of the ownership of a block of shares.
Shareholder A person or a legal entity who owns equity or
preference shares of a company. The proof of his ownership is the
share certificate, which he may hold in multiple numbers, each
certificate comprising a certain quantity of shares. Share premium
An amount in excess of the face value of a share charged by a
company on its share issue. Short covering A short seller usually
borrows shares from others for his operation; when he actually buys
them to replace what he had borrowed at the time of short sale, he
is covering his short position or short covering. Short position
Shares which a person has sold short, by delivering borrowed
certificates, but which he has not yet covered by actually buying
shares to repay the loan, as on a particular date. Speculator
21. A person, who anticipates price changes and through
frequent buying and selling aims to make profits. Spot trading
Trading by delivery of shares and payment for the same on the date
of purchase or on the next day. Stag Flash in-and-out speculator
who is in the market to make a quick buck. He does not buy shares
for long or medium-term investment. Also, one who applies for a new
issue, intending to sell at once, what is allotted to him, at a
premium. Stagflation Slow economic growth plus high unemployment
stagnation, accompanies by a rise in prices inflation. Stock
exchange A marketplace where shares change hands for a
consideration. Stock splits The process of splitting shares that
have a high face value into shares of lower face value. The reverse
of combining number of shares of low face value into one share of
high face value is called "Consolidation" Systematic risk A part of
the security's risk that is common to all the securities and cannot
be eliminated through diversification; also known as " market
risk". Tangible assets As distinguished from intangible assets like
goodwill, trademark, or patent, these have a physical existence,
like cash in hand or bank, gold, real estate, machinery, etc.
Technical analysis A method of prediction of share price movements
based on a study of historic price graphs or charts. Technical
correction A fall of short duration in the share prices in a rising
market; may be caused by a large number of investors booking profit
because prices have reached the support level. The support level
may, however, be penetrated, and a new emerge. Technical rally A
short rise in share prices in a declining market; may be caused by
investors buying at the current low prices, or prices having
reached the support level. As the term suggests, the rally is
short-lived, and prices start falling again. Top down approach The
investment philosophy which involves the EIS analysis. Here the
fund manager first looks at the economy, industry and then filters
down to the company that are likely to benefit from those
favourable economic and industrial trends. Total yield What an
investor gets from his investment, i.e., dividends or interest and
total capital gains
22. through appreciation of the holding by way of rights and
bonus issues, as also a rise in the market price. Total earnings
plus market appreciation divided by the total cost. Transfer deed A
transfer deed is a form that is used for effecting transfer of
shares or bonds/debentures and is valid for a specific period. It
should be sent to the company along with the share certificate for
effecting the transfer duly signed and stamped and complete in all
respects. Transmission Transmission is a lawful process by which
the ownership of the securities is transferred to the legal heir(s)
of the deceased. Turnaround A change for the better in a company's
performance. Turnaround situations in companies offer opportunities
to investors who can pick up the shares when their price is still
low. Undervalued shares Shares selling below their book value or
the price earning ratio which analysts believe they deserve.
Underwriter A banker or a financial institution which agrees to buy
up the unsubscribe portion of a new issue, should such a thing
happen, and sells it later to investors at a premium. Unloading
Selling shares off when prices are falling to avoid further loss.
Bulls, when they get tired waiting for the price to rise, tend to
unload when the market is falling, causing prices to fall further.
Unsystematic risk As distinct from systematic risk, it is risk
peculiarly attached to an industry or a company and different from
the macroeconomic factors which effect the whole of the economy.
Value investing It is that philosophy of investment where the
investment is made in those stocks that have been beaten down in
value and ruling at a price to earning ratio lower than the P/E of
the their peer stocks. These stocks are expected to rebounce back
with the improvements in the sentiments. Vertical line charting
Technical analysts' charting of a share's price movement by using a
vertical line to represent the high and the low, with a horizontal
bar across the point where the day's trading has closed. There is
line for each day or each week or each month depending on the
breadth of analysis. The chart gives an idea, not only of the trend
or price movements, but also the range of fluctuation of the
share's price. Volatile shares Shares which are subject to sharp
fluctuations in price, showing a considerable difference between
their highest and lowest recorded prices. Volatility is measure by
the formula: highest price minus lowest price, divided by the
lowest price, then multiplied by 100. Volume Refers to the total
volume of shares traded on a particular day and over a period.
23. Warrant A security with the market price of its own that
can be converted into a specific share at a predetermined price and
date. Weak market A market in which there are more sellers than
buyers, resulting in a decline in prices. Write-off Charging an
item of assets to expense or loss. Written down value Value of an
asset, after depreciation has been charged. Also called net book
value XB ex-bonus The price of a share without the benefit of the
bonus declared. XD ex-dividend The price of a share without the
benefit of the declared dividend. XR ex-rights The buyer of a share
is not entitled to subscribe to the rights issue announced by the
company. Yield Percentage return as dividend from a particular
share. Current yield is calculated as dividend per share divided by
the market price of the shares, multiplied by 100.