Subscriber Login
DRIP Tools
List of No-Loads and theirQuadrix ratings
Intermediate Potential Risk Indicator
DRIP Ratings & Web site links
Investor Glossary
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Acid Test Ratio - Another name for the quick ratio (see "Quick Ratio").
Accounts Payable - Obligations owed by a company that are due within one year. These obligations are shown as a current liability on the balance sheet.
Accrued Wages - Wages owed to a firm's employees which have not yet been paid. Accrued wages appear as a current liability on the balance sheet.
Activity Ratios - A series of ratios that measure how actively a firm is using its resources.
Adjustment Bond - See "Income Bond."
ADR - An "American Depository Receipt," which is sold on U.S. stock exchanges, represents a specific number of shares in a foreign company. It is used in the United States to facilitate the trading of foreign stocks.
American Stock Exchange - One of the largest of several U.S.-based organized securities trading markets.
Amortization - Similar to depreciation, except amortization relates to intangible assets (patents, trademarks, or goodwill) owned by the firm while depreciation relates to tangible assets.
Annual Report to Shareholders - The principal document used by public corporations to disclose information to shareholders. It is produced each year by every publicly-traded company in the U.S. and includes certain basic financial tables as well as valuable corporate information such as a business discussion and outlook, market segment data, product line data, and business expansion plans.
Arbitrage - A trading technique that attempts to exploit discrepancies in the price of a particular asset that trades in different markets. For example, an individual would purchase a stock in one market and sell it in another market where the price is higher.
Arrears - Typically used when referring to dividends on preferred stock that are "overdue." These "overdue" dividends, or "dividends in arrears," must be paid to shareholders before any common stock dividends may be paid.
Asked Priced - See "Offer."
Assets - Resources owned by a firm. Assets are further classified as current assets, fixed assets, or intangible assets. Current assets are those assets that can be turned into cash within a year, such as cash, marketable securities, receivables, and inventories. Intangible assets are items of value such as patents and goodwill. Fixed assets are items such as buildings and equipment.
Asset Turnover - A measure of the sales generating ability of a firm's overall assets. A low asset turnover ratio may indicate that a firm is not generating enough sales to justify its investments.
Average Shares Outstanding - The average number of common stock shares that are owned by investors during a particular time period such as a quarter or year.
Averages - A variety of stock market activity measures that attempt to summarize price movements. Among the best known of these averages (or indexes) is the Dow Jones Industrial Average, which is an average of 30 industrial stocks that are listed for trading on the New York Stock Exchange.
Auditor's Report - Also known as the Report of Independent Accountants, the Auditor's Report is one of the basic financial documents included in a firm's annual report to shareholders. It is prepared by an outside accounting firm and expresses the accountant's opinion regarding the fairness of a particular company's financial statements.
Balance Sheet - One of several major financial reports that a company is required to publish annually. A balance sheet shows the financial condition at a given date (typically, the last day of the firm's year). The balance sheet is often described as a "snapshot" of a firm's financial condition. The balance sheet lists all of the assets owned by the firm as well as the claims against those assets (called "liabilities").
Basic Balance Sheet Equation - An equation that describes the basic relationship between assets, liabilities, and shareholders' equity. Total Assets = Total Liabilities + Total Shareholders' Equity
Basis Point - Typically used regarding fixed-income securities (bonds), a basis point represents one-hundredth of a percent. For example, 100 basis points equals 1%.
Bear Market - Typically used when discussing the overall trend of the stock market, a bear market is a market that exhibits a downward price trend. A "bear" believes the market will trend downward.
Bearer Bond - A type of bond that is issued by a firm without the owner's name registered on the books of the issuer. Interest and principal are paid to the holder or bearer.
Beta - A statistical measure of the volatility of a particular stock's price relative to the price level of the overall market. A stock with a beta of 1.00 is considered to be as volatile, or risky, as the general market. A stock with a beta of less than 1.00 represents a security with a lower level of price volatility than the market. A stock with a beta of more than 1.00 is more volatile than the overall market.
Bid - The highest price that anyone is offering to pay for a particular security at a given time.
Block Trade - A large single transaction of stock, generally 10,000 shares or more.
Blue Chip - A term which denotes a "quality" firm, one that is well known for its sound financial structure and good earnings performance.
Board of Directors - The group of people, elected by the shareholders, who in turn elect the company officers and manage the overall direction of the company.
Bond - A long-term debt security (promissory note) issued by a corporation or government which typically promises the repayment of a fixed amount (the principal amount) by a set date (the maturity date) plus interest. Bonds are listed in the liabilities section of a balance sheet.
Book Value Per Share - The per-share value of a stock based on the figures shown on a firm's balance sheet. This value is typically less than a stock's market price. Some analysts view book value per share as a "price floor" for a stock.
Bottom Line - This proverbial expression refers to the net income line of an income statement, which is the bottom line of the income statement.
Broker - A person or entity registered with the SEC who handles orders to buy and sell securities or commodities for a commission.
- A "Full-Service" broker is one that provides a full complement of investment services — such as research on companies and specific advice and is compensated for such added service with higher commissions.
- A "Discount broker" is one that only handles buy and sell orders — no other investment services are offered. Accordingly, a discount broker generally receives a lower commission than a full-service broker.
Bull Market - Typically used when discussing the overall trend of the stock market, a bull market is a market that exhibits an upward price trend. A "bull" believes that securities will increase in price.
Buy Side - A term that is used to describe the institutional investor segment of the securities business (for example, a buy-side securities analyst or buy-side portfolio manager). The term "buy side" contrasts with the term "sell side," an expression that is used to describe the brokerage side of the securities business. For example, a stockbroker is said to work "on the sell side." Neither of these terms should be confused with "buyer" or "seller."
Call Option - A particular type of option that permits the owner to purchase a specific number of shares of a stock at a set price and within a certain time frame.
Capital - The money invested into a business by its owners. This investment may be made via equity investment or long-term debt.
Capital Expenditures - Spending by a company on plant and equipment, shown in the consolidated statement of cash flows in the annual report. Also known as capital spending or capital investment.
Capital Gain - The profit resulting from the sale of a stock or other security
Capital-Gain Taxes - The taxes levied against a capital gain.
Capital in Excess of Par Value - One of several sub-classifications of shareholders' equity, also referred to as "Additional Paid-In Capital" or "Paid-In Capital in Excess of Stated Value."
Capital-Intensive Industry - An industry that typically requires a high level of investment by a firm in new equipment and production facilities in order for the company to remain competitive. Examples of some capital-intensive industries are steel, automotive, and printing.
Capitalization - A company's permanent capital, long-term debt, and equity.
Cash & Cash Equivalents - A current asset on the balance sheet consisting of short-term, highly liquid investment, such as money-market funds, certificates of deposit, and/or commercial paper.
Cash Flow - The cash income stream of a business typically calculated as net income plus certain noncash charges, such as depreciation and amortization.
CD - "Certificate of Deposit," which is an interest-bearing deposit of funds at a bank for a fixed period of time for a fixed rate of interest.
Certified Financial Planner (CFP) - A person who sets up financial plans for individuals.
Charter Financial Analyst (CFA) - A person who has earned the prestigious professional designation via a minimum of three years of testing and work experience. A CFA primarily analyzes securities.
Chief Executive Officer (CEO) - Typically the highest-ranking individual at a firm, or in other words, the top boss. Different firms have different corporate organizational schemes; thus some firms may instead have a President or Chairman who is the highest-ranking individual.
Chief Financial Officer (CFO) - The head individual responsible for overseeing the preparation of various financial documents that may be distributed inside or outside of an organization.
Churning - Excessive trading in a customer's account by an account manager that unjustly benefits the account manager via commissions generated. This practice is unethical and punishable by law.
Closed-End Investment Company - A mutual fund that issues a fixed number of fund shares which trade on an exchange similar to a common stock. Unlike an open-end investment company, a closed-end investment company is under no obligation to redeem its shares from its shareholders. Thus, at any given time, the fund shares may trade at a price above or below the underlying net asset value (NAV) of the shares. Market supply and demand conditions determine the prevailing market price of the shares.
Collateral - Securities or other property pledged by a borrower to a lender to guarantee repayment.
Commercial Paper - A short-term financial obligation issued by a company typically for short-term financing needs.
Commission - The fee paid to a broker for handling the sale or purchase of a security or other property.
Commodities - A variety of agricultural products, such as wheat, soybeans, and pork bellies that are traded in the futures markets. In general, these types of transactions tend to be highly leveraged and entail a high level or risk.
Common Stock - A security representing ownership in a company.
Confirmation - The written statement issued to a customer after a trade has been made. This statement contains pricing information relevant to the trade and should be retained by the investor for tax purposes.
Consolidated Balance Sheet - A balance sheet which consolidates the various asset, liability, and shareholder equity accounts of a parent company with its subsidiary companies.
Convertible - A bond, debenture, or preferred share that may be exchanged by the holder for common stock or another security as per the terms of the instrument.
Correction - A short-term pullback in the price of the overall market or an individual security.
Cost of Goods Sold - Expenses that a company incurs producing the items that it sold during a particular period. Cost of goods sold typically includes such items as the cost of raw materials, labor, and some indirect expenses incurred to produce the products.
Coupon Bond - A bond with coupons attached to it that must be physically clipped as they come due and them presented to the issuer of the bond for the payment of interest.
Covered Option - An option position that is offset by an equal and opposite position in the security underlying the option.
Creditors - Individuals or corporations that have supplied credit (lent money) to a firm.
Cumulative Preferred Stock - A type of preferred stock that requires a firm to pay any current and past unpaid dividends before common stock dividends are paid.
Current Assets - Items such as cash and cash equivalents, accounts receivable, marketable securities, and inventories. These items are called "current assets" because a firm expects that it will be able to turn those assets into cash within the next accounting cycle (typically one year).
Current Liabilities - Items such as accounts payable, notes payable, accrued wages, and current maturities of long-term debt. These items are called "current liabilities" because a firm expects that it will be required to pay those liabilities within the next accounting cycle (typically one year).
Current Ratio - Equal to current assets divided by current liabilities. Its goal is to measure the financial liquidity, or cash generating ability, of a firm. A low current ratio typically means that a company may have difficulty meeting its obligations (debts or liabilities) that are payable over the next year with the assets that it can turn into cash over the next year. A current ratio of 2 or more generally indicates a strong financial condition.
Debenture - A promissory note that is backed by the general credit of the issuing company. Unlike a mortgage bond, a debenture is generally not secured by a mortgage or lien on any specific property.
Debit Balance - The portion of a stock's purchase price that is supplied by the broker extending credit to an investor in a margin account.
Debt - Funds borrowed from a creditor and that must be repaid. "Short-term" debt represents those obligations that must be repaid in the near term, which typically means within one year. "Long-term" debt represents those obligations, such as a mortgage, that are not required to be repaid in the near future.
Depreciation - A charge taken against a firm's earnings to approximate the deterioration in the value of a company's tangible assets each year. Although a charge for depreciation reduces a firm's net income, it is termed a noncash charge and is typically added back to net income when calculating a firm's cash flow because it entails no out-of-pocket expense.
Derivatives - A wide variety of securities, such as futures, options, inverse-rate floating bonds, and floating rate bonds, that are derived from other less complex instruments, such as common stocks and bonds. They are called derivatives because they derive their value from their underlying securities. Typically, derivatives are significantly more volatile than the underlying securities on which they are based and entail the use of leverage or margin.
Director - A person elected by shareholders to serve on a company's Board of Directors.
Discretionary Account - A type of investment account in which the individual has granted his/her broker or money manager full authority to trade securities in the account.
Diversification - An investment philosophy of investing among different types of securities, companies, and/or markets to reduce investment risk. For example, an investor who believes in diversifying might allocate his/her portfolio among gold, international stocks, bonds, domestic large-cap stocks, domestic small-cap stocks, and cash. Other individuals practice "time diversification" whereby they add to their security holdings periodically, such as every month, to avoid purchasing at market high points.
Dividend - A payment made by a company out of its earnings to its shareholders.
Dividend Yield - A measure that shows the current income return from a particular stock.
Dollar Cost Averaging - An investment approach whereby an investor invests in the same security on a regular interval.
Dow Jones Averages - A variety of well-known stock market averages that attempt to measure the overall trend of the market. The best known of these averages is the Dow Jones Industrial Average, which is comprised of 30 large industrial stocks. Two lesser-known averages are the Dow Jones Transportation Average, which is comprised of 20 transportation stocks, and the Dow Jones Utility Average, which is comprised of 15 utility stocks.
Down Tick - Indicates that the transaction was made at a price lower than the preceding transaction. Also called a "minus tick." Also See "Up Tick."
Dow Theory - A technical method for forecasting market trends (bull or bear) based on the interpretation of the daily fluctuations of the Dow Jones Industrial and Transportation Averages.
DRIP - "Dividend Reinvestment Plan," also expressed as "DRP." A DRIP enables a shareholder to buy additional stock in a particular company directly from that company without using a stockbroker.
Earned Surplus - See "Retained Earnings."
Earnings Per Share - Equal to net income divided by the number of shares of a company's stock. Companies commonly disclose two EPS measures, Basic EPS and diluted EPS. The diluted earnings per share includes the impact of unexercised stock options that the firm has issued and is the more conservative measure of the two.
Earnings Report - A statement of the company's earnings or losses for a particular period, typically a quarter (three months) or a year.
EDGAR - An acronym for the Electronic Data Gathering, Analysis, and Retrieval system, EDGAR can be found at www.sec.gov/edgarhp.htm. EDGAR contains all the financial documents that publicly-traded companies are required by law to file electronically.
Efficient Market - A financial theory that believes stock prices instantly reflect all new information.
Equity - The investment by shareholders in a company. It is equal to total assets less total liabilities.
Equity Investment - Investment into a company via the purchase of the company's stock.
Ex-Dividend Date - The date on or after which the purchaser of a particular stock would not be entitled to receive a recently declared dividend.
Exercise Price - The price at which an option may be exercised. Also known as the "strike price."
Expenses - A cost or a deduction from a company's income. A company's total sales less total expenses equals net income.
Expiration Date - The day an option contract expires.
Face Value - Also referred to as par value, the face of a bond is the amount that the firm that issued the bond agrees to pay at maturity.
Fannie Mae - An acronym for the Federal National Mortgage Association, Fannie Mae is one of several government agencies (such as Ginnie Mae, Freddie Mac, and Sallie Mae) that is permitted to issue debt for sale to the investing public. Although the risk of default associated with such securities is remote since it is generally assumed that the U.S. Government would intervene, this does not mean that these securities are completely risk free or guaranteed. Because Fannie Mae securities are based on an underlying pool of mortgages and because homeowners tend to refinance their mortgages when interest rates fall, owners of Fannie Mae securities can be disappointed about the return on their investment during periods of sharply-falling interest rates.
FASB - An acronym for the Financial Accounting Standards Board, the organization that writes guidelines followed by accountants in reporting financial information.
Federal Reserve Bank - The United States central bank which regulates the money supply and financial markets and directs monetary policy. Also known as "the Fed."
Financial Planner - See "Certified Financial Planner."
Financial Ratios - A variety of ratios which are used to help analyze financial statements.
Fiscal Year - The 12-month period that a company selects to be its operating year for accounting purposes. A fiscal year may or may not coincide with a calendar year.
Fixed Expenses - Those expenses that do not vary with the level of sales, such as rent, depreciation, and management's salaries. Also known as "fixed charges."
Floor - Refers to the trading area — or floor — of an exchange. This term can also refer to the lowest price, or "investment floor," under which a security is not expected to trade.
Form 10-K - A report that is filed annually with the SEC by every U.S.-based publicly-traded company. It typically contains a comprehensive overview of a company's business operations, product lines, backlog, and management experience as well as some background history. It is also a great source for uncovering any negative developments at a particular firm, such as pending lawsuits or downturns in the firm's business operations.
Form 10-Q - A form that is required to be filed quarterly with the SEC by every U.S.-based publicly-traded company. The purpose of a 10-Q is to "bridge the reporting gap" between the yearly submission of the firm's annual report.
Forward Contract - An agreement between a buyer and a seller to purchase (sell) a particular good at a later date at a fixed price. A forward contract is typically customized to meet the specific needs of the buyer and seller. A "real world" example of a forward contract is when an individual agrees to purchase a puppy from a breeder at a certain price when the puppy is six weeks old.
401(k) - A personal, tax-advantaged pension plan named after a particular section of the Internal Revenue Code.
Freddie Mac - An acronym for Federal Home Loan Mortgage Corporation, is one of several government agencies (such as Fannie Mae, Ginnie Mae, and Sallie Mae) that is permitted to issue debt for sale to the investing public. See "Fannie Mae."
Fundamental Research - Analysis of a company based on such items as sales, assets, earnings, products, services, markets, and management. Fundamental analysis is typically used in conjunction with technical analysis, which is a method of analysis that focuses on the price movements of a security.
Futures Contract - An agreement between a buyer and a seller to purchase (sell) a particular good at a later date at a fixed price. A futures contract is traded on an organized exchange and possesses certain standardized features, such as the size or length of the contract. These standardized features differentiate it from a forward contract, which is not traded on an organized exchange and is typically custom tailored to the needs of the buyer and seller. A futures contract also differs from an options contract in that both parties are required to honor a futures contract when it matures. In contrast, the purchaser of an option has sole discretion whether it wishes to exercise the option prior to or at expiration.
Ginnie Mae - An acronym for Government National Mortgage Association, it is one of several government agencies (such as Fannie Mae, Freddie Mac, and Sallie Mae) that is permitted to issue debt for sale to the investing public. See "Fannie Mae."
Goodwill - An intangible asset that typically arises in connection with the acquisition of another firm. Goodwill is the excess between the price paid for the acquired company relative to the value of the acquired company's assets. Because of the unusual and difficult-to-define nature of this asset, in general, accountants in the U.S. have adopted an arbitrary 40-year period for writing down (amortizing) the value of this asset.
Government Bonds - Typically used to describe bonds and notes issued by the U.S. government or one of its agencies which pay interest periodically.
Gross Margin - Equal to gross profit divided by sales. Gross profit represents the difference between what it cost a firm to produce a product and what the firm received from its customers for that product. Gross margin takes that relationship and puts it in relative terms that permit comparison.
Gross Profit - Calculated by deducting cost of goods sold from net sales.
Growth Investment Strategy - One of a variety of stock market investment strategies. An investor following a growth investment strategy would generally purchase only those firms exhibiting rapid growth in sales and/or earnings.
GTC Order - A "good 'til cancelled" order is an order to buy or sell a security that remains in effect, or "good," until it is either executed or cancelled.
Hedge - To reduce one's investment risk.
Hedging - Also known as "putting on a hedge," hedging is the purchase or sale of a financial instrument, often an option or futures contract, with the intent of offsetting some of the risk associated with owning a different security.
Holding Company - A company that owns or "holds" the securities of another.
Income Bond - A bond that promises to pay interest only when earned by the firm. Income bonds are typically exchanged for outstanding bonds of a bankrupt company being reorganized. Also known as "adjustment bond."
Income Statement - A financial document that shows the income streams of a firm. This report starts with a company's sales, or revenues, and deducts (adds) expenses (other income) from that figure to reach net income. The income statement published in an annual report will typically cover an entire year (usually several years' worth will be presented), while the income statement published in a quarterly report will typically cover one quarter, or three months (typically, two quarters will be presented).
Income Stream - A term used to describe the cash flow or earnings generating ability of a firm.
Indenture - A written agreement between an issuer and bondholders, which outlines the terms, conditions, and repayment provisions concerning the debt.
Index Fund - A mutual fund which attempts to mimic the price performance of a specific stock index, such as the Standard & Poor's 500 Index. This fund typically holds the same securities as those comprising the targeted index and should provide a return similar to that of the index.
Individual Investor - A person who manages and invests his/her own investment account.
Inside Information - Information about a company that is not known to the investing public and is only known to "insiders," such as officers, directors, or major shareholders of a particular firm. Although the exact legal definitions of an "insider" and "inside information" are less than clear cut at all times, using inside information to buy or sell stock is illegal.
Institutional Investor - A very large, typically financially sophisticated investor, such as a mutual fund, insurance company, or corporate investment account.
Intangible Assets - Assets owned by a firm that lack an actual physical presence, such as patents and goodwill.
Inventory - The value of raw materials, goods in progress, or completed goods that a company owns and holds for resale.
Inventory Turnover Ratio - A ratio that measures how effectively a firm is putting its inventory resources to work generating sales. A low turnover ratio may indicate that a firm is carrying obsolete products in inventory and/or that its investment in inventory is excessive. Some analysts substitute cost of goods sold for sales in this equation, as they feel that it is more accurate.
Investing Styles or Strategies - There are many styles or strategies of investing. Many often come in and out of vogue. An investor needs to determine what style(s) or strategy(ies) best meet his/her investment needs. Many of the following styles are not mutually exclusive and may be combined.
- Dollar Cost Averaging — An investment approach whereby an investor invests a fixed amount in the same security at regular intervals.
- Global — An approach that combines international and domestic stocks in the same portfolio.
- Growth — An approach that focuses on firms that are rapidly expanding their sales and earnings.
- Income — An approach that focuses on stocks that have high dividend yields and/or fixed-income investments, such as bonds.
- Long-Term Investing — An investment approach that assumes an investment horizon of three or more years.
- Sector Investing — An approach that focuses on securities in certain market sectors, such as energy, health care, or financial services.
- Short-Term Investing — An approach that assumes an investment horizon of less than three years.
- Speculative — An approach that focuses on higher-risk securities that have the potential for greater returns.
- Technical — An approach that focuses on a security's price, price trend, and volume patterns.
- Value — An approach that focuses on uncovering securities priced below the true value of the company.
Investment Advisor - A person or company who sells investment advice for a fee and is registered with the SEC under the Investment Advisers Act.
Investment Club - Individual investors who organize into a group for the purpose of pooling their money, research energy, and investing acumen to invest in securities.
Investment Company - A company or trust that invests its capital in other companies. See "Closed-End Investment Company," "Open-End Investment Company," and "REIT."
Investment Grade - A term referring to a top grade, best rated bond. A "blue-chip" stock might also be referred to as investment grade.
Investor Relations Department - A division at most publicly-traded firms that handles all requests by the investing public for corporate information.
IPO - "Initial Public Offering," which is a company's initial sale of stock to the public.
IRA - "Individual Retirement Account," which is a personal retirement investment program for employed persons.
Keogh Plan - A personal retirement program for self-employed people.
Leveraged Buy-Out - The "takeover" or acquisition of a company largely accomplished through the use of borrowed money.
Leverage Ratios - A series of ratios that measure the extent to which a firm has been financed by debt.
Liabilities - Obligations that a company has outstanding and include such items as long-term debt, deferred income taxes, and accounts payable.
Limit (Limited Order or Limited Price Order) - An order given to a stockbroker regarding the conditions of a proposed security purchase or sale. A trade with a limit order will only occur if the particular security is trading at a specific price or better.
Liquidation - The process of dissolving a company whereby the firm's assets are sold and distributed to creditors and shareholders.
Liquidity Ratios - A series of ratios that measure the liquidity, or cash generating ability, of a firm.
Listed Stock - A stock that is listed for trading on an organized stock exchange.
Load - The sales charge levied on investors by some mutual funds.
Long Position - A financial term that denotes ownership of a security. For example, an investor who is long 100 shares of IBM is an investor who owns 100 shares of IBM.
Long-Term Debt as a Percentage of Capital Ratio - A ratio calculated by dividing a firm's long-term debt by the sum of the firm's shareholders' equity and long-term debt. The greater the percentage, the greater the level of debt the firm has assumed relative to the investment shareholders have made in the company. A long-term debt as a percentage of capital ratio of over 50% indicates more than a fair degree of leverage.
Management Discussion and Analysis - The single most important part of an annual report for understanding what is happening to a company's profitability. Its goal is to explain important changes in the firm's financial results. Also called "MD&A."
Margin Account - A specific type of brokerage account in which the customer may borrow money from the broker to buy securities.
Margin Call - A demand by a broker to an investor to add additional collateral to his/her account when the customer's equity falls below a certain minimum level.
Market Maker - A dealer who specializes in a particular security and will purchase and sell stock from his/her inventory.
Market Order - An order given to a broker to buy or sell securities at the market price
Market Price - The last reported sales price of a security or a current quote.
Market Trend - The general, over-all direction of the stock market, commonly referred to as a bull (up) or bear (down) market.
Maturity - The date on which a fixed-income security comes due and the issuer is obligated to repay the principal or face value of the security.
Merger - When two (or more) companies combine into one.
Money Market Fund (MMF) - An open-end mutual fund that invests in short-term, low-risk, highly liquid instruments such as CDs, government securities, or commercial paper. Many individuals view their investment in a money market fund in the same terms as they would cash deposited at their local bank.
Mortgage Bond - A longer-term bond that is secured by a mortgage on a property.
Municipal Bond - A longer-term, tax-exempt bond issued by a state or a local government. A general obligation municipal bond is backed by the general taxing power of the issuing government. A revenue bond is backed by the proceeds from the specific project that the bond was sold to finance, such as a toll road.
Mutual Fund - Created when a number of investors pool their funds into one portfolio that is regulated by the SEC.
NASD - "National Association of Security Dealers" is an industry organization that regulates OTC trading.
NASDAQ - "National Association of Security Dealers Automated Quotations," which is the NASD's computerized quotation systems that reports prices and trading of the major OTC stocks.
NAV - "Net Asset Value," which commonly refers to the per-share value of a mutual fund. It may also refer to the value of a company's assets as determined by its market transactions less stated liabilities.
Negotiable - An instrument that is readily transferable. Also, a price that is not firm and subject to further discussion.
Net Asset Value - See "NAV."
Net Change - The point difference between a security's current closing price and the closing price for it in the previous trading session.
Net Income - Net income represents the remainder left after all expense items are deducted and all income items are added to net sales.
Net Sales - Another name for revenues, net sales represent sales that the firm has achieved over the past year less any returned items and other allowances.
New Issue - A security offered for sale by the issuer for the first time.
No-Load Fund - Refers to an open-end investment company or mutual fund that does not charge a sales fee to buy or sell shares in it.
No-Load Stock - A stock in which an individual may buy his or her first share and every subsequent share directly from a company without using a stockbroker.
Noncumulative - Preferred stock on which unpaid dividends do not accrue.
Notes Payable - Debts owed by a company. Found in the liabilities section of a balance sheet.
Notes to Consolidated Financial Statements - Often called the footnotes, this section of the annual report contains some very valuable details regarding a firm's business operations.
NYSE - "New York Stock Exchange," which is the most widely known and largest organized securities market in America. Shares traded on the NYSE are generally those of larger companies.
Odd Lot - Refers to an exchange transaction of less than the typical 100-share unit of a stock.
Offer - The lowest price at which a particular security is being offered for sale. Also known as the "asked price."
On-line Investing - Investing via the Internet using a computer.
Open-End Investment Company - A mutual fund that issues new shares whenever investors want to buy. These shares are redeemable when the investor wants to sell them back to the issuing company.
Open Interest - The number of outstanding option contracts which have neither been exercised nor reached expiration for a particular security at a particular time.
Open Order - An order to buy or sell a security that remains "open" until it is either executed or cancelled. Technically known as a "Good 'Til Cancelled Order."
Operating Income - Calculated by deducting selling, general, and administrative expense from gross profit.
Option - A right to buy (call) or sell (put) a fixed amount of a security at a specific price within a specific period of time.
Optional Cash Payment - For those participating in a Dividend Reinvestment Plan, it's the ability to buy additional shares of stock directly from a company. Also referred to as "OCP."
OTC - "Over the Counter," which refers to any transaction in securities that does not occur on an organized securities exchange but rather via an electronic or telephone network.
Overbought - An opinion that a security (or the overall market) is overvalued due to recent vigorous buying activity and that a downward correction is likely.
Oversold - An opinion that a security (or the overall market) is undervalued due to recent vigorous selling activity and that an upward correction is likely.
Over-the-Counter - See "OTC."
Paper Profit (Loss) - An unrealized gain (loss) on a security. Paper profits or losses are realized when then security is sold.
Par Value - Refers to the dollar amount assigned to a share of stock by a company's charter and which rarely reflects the market price. The par value of a preferred stock is the value upon which dividends are paid.
Passed Dividend - Refers to an omitted dividend on cumulative preferred stock.
Payout Ratio - The percentage of earnings paid out as a dividend.
P/E Ratio - See "Price/Earnings Ratio."
Point - Relating to a stock, a point means $1. Relating to a bond, a point means 1%. Relating to interest rates, a point means 1/100 of a percent. See "Basis Point."
Portfolio - An individual's or company's security holdings.
Portfolio Manager - A person who manages another's portfolio. Also a person who manages a mutual fund, pension fund, profit-sharing plan, or bank trust.
Preferred Stock - Stock that entitles the holder to a dividend at a specified rate that is paid before a common stock dividend is paid.
Premium - The price paid for a fixed-income security above its par value.
Price/Earnings Ratio - Probably the most used of all valuation ratios, the price/earnings ratio (also called P/E ratio or P/E multiple) permits an investor to analyze the price of a particular stock or compare the prices of different stocks. A lower P/E ratio indicates that a particular stock is trading at a less expensive market price than another stock with a higher P/E ratio based on the level of each firm's earnings.
Prime Rate - A preferential interest rate charged by a commercial bank only to its most credit-worthy customers
Principal - The face value of a bond. Also refers to a person who owns 10% or more of a company's outstanding voting stock, an investor's capital base, or a trade involving a dealer.
Principal Amount - The face amount of a loan or face amount or par value of any debt security.
Profit and Loss Statement - Also referred to as a "P&L." A statement listing a company's income, expenses, and net profit or loss for a defined period.
Profit Taking - A term used to explain a drop in a stock price or in the general market absent of bad economic or financial news. The idea is that the reason investors are selling is to lock in profits.
Profitability Ratios - A series of ratios that measure the effectiveness of a firm's profit generating abilities.
Prospectus - An official selling document that must be distributed to purchasers or potential purchasers of new securities that areregistered with the SEC. In relation to a stock, this document is sometimes referred to as a Red Herring.
Proxy Statement - A document which contains a variety of corporate information such as top management pay, a five-year performance graph that compares the stock against relevant indexes, and information concerning a company's Board of Directors. It also discloses the name and position size of any shareholders that own 5% or more of the company's stock. It is mailed at least annually to all shareholders of a particular firm so that they may vote on certain items relating to the company.
Public Offering - The original sale of a company's securities to the investing public.
Publicly Available Information - Information about a company that is readily available to the public.
Put - An option to sell a security at a stated price.
Quarterly Report - A financial summary report that a company issues after the close of each of its fiscal year quarters.
Quick Ratio - This ratio is also called the acid test ratio and is similar to the current ratio, except inventories are subtracted from current assets before current assets are divided by current liabilities. An investor should be wary if the quick ratio is below 0.5, out of line with its industry, and/or showing a declining trend.
Quote - The highest bid to buy and the lowest offer to sell a security at a given time.
Rally - A sharp rise in the price of a stock or general market
Record Date - The date by which an individual must be a registered shareholder in order to receive a declared dividend.
Red Herring - See "Prospectus."
Redemption Price - The price at which a bond may be redeemed before maturity at the option of the issuing company.
Raw Materials - Materials used to manufacture a product. Listed under inventories in a firm's balance sheet.
REIT - "Real Estate Investment Trust" is similar in organization to an investment company, but a REIT concentrates its holdings in real estate investments rather than in securities, such as stocks and bonds.
Restructuring Charge - A charge (expense) taken against earnings to cover the cost of "restructuring" a firm's operations. A restructuring often includes such items as closing unprofitable divisions or laying off employees.
Retained Earnings - A balance sheet account which shows the cumulative total of net earnings that were not distributed as dividends to shareholders. Also known as "earned surplus."
Return on Equity - This calculation shows the rate of return that a company has achieved on shareholders' investment. A higher figure indicates a higher return. To calculate an average shareholders' equity figure, add the shareholders' equity amounts shown on the balance sheet for the current year and prior year together and divide by 2.
Revenues - The net sales of a company.
Rights - A limited-term option to purchase a security at a specific price.
Risk vs Return - Generally speaking, the higher the risk of loss, the great the potential return. Conversely, the lower the risk of loss, the lower the potential return.
Round Lot - A unit of trading, generally 100 shares in stocks and $1,000 par value in bonds.
Sallie Mae - An acronym for "Student Load Marketing Association," it is one of several government agencies (such as Fannie Mae, Freddie Mac, and Ginnie Mae) that is permitted to issue debt for sale to the investing public. See "Fannie Mae."
Sector Fund - A mutual fund that focuses on a particular sector of the market, such as health care, energy, or financial services.
Security - A financial instrument that evidences direct ownership (via stock) or creditorship (via a bond) in a corporation, a federal or state government, a government agency, or a legal trust, as well as indirect ownership such as with rights, warrants, options, and partnership participations.
Securities and Exchange Commission - A government agency (also called the SEC) that administers the federal securities laws and helps ensure that the securities markets are fair and honest. The SEC requires that all publicly-traded firms file annual and other periodic reports with it.
Sell Side - The side of the financial-services industry that "sells" investments to investors, such as a brokerage firm. See "Buy Side."
Selling, General, & Administrative Expense - Often just called "SG&A," this catchall expense category includes items such as salespersons' commissions, advertising, officers' salaries, and other general nature expenses.
Settlement Date - The date payment is due to a security trade.
Shareholders' Equity - The difference that remains after subtracting all of a company's liabilities from its assets. Shareholders' equity is also knows as "owners' equity" or "net worth." It generally consists of retained earnings, capital in excess of par value, and common stock. It might also include such items as preferred stock and treasury stock. For most analysis purposes, the distinctions between these accounts are unimportant. The combined shareholders' equity figure is the most relevant.
Short, Short Sale, or Short Seller - Selling a security that is not owned by the seller at the time of the sale. The shares that are sold are initially borrowed from a brokerage firm and later must be replaced by the seller by purchasing them in the open market. A short seller believes that a particular security is overpriced and will fall in price.
Sinking Fund - Money that a company sets aside periodically to fund the redemption of its bonds or preferred stock.
SIPC - "Securities Investors Protection Corporation," which is a corporation create by the Securities Investors Protection Act of 1970 that provides protection to customers of insured members in case of the member's bankruptcy.
Soft Market - A term describing a market for stocks or bonds with weak demand.
S&P - Short for "Standard & Poor's Corp." A well-known company that publishes credit ratings for certain bonds, a variety of financial reports covering other firms, and several stock indexes among other activities.
Specialist - A member of an organized stock exchange who endeavors to maintain an orderly market in the securities registered to the specialist and executes limit orders.
Spin Off - Used as a verb, it describes the process of separating a subsidiary or division of a corporation from the parent company by issuing shares in the new corporate entity. For example, "AT&T intends to spin off its regional Bell operating companies to investors." Used as a noun, it describes the firm created by this process. For example "Southwestern Bell is a spin-off of AT&T."
Statement of Cash Flows - A statement which reveals where cash was provided and used by the corporation. It is divided into three general sections: cash provided/used by operations, cash provided/used by investing activities, and cash provided/used by financing activities. It also lists the depreciation and amortization charges taken by the firm against earnings.
Stocks, type of
- Blue-Chip — those stocks of quality firms with a long history of good earnings performance.
- Growth — those stocks expected to grow in price at a relatively fast pace.
- Income — those stocks that offer a higher-than-average dividend yield, such as many utility stocks.
- Investment — those stocks that have a long history of good earnings performance.
- Large-Cap — those stocks with a capitalization in excess of five billion dollars.
- Low-Priced — those stocks that are generally priced below $30 per share.
- Penny — highly speculative stocks selling below $1 a share.
- Small-Cap — those stocks with a capitalization of less than $500 million.
- Speculative — those stocks that carry an above-average risk but potentially offer an above-average rate of return.
- Value — those stocks that are relatively under priced.
Stock Dividend - A dividend that is paid by a firm in stock rather than in cash. For all practical purposes, it has the same impact on a stock as a stock split.
Stock Split - A corporate action that typically increases the number of shares of stock that a firm has outstanding (a far less common corporate action called a reverse stock split decreases the number of shares of stock outstanding). Although a stock split results in each shareholder owning more shares, the price of each share decreases proportionally so that the value of the shareholder's investment remains the same.
Stock Index Futures - A particular type of futures contract that is based on a stock index, such as the S&P 500.
Stop-Loss Order - A sell order given to a broker by an investor that is only executed if the price of a stock falls below a stipulated price. An investor would use this type of order if he/she wanted to limit the potential price decline or loss by a particular stock.
Street Name - Describes securities that are held by a broker on behalf of an investor but registered in the broker's name with the underlying issuing company.
Strike Price - The price at which a transaction involving an option will occur. Also called the "exercise price."
Swap - The sale of one security and the immediate purchase of another very similar security. This term can also refer to interest rate and/or currency swaps, which are sophisticated financial transactions engaged in by large corporations, brokerage firms, and institutional investors.
Tangible Assets - Assets owned by a firm that have an actual physical presence.
T-Bill - "Treasury Bill," which is a short-term obligation of the U.S. Government that is issued at a discount from its face value. The difference between the face value paid to the investor at maturity and the price paid for the T-Bill represents interest.
Technical Analysis - A method of analyzing a security that focuses on the price movement, trend, and trading volume of a security. Technical analysis may be used in conjunction with Fundamental Research.
Tender Offer - A public offer by an outside investor to the shareholders of a particular firm to purchase their stock at a specific price with the intent of taking over this firm.
Ticker Symbol - A letter-based identification code used to designate the shares of a particular firm or fund.
Times Interest Earned - A ratio that attempts to measure the extent to which earnings may decline before impairing a firm's ability to meet its interest costs. A financially stronger firm should have a higher ratio than a weaker firm should.
Time Value of Money - The concept that a dollar received today is more valuable than a dollar to be received tomorrow due to the interest that can be earned on the dollar.
Total Return - The entire profit or loss earned on an investment. It consists of both the appreciation or depreciation in the value of the investment and any dividend or interest income received from the investment.
Trader - A person who buys and sells securities for his/her personal account. It can also refer to an employee of a financial firm who handles the purchases and sales of securities for his/her employer.
Transfer - The delivery of a stock certificate from the seller's broker to the buyer's broker and legal change of ownership.
Transfer Agent - A person or entity that keeps a record of the name and address of each registered shareholder and number of shares owned. In addition, a transfer agent supervises that stock certificates presented from the old owner are cancelled and new certificates are issued in the name of the new owner.
Treasury Stock - Stock that has been repurchased by the issuing corporation.
Underwriter - A company that purchases securities from an issuer to resell to the public.
Unlisted Security - Any security that does not trade on an organized exchange.
Up Tick - Indicates that a transaction was made at a price higher than the preceding transaction. Also called a "plus tick." See "Down Tick."
Valuation Ratios - A series of ratios that relate the market price of a stock to the firm's assets, dividend, or earnings.
Variable Expense - An expense that increases or decreases directly with increases or decreases in sales.
Venture Capital - Funds invested in a new, usually highly speculative, business venture.
Volatility - A term used to describe the relative price movement of a security. For example, a security with wide price swings is considered to be more volatile or have higher volatility than a security that trades within a narrow price range. Generally, a highly volatile security carries more risk than a security with low volatility.
Volume - The number of shares traded within a particular time period.
Voting Rights - A common shareholder's right to vote his/her stock on company matters.
Warrant - An option to purchase a security from the issuer for a specified price and within a specified time.
When Issued - Refers to a particular stock that has not yet officially been issued to the public but trades in the market as if it did.
Working Capital - A liquidity measure that is equal to current assets less current liabilities. Working capital should be a positive number for a financially strong firm rather than a negative number. Working Capital = Current Assets - Current Liabilities
Write Down - Describes the action of partially reducing the accounting value of an asset when used as a verb. When used as a noun, this term describes the actual charge that was taken against current earnings to reduce the value of the asset.
Write-Off - Similar to the concept of "Write Down," a write-off represents a complete rather than a partial loss in value of an asset, such as an account receivable that will never be paid. A write-off is charged against current earnings.
Writer - A person who sells an option contract
Yield - The annual income return of an investment.
Yield to Maturity - The rate of return that is expected to be earned from a bond if it is held to maturity.
Zero Coupon Bond - A type of bond that does not pay periodic interest and is issued at a substantial discount from its future redemption price.
ATTENTION
Wall Street Journal Readers
Your FREE LIST of No-Load Stocks
Commentary
5/12/08
Where To Go For Health Care
Charles Carlson, CFA
Editor, DRIP Investor Newsletter
I remember when I first started in this business more than a quarter century ago, one group that was regarded as a “sure thing” for gains was health care, especially pharmaceutical stocks.
Well, things have certainly changed over the years. Indeed, pharmaceutical stocks have had plenty of problems in recent years. Generic competition, the lack of blockbuster drugs, and health concerns with existing medications have all served to dampen pharma stocks.