Above par : Above par means current price above face value.
Absolute priority rule: It is the rule, which gives priority to creditor to get their payment back before the payment is made to shareholders of the company in the case of liquidation or reorganization of the company.
Acid-test ratio: It is the ratio of current assets minus inventories divided by total current liabilities. It is also called Quick Ratio. It measures the ability to meet current debts with most – liquid current assets.
ADR: ADR is an abbreviation of American Depositary Receipt. It is a negotiable instrument issued by U.S stock exchange, which paves the way to Americans to invest in foreign companies. There are various Indian companies that have issued ADRs in US market.
Alpha: It is the coefficient measuring the risk-adjusted performance, considering the risks that are specific to the security, rather than the overall market. A large alpha indicates that the stock has performed better what would be predicted given its volatility.
Basket: Basket symbolizes a group of stocks formed to do simultaneous buying and selling of all stocks in the Basket usually to perform index arbitrage or a hedging program.
Bearer share: Bearer share is a negotiable share, which is the asset of the person who possesses it at any given time. It is on the name of the bearer & not in the name of a particular person. The issuing company does not maintain any record of ownership of such share.
Below par: Below par means having current price below the face value.
Best ask: Best ask means the lowest price of the order a seller is ready to accept at a given time for a given security.
Best bid: Best bid means the highest price of the order a buyer is ready to pay at a given time for a given security.
Beta: Beta is a quantitative measure of a stock's volatility relative to the market. If Beta of any stock is more than 1 then it is more volatile in respect of the market and is supposed to be riskier than the market portfolio. If the Beta of any stock is less than 1, then it is less volatile in respect of the market and is supposed to be less riskier than the market portfolio.
Bid: Bid is the Price at which broker or a dealer is willing to buy stock.
Bid size: Bid size is the number of share a broker or a dealer is willing to purchase in the stock.
Blue Chip Stocks: Large, credit-worthy company well known for the quality and wide acceptance of its products or services and its ability to make money and often pay dividends.
Buy Back: Companies, which have surplus of cash to invest, can offer to buy back shares from shareholders, thereby investing back into the company.
Buyer: The investor who wants to purchase security and has placed the order to that effect.
Call price: The price at which an issuer may redeem a bond or a preferred stock is called Call price. It is also know as Redemption Price.
Capital Asset Pricing Model: A Model that describes the relationship between risk & required return. In this model a security required rate of return is the risk free rate plus a premium based on the systematic risk of the security.
Cash cycle: The length of time from the actual outlay of cash for purchase until the collection of receivables resulting from the sale of goods or services.
Cash dividend: Cash distribution of earning to stockholders usually on a quarterly basis.
Capital Gain (loss): The amount by which the proceeds from the sale of a capital asset exceeds (is less than) the asset’s original cost.
Compound Interest: Interest paid on any pervious interest earned, as well as on the principal borrowed.
Capital market: The market where for relatively long term, debt or equity securities are traded.
Commercial Paper: Short term, unsecured promissory notes, generally issued by large corporations.
Capital stock: The total number of shares authorized as per the Memorandum of Association of the company for the issuance, including both common stock and preferred stock.
Capital structure: The proportion of a firm’s permanent long term financing represented by debt, preferred stock, common equity stock & retained earning.
Capital turnover: Capital turnover calculates the rate of return of equity. It is calculated by dividing total sales by stockholder equity. Higher the ratio, more efficiently the management can utilize its capital.
Capitalization stock: The sum of a company’s capital, long-term debt, and retained earnings.
Custodian: Bank or other financial institution that keeps custody of stock certificates and other assets of a mutual fund, individual, or corporate client.
Debenture: A long term, unsecured debt instrument.
Depreciation: The value of assets keeps on decreasing with the passage of time and usage. That decrease in value is termed as depreciation. Every business is required to write off the depreciation over time for tax purposes.
Date of issue: The date on which a bond, insurance policy or stock offering is issued.
Deferred share: A share of stock that receives no rights to a company's remaining assets in the event of bankruptcy until all common and preferred shareholders have been paid.
Delisting: A share is said to be delisted when a share is removed from any exchange mainly due to non-fulfillment of exchange norms.
Day Order: A day order is an order, which is valid for the same session on which it is entered. If the order is not matched during the session, the order gets cancelled automatically at the end of the trading session
Depository: It is an institution, which keeps the shares in, demat (Electronic) form on behalf of the investors, where investor is the beneficial owner of the stocks held.
Earnings: Earning is the difference between revenue & cost of sales. We can interpret various types of earning from the balance sheet data for analysis.
Earnings per Share: EPS refers to the earnings available for the equity holders divided by the number of equity shares outstanding.
EBIDTA: Earnings Before Interest, Taxes, Depreciation and Amortization.
Economies of scale: The benefits arise due to increase in production size in which the average unit cost falls as volume increases.
Employee Stock Ownership Plan: ESOP is a trust established by a company for the allocation of shares to employees. It is a tax efficient way to provide this motivational benefit to the employees.
Exchange rate: The number of units of one currency that may be purchased with one unit of another currency is termed as the exchange rate between the two currencies.
Ex – dividend date: The first date on which a stock purchase is no longer entitled to receive recently declared benefit, dividend in this case.
Face value: It is the value of an asset that is written on the face of the instrument. In case of stocks, it is the original cost of the stock shown on the certificate & in case of bonds, it is the amount paid to the holder at maturity.
Fair market value: The price at which an asset can be sold in market.
Financial Lease: A long-term lease that is not cancelable.
Financial management: Concern the acquisition, financing & management of assets with some overall goal in mind.
Financial markets: A system consisting of institution & procedures for bridging the gap between buyers & sellers of financial instruments.
Financial instrument: An instrument having monetary value and can be traded or transferable or recording a monetary transaction.
Financing flows: It means Cash flows generated through debt and equity financing.
First preferred stock: That preffered stock which gets preference in the payment of the dividend or for the assets before the payment is made to other preffered stockholder & equity stockholder.
Future value: The value at some future time of a present amount of money, or a series of payment, evaluated at a given interest rate.
GDR: GDR is the abbreviation of Global Depositary Receipt .A bank certificate issued in more than one country for shares in a foreign company.
Going Private: Making a public company private through the repurchase of stock by current management &/ or outside private investor.
Goodwill: There are certain intangible assets in the form of present reputation of the company/firm generated through the continuous and efficient supply of quality product and services. This is known as the goodwill of the company. Goodwill must be amortized. In case of merger or acquisition, the extra consideration paid by the acquiring firm to the acquired firm is recorded in the books as goodwill.
Gross working capital: This is capital required to run the day to day expenses of the company. This is the money invested in the various current assets like inventory, bills payable, pre paid expenses etc. In all it refers to the firm’s investment in current assets.
Going public: Offering public to invest in the company & for this the share need to be listed & this procedure is called performing an initial public offering.
Governments Securities: Any securities issued by the government or its agencies.
Good Till Cancelled: This order remains in the system until the user cancels it. It will therefore be able to valid for various trading sessions if it does not get matched. However, the Exchange may set an upper limit to the number of working days for which an order can stay in the trading system. At the end of this period, the orders are cancelled automatically from the system.
Good Till Day: This order allows the user to specify the number of days up to which the order should stay in the trading system. At the end of this period, the order gets cancelled automatically from the system if it is not traded or is not cancelled by the investor.
Gross Exposure: The net cumulative outstanding in various stocks at a time that has not been squared off is called Gross exposure.
Hedge: It is tool used to reduce the risk of future price movements.
Holding Company: A parent company holding maximum number of share of the company. This number should be at least 51%.
Hurdle rate:The minimum required rate of return on an investment in a discounted rate at which a project is acceptable.
Income stock: A stock with a history of paying consistently high dividends.
Inflation: This refers to the situation in which there is rise in the general level of prices of goods & services.
Income statement: A summary of a firm’s revenue & expenses over a specified period, generally one year, ending with net income or loss for the period.
Intraday Turnover: Total value of buy & Sell trades executed on an exchange in a single session is called as Intraday Turnover.
IPO: Also called initial public offer. A company’s first offering of equity stock to the general public.
Interest: Money paid or earned for the use of money.
Intrinsic value: The price a security ought to have based on all factors bearing on valuation.
Interest coverage ratio: Earning before interest & taxes divided by interest charges. It indicates a firm’s ability to cover interest charges.
Immediate or Cancel: Order allows an investor to buy or sell a security as soon as the order is released into the system, failing which the order is cancelled from the system.
Joint Venture: A business venture jointly owned & controlled by two or more independent firms. Each venture partner continues to exist as a separate firm & the joint venture represent a new business enterprise.
Joint Stock Company: A company, which has some features of a corporation and some features of a partnership.
Know your Client: Compulsory Form, known as the know your client agreement form to be filled by an investor who wishes to trade through a trading member of a recognized stock exchange.
Leverage: Leverage is property rising or falling at a proportionally greater amount than comparable investments. For example, an option is said to have high leverage relative to the underlying stock because a price change in the stock may result in a relatively large increase or decrease in the value of the option. In general, in finance, leverage is the use of debt financing. Leverage, within a corporation, is the use of borrowed money to increase the return on investment. For leverage to be positive, the rate of return on the investment must be higher than the cost of the money borrowed.
Leverage Ratio: Leverage Ratio measures the relative contribution of stockholders and creditors, and of the firm's ability to pay financing charges. Value of firm's debt to the total value of the firm.
Limited Liability Company: A business form that provides its owners with corporate style limited personal liability & the tax treatment of a partnership
Liquidation: The sale of the assets of a firm, either voluntarily or in bankruptcy.
Liquidity: Liquidity of an asset - The ability of an asset to be converted into cash without a significant price concession.
Liquidity of a firm – This refers to the ability of the firm to pay off its debt as and when it becomes due.
Liquidity ratio: Ratio that measure a firm’s ability to meet short-term obligation.
Listing: Admission of a security for trading on an organization exchange. A security so admitted is referred to as a listed security.
Majority rule voting: A method of electing corporate directors, where each common share held carries one vote.
Market value: The market price at which an asset trades.
Management buyout (MBO): A leveraged buyout in which prebuyout management ends up with a substantial equity position.
Management's Discussion & Analysis: A section in the Annual report in which the company describes about the performance of the prior period and the outlook for present & future.
Merger: The combination of two or more companies in which only one firm survives as a legal entity.
Market capitalization: The market value of a quoted company, which is calculated by multiplying its current share price by the number of shares in issue.
Marketable security: Security that has ability to be converted into cash quickly and easily at fair price.
Nominal value: The value of a share when issued or the face value.
Net Operating Income: Net Operating Income is equal to the difference between Net Sale & Net expenditure including financial charges & depreciation.
Net working Capital: Current assets minus current minus current liabilities. (also see gross working capital)
Net present value: The Net present value of an investment is the project’s net cash flows over and above the project’s initial cash outflow.
Operating profit margin: Operating profit for a certain period is calculated by dividing the difference between Net Sale & Net Expenditure by Net Sales. Operating profit margin indicates how effective a company is at controlling the costs and expenses associated with their normal business operations.
Operating Cycle: The length of time from the commitment of cash for purchase until the collection of receivable resulting from the sale of goods or services.
Order point: The quantity to which inventory must fall in order to signal that an order must fall in order to signal that an order must be placed to replenish an item.
Payback period: The period of time required for the cumulative expected cash inflow from an investment project to equal the initial cash outflow.
Preferred stock: A type of stock that promises a fixed dividend but at the discretion of the board of directors. It has preference over common stock in the payment of dividends & claims on assets at the time of liquidation.
Present Value: The current value of a future amount of money or a series of payments, evaluated at a given interest rate.
Price / earning ratio: The market price per share of a firm’s common stock dividend by the most recent 12 months of earning per share.
Panic Selling: It refers to the market conditions when all investors take fright and start selling due to sudden unfavorable news or rumours, or a Random Walk by shares downwards.
Portfolio: It refers to the list of financial assets that are held by an investor. The idea of a portfolio is that investor should invest in a diversified selection of investments.
Price sensitive information: Price sensitive information is information about a company's trading or other affairs having an influence on its share price.
Primary market: It refers to the market place where companies from the investors raise fresh money. The money raised may be utilized in paying for expansion or paying off debt etc.
Qualitative analysis: Determining the value of an investment, especially a stock, by examining its non-numeric characteristics, such as management, employee morale, customer loyalty, and brand value.
Quantitative analysis: It refers to the process of determining the value of a security by examining its numerical, measurable characteristics such as revenues, earnings, margins, and market share.
Quote: The highest bid or lowest ask price available on a particular security at any given point of time.
Quote size: The number of shares that are being offered for purchase at the bid price or the number of shares that are being offered for sale at the ask price
Regular Lot Order: It is the minimum quantity of an order that can be entered into the different markets namely Normal , Spot and Auction.
Record date: Date, set by the issuing in order to be eligible to receive a declared dividend or capital gains distribution. Record date is the date on which the company provides the benefits to the security holders. Those who are having the securities in their name in their account are eligible to receive the benefit.
Rights Issues: The issues of new shares to existing shareholders in a fixed ratio a price that is generally below the market price of the existing shares. The rights are offers to the existing shareholders on a pre-emptive basis.
Real Return: The Real return from any investment is the return earned on an investment after adjusting for the rate of inflation.
Real Interest Rate: Real rate of interest is the excess of interest rate over the rate of inflation.
Redeemable shares: Shares that may be redeemed at the option of the issuer and/or the shareholder on or after the pre specified time.
Redemption: The return of an investor's principal in a security, such as a bond, preferred stock or mutual fund shares, at maturity.
Redemption price: The price, specified at issuance, at which a bond or preferred stock can be redeemed by the issuer.
Registrar: The organization that maintains a registry of the shareowners and number of shares held for a mutual fund, bond or stock, and makes sure that more shares are not issued than are authorized.
Short selling: When an investor anticipates that the prices of a particular share will fall, then he may sell that share without even owning with an intention of purchasing the shares at lower price at any time in future. This strategy is known as short selling.
Slump: This refers to the bottom of a trade cycle when prices and employment are at their lowest level reflected in the downward movement of share prices. Overall mood of the market is depressed during the slump.
Stag: A stag is an investor or speculator who subscribes to an IPO with the intention of selling them soon after allotment to earn a quick profit.
Secondary Market: This refers to the market place where the investors can transact in the existing securities. The market in existing securities provided by the Stock Exchanges. The market provides the liquidity in the existing securities.
Settlement: This refers to the payment of cash for securities or the delivery of securities against payment i.e. securities transaction by delivery. It is the payment or receipt of an outstanding due at the end of the settlement period.
Settlement Day: It is the day on which purchased securities are due for delivery to the buyer and the buyer is required to pay necessary consideration for the same.
Share certificate: This is a legal document that represents the ownership of a shareholder in the company. In today’s advanced stage the concept of physical share is replaced by the dematerialization of securities.
Security: An investment instrument, other than an insurance policy or fixed annuity, issued by a corporation, Government, or other organization, which offers evidence of debt or equity.
Seller: The investor who has placed the order for selling a particular security. (also see buyer)
Settlement guarantee: Settlement guarantee means that the trade will be settled even if one of the parties to the trade i.e. the buyer or the seller defaults. In India , the clearing corporation provides Settlement guarantee for all trades held. This prevents a cascading effect in the market due to the default of one party.
Specified Shares: For the purpose of trading, stock exchange authorities categorised the securities as either 'specified' shares or 'non-specified' shares.
Share swap: This refers to a financial arrangement by which shares of one company are swapped for another in a specified ratio known as swap ratio.
Screen Based Trading: Screen based trading uses the modern telecommunications and computer technology to combine information transmission with trading in stock market. Trading members are connected to the Exchange from their workstations to the central computer located at the Exchange via satellite using VSATs (Very Small Aperture Terminals).
Stock split: This refers to the splitting shares of the company by way of reducing face value of the share. The equity capital remains the same after the split. The total numbers of outstanding shares get increased and the face value per share gets decreased. The process is expected to improve liquidity in the stock.
Trade: As soon as a buy order matches with a sell order following the price-time priority logic, a trade takes place. The system automatically generates a unique trade number for each trade.
Trading for delivery: Trading conducted with an intention to take or make delivery of the shares as opposed to taking up a position and squaring off within the settlement.
Trading Members: There are the persons authorized to place orders in the Capital Market System and is a member of stock exchange like BSE/NSE. They are also termed as broker or brokerage house.
Trailing P/E: Price/earnings ratio, using earnings for the four most recently completed quarters.
Trailing EPS: Earning Per Share for the four most recently completed quarters.
Tick Price/Size: This is the minimum price movement for a futures contract.
Underwriting: Under writing is a kind of guarantee provided by an underwriter wherein the underwriter agrees to purchase a certain number of shares in the event the issue is under-subscribed. For this, the underwriter charges a certain fee from the issuer.
Unit: A quantity generally accepted as a standard for exchange.
Unlimited risk: This refers to the investment avenue where the loss potential is unlimited. For example short selling and futures
Unlisted securities: A security, which is not traded on any exchange, may be due to an inability to meet listing requirements.
Unsystematic Risk: This is the part of the total risk that is peculiar to a particular company. This risk could arise due to company specific factors like operational factors, financial distress, labor turnover etc. This type of risk can be reduced to a great extent with the help of diversification.
Value Investment:This refers to the investment style that attempts to pick those stocks that are traded below the intrinsic value and, hence, considered as undervalued. Fundamentalists often make recommendations of value investment.
Volatility: This refers to the rate by which the price of a security fluctuates in changing market conditions. Higher the volatility, the more risky will be the stock.
Volumes: This refers to the total number of shares that are traded in a particular counter in a definite period of time, generally one day. This is important information used in explaining and interpreting price fluctuations. More volumes indicate the greater liquidity in the counter.
Variation Margin: This is the payment made to the broker in order to restore or maintain initial margin on adverse positions resulting from adverse price movements in futures/options transactions.
Venture capital firm: An investment company that invests money in new ventures and other risky projects in anticipation of higher returns
Voting right: It is right given to the common stock shareholder to vote, in person or by proxy, for members of the board of directors and other matters of corporate policy, such as the issuance of senior securities, stock splits and substantial changes in operations in the annual general meeting.
Warrant: A relatively long-term option to purchase equity stock & a specified exercise price over a specified period of time.
Yield: This refers to the annual rate of return on an investment and is expressed as a percentage. In case of securities, the yield can be calculated as annual dividends received divided by the purchase price. The only drawback with it is that it does not take into account the capital appreciation.
Zero Coupon Bond: This is a kind of debt instrument that does not carry any interest or coupon attached to it. Rather it is sold at a heavy discount to the face value and provides a capital appreciation to the investor at the time of redemption. The difference between the discounted price and the maturity value represents the gain to the investor.