Accounts Payable – A current liability of a company owed to creditors and/or suppliers for goods and services obtained in the normal course of business operations.
Accounts Receivable – Current assets owed to a company for services or goods sold to customers on credit terms.
Accredited Investor – A person or institution deemed capable of understanding and able to afford the financial risks associated with purchasing securities. Individuals need a net worth exceeding $1 million or income over $200,000 annually in the past two years and a reasonable expectation of the same income level in the current year.
Acquisition – The process of one firm or company buying another firm or company, with the intention of increasing shareholder value.
Additional paid-in Capital – Capital received from investors in exchange for stock, as distinguished from capital generated from operations. The paid-in capital includes capital stock and contributions of stockholders credited to accounts other than capital stock, such as an excess over par value received from the sale or exchange of capital stock. It would also include surplus resulting from re-capitalization. Additional paid-in capital is sometimes classified simply as paid-in capital, paid-in surplus, or capital surplus.
Affiliated Person – Individual in a position to exert direct influence on the actions of a corporation. Among such persons are owners of 10% or more of the voting shares, directors, and senior elected officers and any persons in a position to exert influence through them-such as members of there immediately family and other close associations.
All-or-None (AON) – A type of order instructing the exchange or market maker to execute the entire order quantity at the stated price (or better) or none of it.
American Depositary Receipt (ADR) – A negotiable certificate held in an U.S. bank representing a specific number of shares of a foreign stock traded on an U.S. stock exchange.
American Depositary Share (ADS) – The share issued under an ADR agreement, which is actually traded.
American Stock Exchange (AMEX) – The second largest floor-based securities exchange in the United States. It has significant presence in both listed equities and derivative securities. Amex had long been on the leading edge of exchanges worldwide in trading-floor technology, service to its listed companies, and innovative new product development. The National Association of Securities Dealers, Inc., in 1998, acquired it.
Annual Percentage Yield (APY) – The total income an investment earns per year. The APY generally represents the total earnings of a cash account such as a money market fund or savings account, though forms only part of the returns from stocks and bonds, which can also experience capital growth.
Annual Report – An audited report of a corporation’s year-end financial results and operations filed annually with the SEC. The report contains detailed information related to the company’s financial condition, legal liabilities and plans for the upcoming year. Shareholders may obtain a free copy of this report from the corporation.
Arbitrage – Profiting from differences in the price of a single security that is traded on more than one market or completing an acquisition.
Ask (Asked Price) – The price at which a Market Maker is willing to sell a security.
Asset - 1) Any holding that has monetary value, such as a house, a car or jewelry. Financial assets include stocks, bonds and real estate. 2) Anything owned that could, in theory, be sold or otherwise converted into money (such as homes, cars, boats, jewelry or stocks). The asset value of an object may be more or less than the price paid for it, and not all things purchased are “assets” in the monetary sense. A college education may be a career asset, but since it can’t be cashed in; it’s not a financial asset.
Asset Allocation – The percentage breakdown of how assets are invested in a portfolio. The primary asset categories of a portfolio are cash, bonds and stocks.
Auction (Treasury) – The issuance of new Treasury bills, notes, and bonds at stated intervals by the Federal Reserve.
Automated Clearing-House (ACH) – A method of transferring funds. Member banks wire instructions to the automated clearing-house that will then wire to the appropriate receiving bank.
Bad Debt – An open account balance or loan receivable that has proven to be uncollectible and is written off.
Balance Sheet – An accounting statement reflecting the firm’s financial condition in terms of assets, liabilities, and net worth (ownership). In a balance sheet, Net Worth = Assets + Liabilities.
Bankruptcy – The financial state of being unable to pay debts. Federal bankruptcy laws provide for either the reorganization or liquidation of corporate business and assets to pay some creditors.
Basis – The total cost an investor pays to acquire a security or asset. For tax purposes it is used to determine capital gains or losses when the asset is sold.
Bear – An investor who believes a stock or the overall market will decline.
Bear Market – A bear market is one in which prices are low or declining.
Bid – The highest price anyone has declared that they are willing to pay for a security.
Bid/Ask Size – The number of shares a buyer is willing to purchase at the quoted bid price and the number of shares offered for sale at the quoted ask price. 500/100.
Block – A large number of shares of a security, usually more than 10,000, traded in a single transaction, usually by institutions.
Blue-Chip – A term generally applied to stocks of well-established companies that are known for their long-standing track records.
Bond – A debt instrument; a security that represents the debt of a corporation, a municipality of the federal government, or any other entity. A bond is usually long-term in nature (10 to 30 years) and is to be repaid to investors on a specified date.
Book Value – A value computed by subtracting the total liabilities from the value of all assets on the balance sheet, then dividing by the number of common shares. This is an accounting term that has no relation to the securities market value.
Breakout – A rise in a security’s price above a resistance level (commonly its previous high price) or drop below a level of support (commonly the former lowest price.) A breakout is taken to signify a continuing move in the same direction. Breakout can be used by technical analysts as a buy or sell indication.
Bull – An investor who acts as though the market or the price of a security will rise.
Bull Market: A bull market is one in which stock prices are high or rising.
Bullish – A term used to describe rising security prices.
Business Day – A day on which the exchanges are open for business.
Buyout – The purchase of a controlling interest (or percent of shares) of a company’s stock.
Capital – The total amount of money invested in a firm or money accumulated and available to be used to produce more money.
Capital Asset Pricing Model (CAPM) – A sophisticated model of the relationship between expected risk andexpected return. The model is grounded in the theory that investors demand higher returns for higher risks. style=”mso-spacerun: yes”> It says that the return on an asset or a security is equal to the risk free return-such as the return on a short-term treasure security-plus a risk premium.
Capital Expenditures – The amount used during a particular period to acquire long-term assets such as property, plant, or equipment.
Capital Gain – A profit resulting from the sale of tangible property. Capital assets which are owned for one year or less produce short-term capital gains; those that occur in periods longer than one year are long-term capital gains. Short-term and long-term capital gains are treated differently for tax purposes.
Capital Growth – The amount an investment increases in value when either its price rises or its profits are reinvested.
Capitalization – The total dollar value of all common stock, preferred stock, and bonds issued by a corporation.
Capital Loss – A loss resulting from the sale of tangible property. Losses are categorized as long or short-term.
Capital Stock – The common and preferred stock of a company.
Cash – Readily available coins and currency.
Cash Basis – Accounting method that recognizes revenues when cash is received and recognizes expenses when cash is paid out. In contrast, the accrual method recognizes revenues when goods or services are sold and recognizes expenses when obligations are incurred. A third method, called modified cash basis, uses accrual accounting for long-term assets and is the basis usually referred to when the term cash basis is used.
Cash Dividend – A dividend paid in cash to a company’s shareholders. The amount is normally based on profitability and is taxable as income.
Cash and Equivalents – The value of assets that can be converted into cash immediately, as reported by a company. Usually includes bank accounts and marketable securities, such as government bonds and banker’s acceptances.
Cash Flow – The cash received from investments or generated by a business, within a period of time, less any cash expenditures.
Cash Transaction – A settlement on the same day as the trade date.
Certificate – The physical document evidencing ownership of a stock or a bond.
Changes in Financial Position – Sources of funds internally provided from operations that alter a company’s cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.
Chicago Board Options Exchange (CBOE) – Listed option trading was originated by this marketplace on April 26, 1973.
Chicago Board of Trade (CBT) – A major commodity exchange located 141 East Jackson Boulevard, Chicago IL.
Clearing Corporations – A central reception and distribution center operated for its members who are made up of various brokerage firms. Many offer automated systems that expedite trade comparison, settlement and assignment procedures. Among these are the NSCC (National Securities Clearing Corp.) and OCC (Options Clearing Corporation).
Close – The price of the last transaction of a security on a particular trading day.
The Committee on Uniform Security Identification Procedure (CUSIP) – An interindustry security coding service. Each type of security has its own unique CUSIP number.
Common Stock (Shares) – Units representing ownership of a corporation. If the company is liquidated, the claims of its creditors and owners of bonds or preferred stock take precedence over the common stockholders; common stock usually has more potential for appreciation.
Confidence Indicator – A measure of investors’ faith in the economy and the securities market. A low or deteriorating level of confidence is considered by many technical analysts as a bearish sign.
Confirmation – The written acknowledgement of a securities transactions which provides the investor with important information regarding the transaction such as the settlement date, terms, price and commission.
Consideration – The money value of a transaction (number of shares multiplied by the price) before adding commission.
Control Person – A director, officer or other affiliate of the issuer or a stockholder who owns at least 10% of any class of outstanding stock.
Control Securities – Securities owned by one of those parties mentioned in Control Person.
Conversion Ratio – A relationship that determines how many shares of common stock will be received in exchange for each convertible bond or preferred share when the conversion takes place.
Convertible Preferred Stock – A preferred stock that may be converted into common stock of the same company at specific prices or rates.
Cooling-Off Period – The period, usually 20 days, between the filing of the registration statement on a new issue with the SEC and the effective date of the offering.
Corner a Market – To purchase enough of the available supply of a commodity or stock in order to manipulate its price.
Corporation – The most common form of business organization, and one which is chartered by a state and given many legal rights as an entity separate from its owners. Characterized by the limited liability of its owners, the issuance of shares of easily transferable stock, and existence as a going concern.
Cost of Goods Sold (COGS)-A figure representing the cost of buying raw materials and producing finished goods. Depreciation is considered a part of this cost, but is usually listed separately. Included in direct costs are clear-cut factors such as direct factory labor as well as others that are less clear cut, such as overhead. Cost of Sales is synonymous but used in accounting for non-manufacturing companies.
Current Assets – Value of cash, inventories, marketable securities, and accounts payable available for conversion into cash in less than one year.
Current Income – Regular income generated by investments (as opposed to capital growth).
Current Liabilities – The amount owed for salaries, accounts payable, interests, and other debts due within one year.
Current Portion of Long-Term Debt – A numerical term on an income statement that represents the original long-term bonds and other loans of a company that come due during the next year.
Current Ratio – An indicator of short-term debt-paying ability. It is determined by dividing current assets by current liabilities. The higher the ratio, the more liquid the company.
Current Yield – The coupon rate of a bond or note divided by the market price of the bond or note.
Cyclicals – Stocks that move up or down in sync with the business cycle. Examples include the housing industry and industrial equipment companies. These stocks will experience fluctuation that reflects the seasonal characteristics of a business or industry.
Day Order – An order that, if not executed on the day it is entered, expires at the close of that day’s trading.
Day Trade – The buying and selling of the same security on the same day.
Dealer – An individual or entity, such as a securities firm, when it acts as a principal and stands ready to buy and sell for its own account. More generally, an individual or entity which buys and sells products and holds an inventory.
Debit Balance – The amount of loan in a margin account.
Debt/Equity Ratio – An indicator of financial leverage. Compares assets provided by creditors to assets provided by shareholders. It is determined by dividing long-term debt by common stockholders’ equity.
Declaration Date – The date on which a firm’s directors meet and announce the date and amount of the next dividend.
Deferred (Income) Taxes – A non-cash expense that provides a source of free cash flow. An amount allocated during the period to cover tax liabilities that have not yet been paid.
Deflation – A decline in prices of goods and services. Deflation is the reverse of INFLATION; it should not be confused with DISSINFLATION, which is the slowing down of the rate of increase of prices.
Delisting – The removal of a company’s security from an exchange because the firm did not abide by some regulation or the stock fails to meets certain listing requirements.
Depression – Economic condition characterized by falling prices, reduced purchasing power, an excess of supply over demand, rising unemployment, accumulating inventories, deflation, plant contraction, public fear and caution, and a general decline in business activity.
Depreciation - 1) A non-cash expense that provides a source of free cash flow. 2) The amount allocated during the period to amortize the cost of acquiring long-term assets over the useful life of the assets.
Dilution – Diminution in the proportion of income to which each share is entitled.
Director - 1) A corporate board member elected by stockholders. 2) An individual elected by a fund’s shareholders to oversee a fund’s management and to safeguard shareholders’ interest from possible abuses by those managing the fund.
Discount – When the market price of a newly issued security is lower than the issue price.
Disinflation – Slowing down of the rate in which prices are increasing.
Diversification – The process of dividing investments among a variety of securities having different risk and reward so as to minimize risk.
Dividend – Distribution to shareholders of cash or stock declared by the company’s board of directors.
Dividends – A portion of a corporation’s assets paid to stockholders on a per-share basis. Preferred stock is supposed to pay a regular and prescribed dividend amount. Common stock pays varying amounts when declared.
Dividends Per Share – Dividends paid for the past 12 months divided by the number of common shares outstanding, as reported by a company. The number of shares often is determined by a weighted-average of shares outstanding over the reporting term.
Dow Jones Industrial Average (DJIA) – The Dow Jones Industrial Average Index (DJIA) is a price-weighted average of 30 actively traded blue chip stocks, primarily industrials but including American Express, AT&T, and as of 2000, Microsoft. Prepared and published by Dow Jones & Co., it is the oldest and most widely quoted of all the market indicators. The components, which change from time to time, represent between 15 and 20 percent of the market value of NYSE stocks. The DJIA is calculated by adding the closing prices if the component stocks and by using a divisor that is adjusted for splits and stock dividends equal to 10 percent or more of the market value of an issue, as well as substitutions and mergers. The average is quoted in points, not in dollars.
Downgrade – A negative change in ratings for a stock and/ or other rated security by an analyst.
Downtick – A listed equity trade whose price is lower than that of the last different sale.
Due Diligence (Meeting) – The last meeting between corporate officials and underwriters prior to the issuance of the security. At the meeting, the content of the prospectus is discussed and relevant parts of the underwriting are put into place.
Dutch Auction – Auction system in which the price of an item is gradually lowered until it meets a responsive bid and is sold.
Earnings – Income of a business (revenue minus expenses).
Earnings Before Interest and Taxes (EBIT) – A financial measure defined as revenues less cost of goods sold and selling, and general and administrative expenses. In other words, operating and non-operating profit before the deduction of interest and income taxes.
Earnings Per Share (EPS) – Income (or earnings) for a specific period (usually a quarterly or a fiscal year period) divided by the average number of shares outstanding during that period.
Earnings Report – A corporate financial statement that reports and nets out all earnings and expenses to a profit or loss. It is therefore sometimes referred to as the profit and loss (P&L) or income statement.
Econometrics – Use of computer analysis and modeling techniques to describe in mathematical terms the relationship between key economic forces.
Effective Date – The date on which a company’s registration statement becomes effective with the regulatory agencies (SEC and state agencies), allowing it to begin selling its securities.
Equity - 1) The value of the common stockholders’ ownership in a company as listed on the balance sheet “shareholders equity” or an investment that involves ownership, as opposed to a loan such as a bond or IOU; often used interchangeably with “stock.”
Equity Options – An options contract that gives the holder the right to buy or sell a specified number of shares of stock at a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock.
Exchange – An organized marketplace in which stocks, common stock equivalents, and bonds are traded by members of the exchange, acting both as brokers and dealers/traders. Such exchanges have a physical location where brokers and dealers meet to execute orders from institutional and individual investors and to buy and sell securities.
Ex-Dividend Date - 1) The day on which the price of a security is reduced to reflect a recently declared dividend and the day which marks the first day on which the buyer of a security will no longer be entitled to receive the most recently announced dividend payment. A stock that has gone ex-dividend is marked with an “x” in newspaper listings.
Execution – The process of completing a securities trade. Settlement (payment and transfer of ownership) occurs between one and five days after an order is executed, depending upon the security traded.
Exercise – To implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of a put) the underlying security.
Exercise Price – The stated price per share at which the underlying asset may be traded between the holder and writer of the options contract.
Ex-Rights Date – The date after which stocks are traded without subscription rights.
Ex-Warrants Date – The date after which stocks are traded without buyers being entitled to warrants which are to be distributed.
Federal Deficit – Federal shortfall that results when the government spends more in a fiscal year than it receives in revenue.
Federal Funds Rate – Interest rate charged by banks with excess reserves at Federal Reserve district bank to banks needing overnight loans to meet reserve requirements.
Federal Reserve Board – The governing body of the Federal Reserve System. Board member actions help shape government monetary policy, most notably interest rates, and the U.S. economy.
Federal Reserve System – The nation’s central monetary authority and the Treasury Department’s agent for selling new issues of Treasury bills, notes, and bonds.
Fill or Kill (FOK) – An order that requires execution of the entire quantity immediately at the specified price. If not, the order is canceled.
Final Dividend – The dividend paid by a company at the end of its financial year, recommended by the directors but authorized by the shareholders at the company’s annual general meeting.
Financial Structure – Makeup of the right-hand side of a company’s balance sheet, which includes all the ways its assets are financed, such as trade accounts payable, and short-term borrowings, as well as log-term debt equity ownership.
Fiscal Year – The twelve-month period during which a business or government maintains its financial records. Since this cycle does not have to coincide with the calendar year, it is known as the fiscal year.
First-In, First-Out (FIFO) – Method of accounting for inventory whereby, quite literally, the inventory is assumed to be sold in the chronological order in which it was purchased.
Fiscal Year – Accounting period covering 12 consecutive months, 52 consecutive weeks, 13 four-week periods, or 365 days, at the end of which the books are closed and profit or loss is determined. style=”mso-spacerun: yes”> A company’s fiscal year is often, but not necessarily, he same as the calendar year.
Fixed Asset – Tangible property used in the operations of a business, but not expected to be consumed or converted into cash in the ordinary course of events.
Form 3 – Form filed with the SEC and the pertinent stock exchange by all holders of 10% or more of the stock of a company registered with the SEC and by all officers and directors even if no shares are owned. Form 3 details the number of shares owned as well as the number of warrants, rights, convertible bonds, and options to purchase common stock. Individuals required to file Form 3 are considered insiders, and they are required to update their information whenever changes occur. style=”mso-spacerun: yes”> Such changes are reported on form 4. style=”mso-spacerun: yes”>
Form 4 – Document filed with the SEC and the pertinent stock exchange, which is used to report changes in the holdings of all holders of 10% or more of the stock of a company registered with the SEC and by all officers and directors even if no shares are owned. When there has been a major change in ownership, Form 4 must be filed within ten days of the end of the month in which the change took place. Form 4 filings must be constantly updated during a takeover attempt of a company when the acquirer buys more than 10% of the outstanding shares.
Form 8K – SEC required form that a publicly held company must file, reporting on any material event that might affect its financial situation or the value of its shares, ranging fm merger activity to amendment of the corporate charter or bylaws. The SEC considers as material all matters about which an average, prudent investor ought reasonable to be informed before deciding whether to buy, sell, or hold a registered security. Form 8K must be filed within a month of the occurrence of the material event. Timely disclosure rules may require a corporation to issue a press release immediately concerning an event subsequently reported on Form 8K.
Form 10K – An audited report of a corporation’s year-end financial results and operations filed annually with the SEC. The report contains detailed information related to the company’s financial condition, legal liabilities and plans for the upcoming year. Shareholders may obtain a free copy of this report from the corporation.
Form 10Q – An unaudited financial report submitted on a quarterly basis to the SEC by any public companies whose securities are listed with the SEC. The report contains financial and other relevant information.
Fourth Market – Large Block trades that occur directly between institutional investors on a system named Instinet.
Free Cash Flow – Indicator of liquidity. Amount of cash produced or consumed by a company for a specific period. Useful in determining the company’s ability to meet obligations, pay dividends and fund business expansion.
Fully Diluted Earnings per Share – Earnings per share expressed as if all outstanding convertible securities and warrants have been exercised.
Fully Diluted Shares Outstanding – All shares outstanding including common stock, warrants, and convertible securities.
Fundamental Analysis – The analysis of balance sheet and income statements of companies to order to forecast their future stock price movements. Fundamental analysts consider past records of assets, earnings, sales, products, management, and markets in predicting future trends in these indicators of a company’s success or failure.
Futures – Agreement to buy or sell a predetermined amount of a commodity or financial instrument at a certain price on a stipulated date.
Good ‘Til-Canceled (open) Order (GTC) – An order that does not expire at the end of the day it is entered. Instead, it remains in force until it is either executed or canceled. Ameritrade cancels all GTC orders at the end of the next month after the order has been placed.
Goodwill – Excess of the purchase price over the fair market value of the net assets acquired under purchase accounting.
Gross National Product (GNP) – The total value o goods and services produced in the U.S. economy over a particular period of time, usually one year. GNP is made up of consumer and government purchases, private domestic and foreign investments in the U.S., and the total value of exports. Figures for GNP on an annual basis are released every quarter, as is an inflation-adjusted version, called Real GNP.
Gross Profit – Numerical term on an income statement that is the subtraction of costs of goods sold from revenues. It shows how much the company would have made if it did not have any other expenses or taxes.
Growth Stock – Stock of a company in a new industry or of a company participating in an emerging industry.
Hedge – To reduce the risk in one security by taking an offsetting position in a related security.
High – The highest closing price of a stock over the past 52 weeks, adjusted for any stock splits.
Holding Company – A corporation that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors.
Hot Issue – Newly issued stock that has great public demand.
Hypothecation – A brokerage firm’s pledging of margin securities at a bank to secure the funds necessary to carry an account’s debit balance.
Income Before Taxes – Numerical term on an income statement which is the sum of all sales and profits before the subtraction of taxes. It shows how much profit a company would have made without taxes.
Index – A market indicator, such as the NASDAQ, Composite, or the Dow Jones which represents a measure of the relative value of a combined group of stocks.
Indicated Yield – The yield based on the most recent quarterly rate times four. To determine the yield, divide the annual dividend by the price of the stock. The resulting number is represented as a percentage.
Industry – A category describing a company’s primary business activity. This usually is determined by the largest portion of revenue.
Inflation – The rate at which the general level of prices for goods and services is rising because demand is outstripping supply.
Inflation Risk – The risk that rising inflation will diminish the rate of real return an investor will realize over time.
Initial Public Offering (IPO) – A private company’s first public sale of a specific class of security, usually common stock whether by an underwriter or a direct public offering (DPO).
Inside Information – Relevant information about a company that has not yet been made public. It is illegal for holders of this information to make trades based on it.
Insider – A person with nonpublic information on a corporation. Directors, officers and stockholders owning more than 10% of any one class of stock are usually considered insiders.
Insider Dealing – The purchase or sale of shares by someone who possesses “inside” information about the company; i.e., information on the company’s performance and prospects which has not yet been made available to the market as a whole and which, if available, might affect the share price.
Intangible Asset – Right or non-physical resource that is presumed to represent an advantage to the firm’s position in the marketplace. Such assets include patents, trademarks, goodwill, computer programs, capitalized advertising costs, organization costs, licenses, leases, franchises, exploration permits and import and export permits.
Interest – The cost of borrowing money expressed as a percentage rate over a specified amount of time. Also, a share or title in property.
Interest Expense – In a corporate setting, interest expense is the money the company or corporation pays out in interest on loans.
Interest Rate – The amount charged by a lender for borrowing money, not including fees. Interest rates are generally fixed at a certain level for the entire length of a loan, though they can also vary over time.
Interest Rate Risk – The prospect that Treasury and agency securities will decline in price if economy-wide interest rates rise.
In-the-Money – A term used to describe options that the holder would profit from exercising. A “call” option is in-the-money if the strike price is less than the market price of the underlying security. A “put” option is in-the-money if the strike price is greater than the market price of the underlying security. For example, a XYZ “call” option with a 52 strike price is in-the-money when XYZ trades at 52.125 or higher. A XYZ “put” option with a 52 strike price is in-the-money when XYZ is trading at 51.875 or lower.
Intrinsic Value – The valuation determined by applying data inputs to a valuation theory or model.
Inventory/Inventories – For companies, raw materials, items available for sale or in the process of being made ready for sale. They can be individually valued by several different means, including cost or current market value, and collectively by first-in-first-out (FIFO), last-in-first-out (LIFO) or other techniques. The lower value of alternatives is usually used to preclude overstating earnings and assets. For security firms, securities bought and held by a broker or dealer for resale.
Issued and Outstanding – Shares of a corporation, authorized in the corporate charter, which have been issued and are outstanding. These shares represent capital invested by the firm’s shareholders and owners, and may be all or only a portion of the number of shares authorized. Shares that have been issued and subsequently repurchased by the company are referred to as treasury stock.
Keynesian Economics – Body of economic thought originated by the British economist and government adviser, John Maynard Keynes (183-1946), whose landmark work, The General Theory of Employment, Interest and Money, was published in 1935. Writing during the Great Depression, Keynes took issue with the classic economists, like Adam Smith, who believed that the economy worked best when left alone. Keynes believed that active government intervention in the marketplace was the only method of ensuring economic growth and stability.
Last – The price at which the security last traded.
Last-in First-Out (LIFO) – Method of accounting for inventory that ties the cost of goods sold to the cost of the most recent purchases.
Laissez-Faire – Doctrine that interference of government in business and economic affairs should be minimal. Adam Smith’s The Wealth of Nations (1776) described laissez-faire economics in terms of an “invisible hand” that would provide for the maximum good for all, if businessmen were free to pursue profitable opportunities as they saw them.
Leading Indicators – Components of an index released monthly by the U.S. Commerce Department’s Bureau of Economic Analysis. The components in the 1985 index were average work week of production workers, average weekly claims for state unemployment insurance, new orders for consumer goods and materials, vendor performance, net business formation, contracts for plant and equipment, new building permits, inventory changes, sensitive material prices, stock prices, money supply (M2), and business and consumer borrowing.
Liability - 1) An obligation, to pay a debt owed or to fulfill a legal duty or responsibility. 2) Any claim against a corporation, including accounts payable, salaries payable and bonds.
Limit – In relation to dealing instructions, a restriction set on an order to buy or sell, specifying the minimum selling or maximum buying price.
Limit Order – An order which sets the highest price the client is willing to pay for a buy order, or the lowest price the client is willing to accept for a sell order. Buy orders may be executed at or below the limit price, but never higher. Sell orders may be executed at or above the limit price, but never lower.
Liquid Asset – Cash or investment easily converted to cash without eroding value.
Liquidity – The degree of ease with which an investor can convert an asset into cash.
Listed Securities – Securities that trade on a national exchange.
Listed Stock – Stock that has qualified for trading on an exchange.
Long Position – Occurs when an individual owns securities. An owner of 100 shares of stock is said to be “long the stock.”
Long-Term Assets – Value of property, equipment and other capital assets minus the depreciation. This is an entry in the bookkeeping records of a company and does not necessarily reflect the market value of the assets.
Long-Term Debt – An obligation having a maturity of more than one year from the date it was issued.
Long-Term Debt/Capitalization – An indicator of financial leverage. Shows long-term debt as a proportion of the capital available. Determined by dividing long-term debt by the sum of long-term debt, preferred stock and common stockholders’ equity. In strategic investing, industry value represents the sum of long-term debt for all companies within the same industry divided by the sum of the capitalization for those companies.
Long-Term Liabilities – Amount owed for leases, bond repayment and other items due after one year.
Macroeconomics – Analysis of a nation’s economy as a whole, using such aggregated data as price levels, unemployment, inflation, and industrial production.
Majority Shareholder – One of the shareholders who together control more than half the outstanding shares of the corporation.
Make a Market – Refers to brokerage firms that submit a quote to buy and sell a particular security for their own accounts and at their own risk.
Market Capitalization – Also known as market cap. The total dollar value of all outstanding shares. Computed as shares x current market price. It is a measure of corporate size.
Market Maker – A broker-dealer that quotes firm bid and ask prices in a given security and stands ready to buy or sell a stock at publicly quoted prices in the over-the-counter market in a minimum amount of 100 shares.
Market Order – An order to be executed at the best available market price when received by the exchange or market maker. The order instructs the immediate execution of the trade without regard to price.
Market Risk – Risk experienced from daily fluctuations in the price of a security.
Marketable Securities – A security that may be resold, usually in the secondary market.
Merger – The combining of two or more entities into one, through a purchase acquisition or a pooling of interests. Differs from a consolidation in that no new entity is created from a merger.
Micro-Cap Stocks – Stocks of emerging companies typically with a market capitalization less than $250 million. They offer explosive growth potential, but carry a speculative risk factor.
Mid-Cap Stocks – Stocks of medium-sized companies typically with a $1 to $5 billion market capitalization. They offer growth potential with the stability of a larger company.
Minority Interest – An outside ownership interest in a subsidiary that is consolidated with the parent for financial reporting purposes.
Money Supply – Total stock of money in the economy, consisting primarily of (1) currency in circulation and 2) deposits in savings and checking accounts. Essentially, the various forms of money are grouped into two broad divisions: M1, M2, M3 and L, representing longer-term liquid funds.
Mutual Fund – Fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, commodities or money market securities.
M1 – Currency in circulation, commercial bank deposits, NOW and ATS accounts, credit union share drafts, mutual savings bank demand deposits;
M2 – M1 plus, overnight repurchase agreements, overnight Eurodollars, savings accounts, time deposits under $100,000, money market mutual fund shares;
M3 – M2 plus, time deposits over $100,000, term repurchase agreements; and
National Association of Securities Dealers (NASD) – A self-regulating organization composed of broker/dealers which the SEC recognizes as a substitute for government regulation. Testing of individual brokers and operating requirements for broker/dealers are administered by the NASD.
National Association of Securities Dealers Automated Quotation System (NASDAQ) – The NASDAQ is a computer operated and owned by NASDAQ that provides dealers with price quotations for stock and securities traded on the NASDAQ. Stocks on the NASDAQ feature many new and volatile corporations and many of them relatively new.
National Securities Clearing Corporation (NSCC) – A major clearing corporation offering many services to the brokerage community, including comparison of NYSE, AMEX, and over-the-counter transactions.
Negative Cash Flow – Situation in which a business spends more cash than it receives through gross profit or other transactions during an accounting period.
Net Income – A company’s total earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest, taxes, and other expenses.
Net Present Value (NPV) – Method used in evaluating investments whereby the net present value of all cash outflows (cost of the investment) and the cash inflows (returns) is calculated using a given discount rate, usually required return of return.
New Issue – The stock of a company that is now going, or has just gone, public
New Shares – Shares newly issued by a company.
New York Stock Exchange (NYSE) – The NYSE is the oldest, largest and most honored exchange in the United States. The NYSE is sometimes referred to as the Big Board. Thousands of larger companies are listed on this exchange and it has many operating divisions composed of marketers, legal experts, developers, planners, and economists. The NYSE is considered to be one of the more economic “indicators.”
Non-cumulative Preferred Stock – A type of preferred stock that does not pay back dividends to its holders.
Notes Payable – Numerical term on an income statement that generally represents short-term debt such as lines of credit or commercial paper.
Offer – The lowest price at which the market maker will sell shares of a security to investors.
Offer for Sale – A method of bringing a company to the market. The public can apply for shares directly at a fixed price. A prospectus containing details of the sale must be printed in a national newspaper.
Offer Price – The price at which the market maker will sell shares to investors.
Opening Purchase – A transaction in which the purchaser’s intention is to create or increase a long option position.
Opening Transaction – Refers to a client either buying or selling an option contract to open a new position.
Open Interest – The number of outstanding option contracts in the exchange market in a particular class or series.
Operating Profit (or Loss) – The difference between the revenues of a business and the related costs and expenses, excluding income derived from sources other than regular activities and before income deductions.
Operating Ratio – Any group of ratios that measure a firm’s operating efficiency and effectiveness by relating income and expense figures from the profit and loss statement to each other and to balance sheet figures.
OTC Bulletin Board (OTCBB) – Offers electronic distribution of quotes, but is considered to be a lower-level tier.
Over-the-Counter Market (OTC) – Comprised of a network of telephone and telecommunication systems over which unlisted securities and other issues trade.
Over-The-Counter Stock: A stock that is traded electronically among a group of broker/dealers instead of an exchange like the NYSE or AMEX. The Over-The Counter Market is currently divided into four ‘tiers”.
Pacific Clearing Corporation (PCC) – The clearing corporation of the Pacific Stock Exchange.
Pacific Stock Exchange (PSE) – This exchange operates in San Francisco and Los Angeles.
Paid-in Capital – Capital received from investors in exchange for stock, as distinguished from capital generated from earnings or donated.
Par – Face value, the nominal value of a security.
Par Value – A value that a corporation assigns to its security for bookkeeping purposes.
PE (Price/Earnings Ratio) – The current share price divided by the last published earnings per share, where earnings per share is net profit divided by the number of ordinary shares.
Penny Stocks – Extremely low-priced securities (traditionally under $1.00) that trade on the over the counter market.
Philadelphia Stock Exchange (PHLX) – An equities and options exchange located in Philadelphia.
Pink Sheets – These are the bottom-tier stocks, with limited distribution of electronic quotes. Companies that trade here aren’t required to file financial information with the SEC.
Poison Pill – Strategic move by a takeover-target company to make its stock less attractive to an acquirer.
Portfolio - The combined holdings of more than one stock, bond commodity, real estate investment, or other assets by an individual or institutional investor.
Preemptive Right – A right, sometimes required by the issuer’s corporate charter, by which current owners must be given the opportunity to maintain their percentage ownership if additional shares of the same class are issued. Additional shares of the soon-to-be issued security are offered to current owners in proportion to their holders before the issue can be offered to others. Usually one right is issued for each outstanding share. The rights are used to subscribe to the additional shares at a predetermined cash amount.
Preferred Stock – Stock that represents ownership in the issuing corporation and that has prior claim on dividends. In the case of bankruptcy, preferred stock has a claim on assets ahead of common stockholders. The expected dividend is part of the issue’s description.
Price/Earnings Ratio (PE) – Shows the “multiple” of earnings at which a stock sells. Determined by dividing current price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio is determined by dividing earnings for the past 12 months by the number of common shares outstanding.
Primary Market – The initial offering of certain debt issues.
Private Company – A company that does not offer an ownership interest to the general public.
Private Placement – A nonpublic offering of securities exempt from full SEC registration requirements that is usually made directly by the issuing company but may also be made by an underwriter.
Privatization – Conversion of a state-run company to a public-limited company, often accompanied by a sale of its shares to the public.
Profit Margin – An indicator of profitability. Determined by dividing net income by revenue for a specific period. The result is usually shown as a percentage.
Profitability Margins – Numerical term found on an income statement calculated by dividing numbers such as Cash Flow, Operating Income, Gross Income or Net Income by the Revenues of the Company.
Program Trading – Trades based on signals from computer programs, usually entered directly from the trader’s computer to the market’s computer system and executed automatically.
Proprietary Software – Software for which a company has exclusive rights. Some companies will only allow the investor to transact business with them through the use of their proprietary software, while others simply offer its use for one’s convenience.
Prospectus – The official offering document that is part of the registration statement filed with the SEC in conjunction with a public offering of fully registered securities.
Proxy – Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholder meeting. Includes information on closely held shares. Shareholders can and often do give management their proxy and the right to vote their shares.
Proxy Fight – An attempt by a dissident group to take over the management of a corporation. The group sends proxies electing them to the board; the current management sends proxies favoring them. The shareholders cast their votes by selecting one proxy or the other.
Public Market – The listed exchanges through which zero-coupon investments can be purchased and sold.
Public Offering Date – The first day the new issue is offered to the public, on or shortly after the effective date.
Quarterly Report – A report submitted on a quarterly basis fulfilling an SEC requirement stating that all public companies must report relevant information about themselves on a timely basis to all interested parties. Also known as a Form 10Q.
Quote – The highest bid and lowest offer on a given security at a particular time.
Rate of Return – The percentage gain or loss for a mutual fund in a specific time period. This number assumes that all distributions are reinvested at the current rate of return. Annualized return is a compounded yearly rate.
Ratio Analysis – Method of analysis, used in making credit and investment decisions, which utilizes the relationship of figures found in financial statements to determine values and evaluate risks and compares those ratios to prior periods and those of other companies in the same industry.
Real-Time Quote – A real-time stock or bond quote is one that states a security’s most recent offer to sell or bid (buy). A delayed quote shows the same bid and ask prices 15 or 20 minutes after a trade takes place.
Record Date – A date established by a corporation’s board of directors, for administrative purposes only, that marks when a shareholder must own shares in order to be entitled to a dividend. For example, a firm might declare a dividend on Nov. 1 payable Dec. 1 to holders of record Nov 15.
Red Herring – The preliminary prospectus. The name comes from the advisory that is printed on the face of the prospectus in red ink.
Registered Form – The recording of a security’s ownership on the issuer’s central ledger. Anyone delivering the security must prove that he or she is, in fact, the person to whom the securities are registered.
Registration Statement – A document filed with the Securities and Exchange Commission (SEC) explaining an impending issue and pertinent data about the issuer. Based on the information provided, the SEC either permits or prevents the issue from being offered.
Regular Way – Settlement on the third business day following the trade date.
Regulation A – A SEC regulation governing the issuance of new securities.
Regulation T - A SEC regulation that governs the lending of money by brokerage firms to its clients.
Required Rate of Return – The return required by investors for any given level of risk.
Restricted Securities – Unregistered securities acquired in a transaction that does not involve a public offering.
Retained Earnings – Accounting earnings that are retained by the firm for reinvestment in its operations; earnings that are not paid out as dividends.
Return – The money that an investment earns over a certain period of time. Lower-risk investments generally earn low or moderate returns. Higher returns require investors to take more risk.
Return On Assets (ROA) – An indicator of profitability. Determined by dividing net income for the past 12 months by total assets. The result is usually expressed as a percentage.
Return On Equity (ROE) – An indicator of profitability. Determined by dividing net income for the past 12 months by common stockholder equity (adjusted for stock splits). The result is shown as a percentage. Investors use ROE as a measure of how a company is using its money. ROE may be decomposed into return on assets (ROA) multiplied by financial leverage (total assets/total equity).
Revenues – How much a company made from selling its products and/or services.
Reverse Stock Split – A proportionate decrease in the shares of stock held by stockholders. For example, a 1-for-3 split would result in the stockholders owning 1 share for every 3 shares owned before the split. A company generally institutes a reverse split in order to increase the market price of its stock.
Right – A certificate showing a stockholder has the privilege of purchasing new securities in proportion to the number of shares already owned before the general public.
Rights Arbitrage – The simultaneous purchase and sale of different securities in anticipation of a merger or tender offer.
Rights Issue – An invitation to existing shareholders to purchase additional shares in the company.
Rights Offering – Offering of common stock to existing shareholders who hold rights that entitle them to buy newly issued shares at a discount from the price at which shares will later be offered to the public.
Risk – The inherent possibility that an investment will lose value. In general, the more risk an investor is willing to take, the more money he/she can make from an investment, especially over the long-term.
Road Show – The process preceding the initial public offering of a stock where bankers and company managers travel to present their company to possible investors with the purpose of gauging interest in the upcoming stock in order to set the opening price.
Rule 144 – Rule that governs the sale of control and restricted securities.
Russell 2000 Index – Measures the performance of 2,000 small-cap stocks.
Secondary Market – The trading market (aftermarket) for stocks after they have undergone an initial public offering.
Secondary Offerings – A term generally applied to an offering made after an initial public offering.
Sector/Specialty Stock Funds – Funds that invest in a particular industry or area of the market, such as financial, technology or precious metal stocks.
Sector Funds – Mutual funds that invest in specific industries, such as entertainment, energy or finance. Sector funds are generally higher-risk investments because of their lack of diversity.
Securities – Broadly includes common or preferred stocks and bonds, but can also include other types of financing instruments such as debentures, warrants, and convertible offerings.
Securities and Exchange Commission (SEC) – The federal agency responsible for the administration and enforcement of federal securities laws.
Securities Industry Automated Corporation (SIAC) – The computer facility and trade processing company for the NYSE, AMEX, NSCC, and PCC.
Securities Investor Protection Corporation (SIPC) – Non-profit organization consisting of members of the securities industry who support it on an assessment basis. If a member should fail, that member’s clients are protected up to a maximum of $500,000, including up to $100,000 in cash.
Segregation – The isolation of securities that the firm may not use for hypothecation or loan. The securities, which must be “locked up” by the firm, represent fully paid-for securities or the portion of a margin account in excess of loanable securities.
Self-Regulating Organization (SRO) – An organization recognized by the SIB and responsible for monitoring the conduct of business by, and capital adequacy of, investment firms.
Sell/Write – An advanced option order that combines the short selling of an equity and the selling of a put option on the same underlying stock.
Seller’s Option – A settlement that calls for delivery and payment according to the number of days specified by the seller.
Sell-Out – Occurs when a contract brokerage firm’s client incurs a margin or maintenance call and does not settle the balance by settlement date. The firm then sells the securities at the best price available and the buyer is held liable for the price and costs.
Selling Short – An investment strategy where the investor sells a stock they do not own with the intention of buying it back later at a lower price.
Settlement – When payment is made and the securities are delivered for a securities transaction.
Settlement Date – The date on which security transactions are settled. Settlement is generally made one to five business days after a trade is executed. For stocks, settlement is generally three business days after the trade. Options and mutual funds normally settle one day after the trade date.
Shareholders – Individuals or entities who own the securities (shares/stocks) of a company.
Shares Authorized – The number of shares of stock provided for in the articles of incorporation.
Share Repurchase – Program by which a corporation buys back its own shares in the open market. It is usually done when shares are undervalued. Since it reduces the number of shares outstanding and thus increases earnings per share, it tends to elevate the market value of the remaining shares held by stockholders.
Shell Corporation – A company that is incorporated but has no significant assets or operations.
Short Account – Account in which the client has sold short securities. Before a client may sell short, a margin account must be opened.
Short Position – A position in a client’s account in which the client either owes the firm securities or has some other obligation to meet.
Short Position (Stocks) – Occurs when a person sells stocks he does not yet own. Shares must be borrowed before the sale to make “good delivery” to the buyer. Eventually the shares must be bought to close out the transaction. This technique is used when an investor believes the stock price is going down.
Short Sale – The sale of securities that are not owned or which are not intended for delivery. The short seller “borrows” the stock to make delivery with the intent to buy it back at a later date at a lower price.
SIC – Abbreviation for Standard Industrial Classification. Each four-digit code represents a unique business activity.
Size – The number of shares available in a quote. For example, if the quote and size on a stock is 9.375 to 9.50 3×5, it means that the bid is 9.375, the offer is 9.50, 300 shares are bid, and 500 shares are offered.
Small-Cap Stocks – Stocks issued by companies that are valued at less than $1 billion. Small- cap stocks can offer high-growth opportunities, but often pay small dividends or none at all.
Speculation – Assumption of risk in anticipation of gain but not recognizing a higher than average possibility of loss. The term speculation implies that a business or investment risk can be analyzed and measured, and its distinction from investment is one degree of risk.
Spin Off – Giving a stock dividend in another CUSIP, usually a subsidiary.
Spread – The difference between the bid and offer sides of a quote.
Statement of Cash Flows – A financial statement showing a firm’s cash receipts and cash payments during a specified period.
Standard & Poor’s Corporation (S & P 500) – S&P 500: (Standard & Poor’s Corporation) A company well known for its rating of stocks and bonds according to investment risk (the Standard and Poor’s Rating) and for compiling the Standard & Poor’s Index-commonly called the Standard & Poor’s 500-that tracks 400 industrial stocks, 20 transportation stocks, 40 financial stocks, and 40 public utilities as a measurement indicative of broad changes in the market.
Stock - 1) A share in the ownership of a company. A company’s stocks can be issued privately or may traded publicly through a stock exchange. Stockholders are entitled to a portion of the company’s earnings and assets. 2) An investment product that represents part ownership in a corporation.
Stock Ahead – Refers to a limit order that has not been executed because of other orders at the same limit that were entered earlier.
Stock Dividend – Payment of a corporate dividend in the form of stock rather than cash. The stock dividend may be additional shares in the company, or it may be shares in a subsidiary being spun off to shareholders.
Stockholders’ Equity (Shareholders’ Equity) – A numerical term on an income statement that represents the amount of money invested in the company by shareholders.
Stock Split – The division of outstanding shares of a corporation into a larger number of shares. For example: in a 3-for-1 spilt, each holder of 100 shares before would now have 300 shares, although the proportionate equity in the company would remain the same.
Stop Order – A memorandum order that becomes a market order when the price is reached or passed. Buy stops are entered above the current market price; sell stops are entered below it.
Straddle – Simultaneous long or short positions of both put and call option contracts that have the same underlying security and same series designation.
Straight-Line Depreciation – A method of depreciating a fixed asset whereby the assets useful life is divided into the total cost less the estimated salvage value.
Street Name – A form of registration in which securities are registered in the name of a brokerage firm, bank, or depository; it is acceptable as good delivery.
Subordinated Debenture – A debenture whose claim to interest and principal of the corporation comes after those of regular debentures and other debt securities.
Subscription Right – A stockholder’s right to maintain his proportionate ownership in the company by being given the opportunity to buy newly issued stock before the general public.
Supply-Side Economics – Theory of economics that contends that drastic reductions in tax rates will stimulate productive investment by corporations and wealthy individuals to the benefit of society. Championed in the late 70’s by Professor Arthur Laffer and implemented by President Ronald W. Reagan.
Symbol – A designated letter abbreviation for a publicly traded company. These symbols are usually between one and four letters. Mutual fund abbreviations are five letters.
Takeover – The acquisition of control over a corporation by another company which normally ousts the current management. The takeover can occur by means of a proxy fight or the acquisition of a controlling quantity of common stock.
Tangible Asset – Any physical asset.
Technical Analysis – Research into the supply and demand for securities and commodities based on trading volume and price studies.
Tender Offer – The offer made by one company or individual for shares of another company. The offer may be in the form of cash or securities.
Ticker – A digital trading screen display showing information on the current option premiums, futures prices, and prices of the underlying assets as selected by the trader.
Time Horizon (Investment Horizon) – The expected length of time an investor allows in order to meet financial goals.
Total Return – All the money an investment earns over a period of time, including both dividends and capital growth. It’s a concept that’s especially important to long-term investors.
Total Revenue – Total sales and other revenue for a specific period.
Trade Date – The date on which a trade occurs. Trades generally settle (are paid for) one to five business days after a trade date.
Traded Options – Transferable options with the right to buy and sell a standardized amount of a security at a fixed price within a specified period.
Trading Range – The difference between the high and low prices traded during a period of time. With commodities, the high/low price limit established by the exchange for a specific commodity for any one day’s trading.
Transfer – The process by which securities are reregistered to new owners. The old securities are canceled and new ones issued to the new registrants.
Transfer Agent - 1) An entity that maintains the shareholder records and performs administrative and record keeping duties for a publicly traded corporation or mutual fund. 2) A commercial bank that retains the names and addresses of registered securities owners and that re-registers traded securities to the name of the new owners.
Turnover Ratio – A measure of a mutual fund manager’s trading activity during the previous year. This is expressed as a percentage of the average total assets of the fund. A turnover ratio of 25% means that the value of trades represented one-fourth of the assets of the fund.
Underwriter (Investment Banker) – In a municipal underwriting, a brokerage firm or bank that acts as a conduit by taking the new issue from the municipality and reselling it. In a corporate offering, the underwriter must be a brokerage firm.
Underwriting – The process by which investment bankers bring new issues to the market.
Underwriting Manager – In a negotiated underwriting, the investment banker whose client is the corporation wanting to bring out a new issue.
Unlisted Security – A security that has not been admitted to the Stock Exchange’s Daily Official List. Usually the issuer will be an unlisted company, but not always; it is not uncommon for a company to apply for its ordinary shares to be listed but not its loan stocks, or vice versa.
Volatility – A relative measure of a security’s price movement during a given time period. It is measured mathematically by the annual standard deviation of daily stock price changes.
Volume – The number of shares of a stock traded during expressed in hundreds. For example, if the volume shows 3,400 on a quote, 340,000 shares of stock were traded.
Voting Trust – The deposit of shares with a trustee to gain long-term corporate control.
Warrant – A security which entitles the owner to buy a specific amount of common stock at a specific price. Most warrants expire after a set number of years, but some have no expiration date. They typically originate as part of a new bond issue. Following issuance, however, warrants are freely and separately transferable on the major exchanges.
Weighted-Average Maturity – The arithmetic mean of maturities of securities held by a mutual fund.
White Knight – A company that rescues another in financial difficulty, especially one that saves a company from an unwelcome takeover bid.
Working Capital – Funds invested in a company’s cash, accounts receivable, inventory and other current assets.
Writer – The seller of an option contract.
Yield – The percentage rate of return paid on a stock in the form of dividends, or the effective rate of interest paid on a bond or note.
Yield Curve – A graph linking the term structure of interest rates and showing the general pattern of yields to maturity on Treasury obligations.