Referred to as the statement of financial position provides a snap shot of a company s assets, liabilities and equity at a particular point in time.

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1 Glossary Aggressive investor Balance sheet Bear market Typically has a higher risk appetite. They are prepared or can afford to risk much more and for this they stand to reap the big rewards. Referred to as the statement of financial position provides a snap shot of a company s assets, liabilities and equity at a particular point in time. A condition where there is wide-spread pessimism in the market, investors anticipate losses and sell their shares. This results in falling share prices. This market condition continues for more than two months. The term bear stems from how a bear attacks it sweeps its claw in a downward motion and this represents the downward movement of share prices in a bear market. Bonds Bull market Often a type of secured debt that is issued by government or private companies. A simple (i.e. vanilla) bond is one where an investor buys a bond from the issuer (e.g. private company) and receives regular interest payments (called coupons). At the end of the investment period (i.e. at maturity of the bond) the investor receives their full invested money (i.e. capital) A market condition where there is wide-spread optimism in the market it is a sustained trend where investors anticipate good financial results and buy shares. This results in share prices rising. The term bull stems from how a bull attacks it jolts its horns up in the air and this represents the upward movement of share prices in a bull market. Capital profit (or loss) Cautious investor Close out position Selling price minus the buying price (a negative answer indicates a capital loss while a positive answer indicates a capital profit). Typically one who is more focused on moderate returns which have a higher likelihood or probable outcome. They are most interested in what is safe, secure or tried and tested. If an investor buys or sells shares they have taken a position in the share. Traders would say they have an open position. For example, if a trader or investor has an open position created by buying a share, when they sell that share they have closed out the position. 1

2 Debt to equity ratio Discretionary account Diversification Dividend Dividend pay-out ratio Dividend policy Dividend yield Dividend yield Earnings Earnings per share (EPS) Equity ETF (Exchange Traded Fund) An indicator used to establish a company s solvency. Solvency refers to a company s ability to meet its long term obligations or liabilities (debt). Calculated as: total debt divided by equity A discretionary account is one that gives the broker the authority to trade on behalf of the client without consulting the client. However, the broker would act in the client s best interests and in line with the client s investment policy statement and mandate. In investments, diversification refers to the concept of not putting all your eggs in one basket minimising risk by spreading your investments across different financial instruments. Dividends are how a company rewards or distributes a portion of its profits (after tax) to shareholders. Dividends are cash pay-outs that are paid per share that a shareholder owns. This is the percentage of net income paid out in the form dividends. Calculated as: gross dividend payment divided by net income A policy that is determined by the management of the company, which sets out the proportion of dividends that company intends distributing to shareholders and also the frequency of dividend payments. This measures the dividend as an annual percentage return. It is calculated by dividing the dividend received over the last 12 months by the share price. Measures the dividend as an annual percentage return. It is calculated by dividing the dividend received over the last 12 months into the share price. Refer to net income Measures the portion of the business s profits that are allocated to each ordinary share that is outstanding and is a means to calculate the return on your investment. Calculated as net income divided by the number of shares Refer to net worth These funds aim to mimic the performance of a certain index. Rather than buying shares of all the companies that make up an index, an investor can simply buy the ETF that copies the performance of the index. 2

3 Ex-dividend date Financial instrument Financial yearend Flotation The ex-dividend date is the date before which an investor needs to have bought the shares in order to be eligible to receive any declared dividends (i.e. dividends that are to be paid by the company). Also known as securities a common term for a financial investment (like shares and bonds) The end of the 12-month period during which a company s financial transactions are recorded. The financial year does not have to begin in January - a company is free to choose the month in which the financial year will begin (e.g. June this year until May the following year) This refers to the process of listing a private company on the securities exchange. The company then changes from being a private company to a public listed company (e.g. ABC Telecom (PTY) Ltd changes to ABC Telecom Ltd). The word flotation is commonly used in the UK, while in the USA they use the term going public. Full service broker Growth shares Hedge Income statement Index Inflation IPO A broker or agent who is registered with the stock exchange and provides a vast array of services to clients (e.g. research reports, investment analysis and advice, tax advice, financial planning and much more). They trade on behalf of clients and in their best interest. Shares in a company that is expected to grow at a rate that is above average (relative to the market). Shareholders generally do not receive dividends because the company tends to reinvest its profits An investment strategy to protect investments from particular risks or losses in the future. Since there generally are costs attached to hedging, these strategies reduce the overall return of investments. Referred to as the statement of comprehensive income shows the income and expenses of a company Grouping financial instruments in a way that provides a measure to gauge the performance of the group collectively commonly used for benchmarking and risk management. The term used to describe the tendency of prices rising over time. This stands for Initial Public Offering when a company issues its shares for the very first time in the market. 3

4 Liquidity Liquidity refers to the ease and speed at which shares can be bought or sold in the market without changing the share price significantly. A liquid share can be bought or sold very quickly and easily because there is demand for that share in the market. The more liquid a share is, the less risky it is. The opposite is true for illiquid shares. Loan Long and short positions Market capitalisation Net asset value (NAV) A sum of money that is borrowed and is expected to be paid back (usually with interest) If an investor buys or sells shares they have taken a position in the share. A long position is when the investor buys the share. A short position is when the investor sells the share. Refers to the total Rand value of a company s outstanding shares (i.e. shares that the company has issued in the market). Calculated as outstanding shares x share price Refer to net worth Net income Net profit Net worth Non-discretionary account Online broker Ordinary shares A company s profit net tax. Also referred to as earnings or net profit Refer to net income Assets minus liabilities calculated using figures taken from the balance sheet (statement of financial position). Also referred to as net asset value (NAV) or equity or owner s equity A non-discretionary account is a brokerage account where the stockbroker may trade on the client s behalf but only once they have consulted with the client and have received the client s authority. Online brokers are conventionally much cheaper as they offer their customers the option to trade securities for their own accounts via an online facility. Online services do not offer the added benefits of investment advice and additional services that full service brokers would provide. In almost all instances whenever "shares" are referenced, it is the ordinary shares of a company. The vast majority of shares issued by companies are ordinary shares. Ordinary shares are sometimes also called common 4

5 stock. Outstanding shares Penny shares Preference shares Price to Earnings (P/E) ratio Primary market Refers to the total number of a company s shares that are held (or owned) by all its shareholders A share that trades at a very low price (usually below R1) and very low market capitalisation they are considered to be very risky and are generally very illiquid. A preference shareholder is entitled to a fixed portion of a company s profits; which is payable before the ordinary shareholder receives their pay-out. This fixed income ensures that the preference shareholder will always receive a certain return if the business is profitable. Preference shares can therefore be thought of as a hybrid between debt and equity. A ratio that compares a company s current share price to its earnings. Calculated as: market value per share divided by earnings per share. Primary markets refer to the issuance of new shares (or securities in other asset classes). For example, when a company issues (sells) new shares or even issues a new bond it is referred to as a primary market issue. Private equity Profit Public company Record date Return on Equity (ROE) Rights Issue Private equity refers to providing finance to a private company in return for an equity stake in the business. Since private companies are not listed on the JSE, shares in those companies are bought and sold privately (independent of the JSE) Sales minus expenses calculated using figures taken from the income statement (statement of comprehensive income) A company that is listed on a securities exchange like the JSE. A public company is denoted by the letters Ltd after the name for example ABC Bank Limited or ABC Bank Ltd. The day that the share register will be looked at to see who the rightful owners of the shares are. Shareholders whose names are in the share register on the record day will receive dividend payments. A company s earnings expressed as ratio of equity capital. Calculated as: net income divided by equity When a company offers new shares at a special price to existing shareholders. The amount of shares offered to shareholders is based on 5

6 the proportion of old shares that they currently own. Risk Risk appetite Sales Secondary market The chance or possibility that an investment will be lost. The level of risk an investor is willing to accept before taking steps to minimize that risk The total revenue of a company also referred to as turnover. This figure is obtained from the company s income statement (also referred to as the statement of comprehensive income) This refers to the buying and selling of shares (or other securities) that were previously issued. For example, when a company issues (sells) its shares for the first time, it is referred to as a primary market issue. Afterwards, when investors trade those shares (buy and sell them), it is referred to as secondary market transactions. Securities SENS announcements Shareholders Shares Speculating Stock Stock exchange A broad term used to describe financial market instruments. Examples of securities are: shares, bonds, negotiable certificates of deposit (NCD s) The real time Stock Exchange News announcements. A news service that broadcasts price-sensitive information and company announcements to subscribers. Have shares in a company and are effectively owners of the company (in proportion to the number of shares they hold i.e. own) Proof of ownership of part of a company. Shares give the shareholder voting rights and the right to share in the profits of the company (after tax) Trading securities e.g. shares with the aim of profiting from price changes and not necessarily economic drivers A term more commonly used in the USA for shares The formal, organised financial market that is regulated where securities (e.g. bonds and shares) can be bought and sold. Additionally, those prices are determined by the market forces of supply and demand. Stockbroker An agent or intermediary who is a member of a stock exchange stockbrokers facilitate the buying and selling of shares (and other securities) that are listed on the stock exchange 6

7 Stock-picking STRATE Time value of money (TMV) Trading Value shares Volatility An investor or analyst would typically conduct some form of analysis to determine whether a share should be selected (picked) for inclusion in an investment portfolio. South Africa s Central Securities Depository (CSD) providing electronic settlement of equities and bonds transactions concluded on the Johannesburg Stock Exchange. This is the concept that money is worth more today than in the future due to inflation, the purchasing power of money gets eroded e.g. R50 today cannot buy you as many things as it could ten years ago. In essence, unless money earns interest, it is always worth more today than in the future. Buying or selling of financial instruments e.g. shares Shares that trade at a price that is lower than its fundamentals typically characterised by high dividend yields or low price to earnings ratios Pertains to the uncertainty surrounding the fluctuations in the price of shares and other securities. As volatility increases, risk increases. Volatility is a statistical measure that uses the standard deviation between returns from that same security or a market index. 7