Terminology Flashcards
Authorized Shares
Max number of shares a company is legally allowed to sell to the public. Can be changed but there’s a process around it w/ shareholder votes
Outstanding Shares
Number of shares currently held by all shareholders of the company, including restricted shares
Common Shares
Stocks sold on the public stock market. Shareholder is granted 1 vote for every share they own. Also known as ordinary shares or float
Book Value
Total assets minus total liabilities. Also known as Shareholder Equity.
Bonds
Loan given to company from investor. Company pays investor back after specified number of years in interest payments, typically semi-annually
Gross Sales vs. Net Sales
Gross sales is money received from all transactions. Net sales Gross sales minus allowances, discounts, and refunds
Convertible Security
Security that can change its asset type, switching from bond to share, or reverse. Has terms and certain price tied to it
Solvency
Ability to pay off debts
Allowances, Discounts, & Refunds
Number subtracted from Gross Sales to determine Net Sales. This number is not known during time of sale. Allowances (e.g. price reduction/credits from defects), Discounts (2% less price if paid before invoice date), and Refunds (complete returns).
Restricted Shares
Shares issued to corporate affiliates, including executives on the team. Have to follow certain SEC rules when executing, related to earnings calls/officially revealing information to the public
Peer Group
A collection of entities with shared characteristics. Can be individuals or companies. Example traits: age, demographic, region, sector, industry, size, etc.
Secured/Unsecured Bonds
Secured bonds are safer, where the company pledges certain assets that will be transferred over to the bondholder if the company isn’t able to repay their obligation. Unsecured bonds have no pledge/guarantee. If the company defaults/goes bankrupt,
Shareholder Equity
Another name for Book Value
Debentures
Another name for Unsecured Bonds. Bond/Debt Instrument not backed by collateral. Usually has terms longer than 10 years. They are only backed by the reputation and creditworthiness of the issuer.
Coupon
The official interest rate based on the bond’s par value. Note that this is different than the bond yield
Callability
The ability for the bond issuer to pay off a bond’s principle earlier. Possible if the bond has a call provision. Typically will be paid back with a premium added to the par value. Companies may do this if current interest rates are a lot lower
Bond Yield
The measured effective rate of return from the bond based on the actual price paid for the bond, whether directly issued bond or bought from the secondary market. Calculated by Annual interest payments / Face value of bond
Bond Face Value
Also called Par Value. The price of the bond at the time of issuance. After that, the price of the bond will fluctuate based on market conditions
CAGR
Compound Annual Growth Rate. Special formula that calculates the ‘smoothed’ rate of return. Because of how math works, trying to directly calculate the annual compound rate of return, factoring the natural swings in price, the simple calculation will give you a wild and likely wrong number.
Russell 1000, 2000, 3000
Russell 1000 tracks the U.S.’s 1000 largest companies. Russell 2000 tracks 2000 smaller cap companies. Many companies are newer growth companies Typically considered bellwether of U.S. economy (leading sheep of a stock, wearing a bell).
Russell 3000 is collectively the Russell 1000 and Russell 2000 and is regarded as one of the best barometers for the overall U.S. stock market’s performance
Earnings Yield
EPS divided by Stock price (E/P). The inverse of the PE ratio. Expressed as a percentage. Used to compare companies against each other. All other things equal, the company with a larger Earnings Yield will be the better investment.
Senior Securities
Typically offers less returns than lower ranked securities due to being safer
Working Capital
Current assets - current liabilities. A measure of a company’s liquidity, operational efficiency, and its short term financial health. Having a very high working capital is a strong indicator of a company’s ability to grow and invest. In fact, if it’s boom times and they have too much working capital, could be a bad sign that they’re not pushing or investing as hard as their competition (unless they already have a huge lead and are making the smartest decisions and investments, and don’t see an opportunity that currently justifies throwing a lot of money at it)
Liquidity
The ability for an asset or security to be quickly converted into cash without impacting its market price. The most liquid asset of all is cash itself.
