Glossary

Please note that in order to keep definitions simple, we do not overview existing versions or subcategories related to each concept.

BALANCE SHEET – a  financial statement which shows what assets and liabilities company has at the end of an accounting period (e.g., year or quarter). Assets should be equal to the sum of company’s liabilities and shareholder equity.

BASIS POINT – 0,01% or 0,0001.

BEAR MARKET – market where prices fall by more than 20% over certain period of time.

BOND – Security, issued for raising capital by company or government agencies through borrowing. Owner of bond is repaid the principal and fixed interest on it at specified dates.

BULL MARKET – market where prices are rising for certain period of time.

BUSINESS CYCLE – a dynamic of economic activity, up and down movements of economy over period of several years.

CAPITAL EXPENDITURE – company’s longer term investments into fixed assets and other assets, made to maintain or expand its business operations.

CAPITAL GOODS – goods produced by firms and used to produce other goods.

CASH DIVIDEND – dividend paid to stock owner in cash.

CASH FLOW FROM OPERATING ACTIVITIES – cash flow, generated by company’s core business. It does not include investing or financing activities.

CASH FLOW PER SHARE – company’s earnings per share plus depreciation per share.

CCI – Consumer Confidence Index. It is derived from households‘ survey about their expected major purchases and savings, their view of economy and financial markets. It shows how consumers feel about their conditions and economy overall. Positive value means that consumers are optimistic while negative one that they are pessimistic. It is a leading indicator since allows to judge consumer spending in the near future. The higher is CCI the better.

COUPON – the interest paid to bond owner. It is expressed as a percentage of face value of bond.

CPI – Consumer Price Index. It is a measure of inflation. It shows changes in the prices of a representative basket of goods and services used by consumers daily.

DEBT TO EQUITY RATIO (D/E) – company’s total liabilities divided by shareholder equity, expressed as a percentage. It shows how much debt company is using relative to shareholders equity.

DECLARATION DATE – on this date company announces its next dividend.

DEFENSIVE STOCK – a stock which is less sensitive to economic recessions.

DEPOSIT – the money an investor transfers in bank account and can be used from there for investor’s needs.

DIVIDEND – a part of company’s earnings distributed to shareholders.

DIVIDEND YIELD – investor’s annual income from stock (i.e. dividends) expressed as a percentage of market price of stock. Annual income from stock is calculated as total dividends paid in the most recent year.

DIVIDEND YIELD ON COST – investor’s annual income from stock expressed as a percentage of stock’s price which investor paid on purchase of stock.

EARNINGS PER SHARE – a company’s net profit divided by the number of outstanding shares.

ETF – a pool of capital used to purchase securities, similar to fund. ETF is traded like stock. It usually tracks some index and has lower fees than funds.

EX-DIVIDEND DATE – the first day when a stock is traded after dividend, i.e., a buyer of stock on that day and any later day will not receive declared dividend. From the start of that day the price of stock is automatically reduced by the amount of dividend. Each dividend payment has its own ex-dividend date. So, if dividends are paid quarterly, each quarterly dividend would have its ex-dividend date and there will be four ex-dividend dates over the year.

FACE VALUE – the amount of money paid to bondholder on bond maturity.

FREE CASH FLOW – a cash flow available to creditors and investors of company. It is calculated by adding back interest expense (adjusted for tax) and deducting capital expenditure from Cash Flow from Operating Activities.

FLASH economic indicator – an early estimate of economic indicator (for example, Flash Services PMI). It provides advance indication of a final value of indicator.

FUND – a pool of capital of many investors used to purchase securities. Investor retains ownership of his/her securities in proportion to capital invested.

GDP – Gross Domestic Product. It measures country‘s economic activity and is calculated as the sum of values of all goods and services produced in a country during the measured period. It is calculated annually and quarterly. GDP growth rate is the percent increase in GDP figure year on year or quarter on quarter. Usually real GDP figures are used to remove the effect of inflation.

IFO BUSINESS CLIMATE INDEX – an indicator of economic activity. Ifo Institute for Economic Research in Germany runs monthly surveys of companies in different sectors of economy about current business situation and future business outlook. An indicator is derived based on the results of surveys. It is a leading indicator of the state of economy.

MARKET CAPITALIZATION – an indicator of the size of company. It is calcullated as the current stock price multiplied by the number of shares outstanding.

NET PROFIT – a company’s revenue over specified period less all the costs of doing business. Terms net profit, net income and earnings are used interchangeably.

OPERATING INCOME – a profit from business operations, calculated as follows: total revenue less operating expenses. Operating expenses are expenses related to operating activity: cost of goods sold, depreciation, staff costs and other. Taxes, interest payments and other non-operating expenses are not included in the calculation of operating income.
OPERATING MARGIN – an operating income divided by revenue. It shows what part of revenue is available to cover other, non-operating expenses.

OPPORTUNITY COST – the cost of something in terms of the next highest valued alternative forgone.

PAY DATE – the date of dividend payment.

PAYOUT RATIO (POR) – proportion of earnings paid out as dividends. It is calculated as dividend per share divided by earnings per share and is expressed as percentage.

PMI – Purchasing Managers Index. It represents the results of purchasing managers‘ survey. Composite PMI is calculated based on both manufactoring and services sector surveys. An index reading above 50 indicates economic expansion, below 50 – a contraction and 50 – no change. It is used as an early indicator of GDP growth or decline.

Construction PMI measures the performance of Construction industry.
Manufactoring PMI measures the performance of the Manufactoring industry. It is based on five main indicators: New Orders, Inventory Levels, Output, Supplier Delivery Times and Employment.
Services PMI measures the performance of Services industry. It is based on survey of transport, communication, financial and other services companies.

PPI – Producer Price Index. It shows changes in wholesale prices (prices from producer perspective) at various stages of the production process: raw materials prices, prices of goods used in manufactoring process and prices of finished goods. It is early indicator of inflation in economy.

PRICE – TO –EARNINGS – a stock price divided by earnings per share (EPS). It shows how much investors pay for each EUR of company‘s earnings.
PROFIT MARGIN – net profits of company divided by sales. It shows what part of sales is attributable to earnings.

PROFIT AND LOSS ACCOUNT – a financial statement which shows how much profit or loss company generated over accounting period (e.g., year or quarter).

PUBLIC SECTOR – government owned organizations that provide goods and services.

QE – Quantitative Easing. It is a monetary policy conducted by Central Bank with the aim to increase the money supply and lower interest rates through the purchase of government and corporate bonds.

REAL DIVIDEND YIELD – a dividend yield less a rate of inflation.

REAL RATE OF RETURN – a rate of return less a rate of inflation.

RECORD DATE – the date an investor should be on the company’s record as shareholder to receive the dividend.

REIT – Real Estate Investment Trust – a pool of capital of many investors used to purchase real estate. It is traded on stock exchange like a stock and pays dividends.

RETAIL SALES – the value of end products sold to retail consumers. It is an indicator of the level of consumer spending. Lower Retail Sales can indicate slower economic growth.

RETURN ON EQUITY (ROE) – net profit of company divided by shareholder equity. It shows what return is achieved on shareholders’ money.

REVENUE – money that a business receives over a period of time, especially generated from the sale of goods or services.

STOCK – a security that proves ownership in company. It provides the owner rights to share of company’s profits.

STOCK DIVIDEND – dividend payment to stock owner in the form of additional shares in proportion to the amount of shares owned.

TRADE BALANCE – the balance of country‘s exports of goods and services versus imports from other countries.

TREASURY BILL – a government debt with less than one year term.

UNEMPLOYMENT RATE – unemployed workers as percentage of the total labor force. Unemployment is not good for an economy as it reduces the purchasing power of population.

VOLATILITY – the measure of the level of fluctuations in the price of stock or other security.

ZEW ECONOMIC INDICATOR – a monthly survey of economists that shows the balance between optimistic and pessimistic views on economy. Positive indicator‘s value indicates optimism, while negative one – pessimism. Indicator covers Germany and other countries.

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