Please note that in order to keep the definitions simple, we do not overview all the 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., a year or a quarter). Assets should be equal to the sum of company’s liabilities and shareholder equity.
BASIS POINT – 0,01% or 0,0001.
BEAR MARKET – a market where the prices fall by more than 20% over certain period of time.
BOND – a security, issued for raising capital by a company or government agencies through the borrowing. An owner of a bond is repaid the principal and fixed interest on it at specified dates.
BULL MARKET – a market where the prices are rising for a certain period of time.
BUSINESS CYCLE – a dynamic of economic activity, up and down movements of an economy over the period of several years.
CAPITAL EXPENDITURE – a 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 – a dividend paid to the stock owner in cash.
CASH FLOW FROM OPERATING ACTIVITIES – a 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 a depreciation per share.
CCI – Consumer Confidence Index. It is derived from a households‘ survey about their expected major purchases and savings, their view of an economy and financial markets. It shows how consumers feel about their conditions and an economy overall.A positive value means that consumers are optimistic while a negative one that they are pessimistic. It is a leading indicator since allows to judge the consumer spending in the near future. The higher is CCI the better.
COUPON – the interest paid to the bond owner. It is expressed as a percentage of the face value of bond.
CPI – Consumer Price Index. It is a measure of an 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 a company announces its next dividend.
DEFENSIVE STOCK – a stock which is less sensitive to economic recessions.
DEPOSIT – the money an investor transfers in a bank account. It can be used from there for the 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 the market price of a stock. An annual income from stock is calculated as the total of all dividends paid in respect of the most recent year.
DIVIDEND YIELD ON COST – investor’s annual income from the stock expressed as a percentage of the stock’s price which investor paid on the purchase of a stock.
EARNINGS PER SHARE – company’s net profit divided by the number of outstanding shares.
ETF – a pool of capital used to purchase securities, similar to fund. An ETF is traded like a stock. It usually tracks some index and has lower fees than funds.
EX-DIVIDEND DATE – the first day when a stock is traded after a dividend, i.e., a buyer of stock on that day and any later day will not receive the 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 a bondholder on the bond maturity.
FREE CASH FLOW – a cash flow available to the creditors and investors of a company. It is calculated by adding back an interest expense (adjusted for tax) and deducting a capital expenditure from the Cash Flow from Operating Activities.
FLASH economic indicator – an early estimate of an economic indicator (for example, Flash Services PMI). It provides advance indication of the final value of indicator.
FUND – a pool of capital of many investors used to purchase securities. Investor retains the ownership of his/her securities in proportion to the capital invested.
GDP – a Gross Domestic Product. It measures country‘s economic activity and is calculated as the sum of values of all goods and services produced in the country during the measured period. It is calculated annually and quarterly. The GDP growth rate is the percent increase in GDP figure year on year or quarter on quarter. Usually the real GDP figures are used to remove the effect of inflation.
GEARING – one of the ways to measure a company’s financial leverage. It is calculateed as follows.
Gearing = Net Debt/(Total Equity + Net Debt)
IFO BUSINESS CLIMATE INDEX – an indicator of economic activity. Ifo Institute for Economic Research in Germany runs the monthly surveys of companies in different sectors of an economy about the current business situation and the future business outlook. An indicator is derived based on the results of surveys. It is a leading indicator of the state of an economy.
IMPAIRMENT – Book Value of Asset less Fair Value of Asset. Occurs when the value of asset falls materially and its fair value becomes less than book value. An impairment reduces the net income of a company.
MARKET CAPITALIZATION (MARKET CAP) – an indicator of the size of company. It is calculated as the current stock price multiplied by the number of shares outstanding. A company can have series A and series B shares. In this website Market Cap indicates the market value of B shares, where appropriate.
NET PROFIT – a company’s revenue over the specified period less all the costs of doing business. The 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 the expenses related to the 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 an 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) – a proportion of earnings paid out as dividends. It is calculated as a dividend per share divided by earnings per share and is expressed in percentage.
PMI – Purchasing Managers Index. It represents the results of the purchasing managers‘ survey. Composite PMI is calculated based on both manufactoring and services sector surveys. An index reading above 50 indicates the 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 the Construction industry.
Manufactoring PMI measures the performance of the Manufactoring industry. It is based on the five main indicators: New Orders, Inventory Levels, Output, Supplier Delivery Times and Employment.
Services PMI measures the performance of the Services industry. It is based on the survey of transport, communication, financial and other services companies.
PPI – a Producer Price Index. It shows the changes in wholesale prices (prices from the producer perspective) at various stages of the production process: raw materials prices, prices of goods used ina manufactoring process and prices of finished goods. It is an early indicator of the inflation in an 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 the accounting period (e.g., year or quarter).
PUBLIC SECTOR – government owned organizations that provide goods and services.
QE – a 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 a shareholder to receive the dividend.
REIT – Real Estate Investment Trust – a pool of capital of many investors used to purchase a real estate. It is traded on a stock exchange like a stock and pays dividends.
RETAIL SALES – a 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) – a 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 a company. It provides the owner rights to share of company’s profits.
STOCK DIVIDEND – a dividend payment to stock owner in the form of the additional shares in proportion to the amount of shares owned.
TRADE BALANCE – a 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 – a 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 an economy. The positive indicator‘s value indicates optimism, while the negative one – pessimism. Indicator covers Germany and other countries.