FINANCIAL
DOCUMENTS AND IMPORTANT BUSINESS
RATIOS: GAINING SOME UNDERSTANDING |
The
sum and substance of corporate finance consists of a relatively small
number of essential financial measures by means of which we can appraise
the success of any commercial enterprise. These measures are derived
from relationship that exist between various financial parameters in
the business. While each measure in itself is simple to calculate, comprehension
lies not in how to do the calculations but in understanding what these
results mean and how the results of different measures mesh together
to give a picture of the health of a company. There are mainly three
documents from which raw data for analysis can be obtained. Together
they give a full picture of the financial affairs of a business…well,
they always nearly do.
It is a snapshot
of the assets used by the company and of the funds that are related
to those assets. It is a static document relating to one point in time.
We therefore take repeated “snapshots” at regular intervals-months,
quarters, years-to see how the assets and funds change with the passage
of time.
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Profit
and Loss (P/L) account |
The profit and loss
accounts measures the gains or losses from normal operations over a
period of time. It measures total income and deducts total cost. It
derives some values from two balance sheets, and therefore is not independent
of them.
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Cash
Flow (C/F) statement |
Cash flows in when
cheques are received by a company and cash flows out when cheques are
issued by the company. It is not just cheques but also involves other
financial instruments that constitute an important aspect of the cash
flow statement. It is linked to the two balance sheets and profit and
loss account.
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BRIEF EXPLANATION OF IMPORTANT BUSINESS RATIOS/FINANCIAL TERMS/SELECTED
STOCK EXCHANGES:
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The ratio of current
assets less inventories to total current liabilities. This ratio is
the most stringent measure on how well the company is covering its short-term
obligations, since the ratio only considers that part of current assets,
which can be turned into cash immediately (thus the exclusion of inventories).
The ratio tells creditors how much of the company’s short term debt
can be met by selling all of the company’s liquid assets at very short
notice.
Total assets divided
by shareholder equity.
Total dollar value
of cash and marketable securities divided by current liabilities. For
a bank this is the cash held by the bank as a proportion of deposits
in the bank. The cash ratio measures the extent to which a corporation
or other entity can quickly liquidate assets and cover short-term liabilities,
and therefore is of interest to short-term creditors.
A measure of a company’s
financial health. Cash flow equals cash receipts minus cash payments
over a given period of a time; or equivalently, net profit plus amounts
charged off for depreciation, depletion, and amortization.
Total dollar value
of cash and marketable securities divided by current liabilities. For
a bank this is the cash held by the bank as a proportion of deposits
in the bank. The cash asset ratio measures the extent to which a corporation
or other entity can quickly liquidate assets and cover short-term liabilities,
and therefore is of interest to short-term creditors.
Current assets divided
by current liabilities. An indication of a company’s ability to meet
short-term debt obligations; the higher the ratio, the more liquid the
company is.
Total liabilities
divided by total assets. The debt/assets ratio shows the proportion
of a company’s assets, which are financed through debt. If the ratio
is less than one, most of the company’s assets are financed through
equity. If the ration is greater than one, most of the company’s assets
are financed through debt. Companies with high debt/asset ratios are
said to be “highly leveraged,” and could be in danger if creditors start
to demand repayment of debt.
A measure of a company’s
leverage, calculated by dividing long-term debt by common shareholders’
equity, usually using the data from the previous fiscal year. Sometimes,
long-term debt plus preferred shareholder’s equity is divided by common
shareholder’s equity, since preferred stock can be viewed as a form
of debt. A company with a higher debt/equity ratio can offer greater
returns to shareholders but can be riskier.
Dividends paid divided
by company earnings over some period of time, expressed as a percentage.
The most common
measure of how expensive a stock is. The earnings multiple is equal
to a stack’s market capitalization divided by its after-tax earnings
over a 12 month period, usually the trailing period but occasionally
the current or forward period. The value is the same whether the calculation
is done for the whole company or on a per-share basis. The higher the
earnings multiple, the more the market is willing to pay for each dollar
of annual earnings. The last year’s earnings multiple would be actual,
while current year and forward year earnings multiple would be estimates,
but in each case, the “p” in the equation is the current price. Companies
that are not currently profitable (that is, ones which have negative
earnings) don’t have an earnings multiple at all.
Total earnings divided
by the number of shares outstanding. Companies often use a weighted
average of shares outstanding over the reporting term. EPS can be calculated
for the previous year (“trailing EPS”), for the current year (“current
EPS”), or for the coming year (“forward EPS”). While last year’s EPS
would be actual, current year and forward year EPS would be estimates.
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A stock’s capitalization
divided by its book value. The value is the same whether the calculation
is done for the whole company or on per-share basis. This ratio compares
the market’s valuation of a company to the value of that company as
indicated on its financial statements. The higher the ratio, the higher
the premium the market is willing to pay for the company above its hard
assets. A low ratio may signal a good investment opportunity, but the
ratio is less meaningful for some types of companies, such as those
in technology sectors. This is because such companies have hidden assets
such as intellectual property, which are of great value, but not reflected
in the book value. In general, price to book ratio is of more interest
to value investors than growth investors.
The study and interpretation
of the relationships between various financial variables, by investors
or lenders.
A measure of a company’s
profitability, equal to a fiscal year’s earnings divided by its total
assets, expressed as a percentage.
A measure of how
effectively a company uses the money (borrowed or owned) invested in
its operations. Return on invested Capital is equal to the following:
Net operating
income after taxes
Total assets – [ Cash and Investments (except in strategic alliances)
+ non-interest-bearing liabilities]
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Return
on Capital Employed (ROCE) |
A measure of the
returns that a company is realizing from its capital. Calculated as
profit before interest and tax divided by the difference between total
assets and current liabilities. The resulting ratio represents the efficiency
with which capital is being utilized to generate revenue.
A measure of how
well a company used reinvested earnings to generate additional earnings,
equal to a fiscal year’s after tax income (after preferred stock dividends
but before common stock dividends) divided by book value, expressed
as a percentage. It is used as a general indication of the company’s
efficiency; in other words, how much profit it is able to generate given
the resources provided by its stockholders. Investors usually look for
companies with returns on equity that are high and growing.
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Return
on Invested Capital (ROIC) |
A measure of how
effectively a company uses the money (borrowed or owned) invested in
its operation. Calculated by:
Net income
after taxes
Total assets – (Excess cash + Non-interest-bearing liabilities)
Return
on investment (ROI)
Definition 1 |
A measure of a corporation’s
profitability, equal a to fiscal year’s income divided by common stock
and preferred stock equity plus long-term debt. ROI measures how effectively
the firm uses its capital to generate profit; the higher the ROI, the
better.
More generally,
the income that an investment provides in a year.
A measure of a company’s
profitability, equal to a fiscal year’s pre-tax income divided by total
sales.
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Return
on Total Assets (ROTA) |
ROTA. A measure
of how effectively a company uses its assets. Calculated by:
Income before interest and tax
Fixed assets + Current assets
A company without a good ROTA finds it almost impossible to generate
a satisfactory ROE. The ratios that drive ROTA are margin on sales percentage
and sales to total assets ratio. |
Net sales divided
by total assets. This is a measure of how well assets are being used
to produce revenue. Also called asset turnover.
Current assets minus
current, liabilities. Working capital measures how much in liquid assets
a company has available to build its business. The number can be positive
or negative depending on how much debt the company in carrying. In general,
companies, that have a lot of working capital will be more successful
since they can expend and improve their operations. Companies with negative
working capital may lack the funds necessary for growth.
GLOSSARY:
A AND Z, AND A LOT IN BETWEEN
Absolute Return Funds
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Absolute Return
Funds (including Hedge Funds) aim to deliver; returns in both rising
and falling markets. The investment techniques adopted may be different
to methods employed by traditional funds managers as the funds have
greater scope to use derivatives, short positions and exotic securities.
Amounts owed by
an entity as a result of the purchase of goods or services.
Amounts owed to
an entity as result of the sale of goods or services.
The allocation of
shares in a company by the directors, following an application or offer
to take up the shares. Decisions as to the person to whom shares are
allotted, and the number allotted to each, are at the discretion of
the directors, subject to compliance with the statutory law. If an issue
of shares is over-subscribed, i.e. the number of shares applied for
exceeds the number available for issue, the excess must be eliminated
either by rejecting some applications altogether, or by reducing the
number of shares allotted to some or all of the applicants.
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American
Depositary Receipts
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Depositary Receipts
are negotiable certificates that represent a non-U.S. company’s publicly
traded equity or debt. Depositary Receipts are legal, U.S. Securities
that trade freely on a major exchange or in the over the counter (OTC)
market in U.S. Dollars, pay dividends or interest in dollars, and settle
clear and transfer according to standard U.S. practices. The Depositary
Receipt evidences the home market security which trades in foreign country
and it is custodised with a local bank, called the custodian.
The process of allocating
acquisition cost or other value of assets either to periods as expenses
or period costs, or to inventory accounts as product costs. The term
is normally used in conjunction with non-physical assets.
Generally, the annual
report is a financial report or statement issued by a publicly listed
company to its shareholders. The annual report contains a statement
of financial performance, a statement of financial position, a statement
of cash flow, as well as notice of the Annual General Meting (AGM) and
business resolution to be disused.
Annual yield represents
the dividend return from an investment. If is calculated by dividing
the dividend per share by the share price, converted to a percentage.
Yield = (Dividend per share/Last Market Price)*100.
An annuity is a
series of identical fixed payments to be made for a specified number
of years.
The simultaneous
buying and selling of the same or equivalent securities in different
but related markets
These were formerly
the rules adopted by a company when it formed that governed the company’s
internal affairs and other matters affecting the shareholders and the
company. These matters are now dealt with in the company constitution.
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Date upon which
the relevant information is recorded.
The proportion of
your total capital you invest in the different asset classes. This will
be largely determined by your risk profile.
Useful check for
investors that can be related to the firm’s earning capacity.
Asset backing = Net assets of a company (in money value)
Number of i ssued shares.
Assets are probable
future economic benefits obtained or controlled by an entity as a result
of past transactions or events affecting the entity. The essential characteristics
of an asset are:
- A probable
future benefit exists involving a capacity to contribute directly
or indirectly to future net cash inflows;
- The entity
can obtain the benefit and control the access of other to it; and
- The transaction
or event giving rise to the entity’s claim to or control of the
benefit has already occurred.
One company may
be associated with another company if certain types of arrangements
exist between the two bodies. Companies may also be considered to be
associated when one company has an equity interests in the other.
Term used to describe
an option or a warrant with an exercise price equal to the current market
price of the underlying asset.
A systematic examination
of financial statements usually by an independent chartered accountant,
with the objective of expressing an opinion on the truth and fairness
with which the statements present the financial position, the results
of operations and on whether the statements are drawn up in accordance
with the relevant law and accounting standards. The auditor’s opinion
in customarily conveyed in the from of an audit report to those recipients
of the financial statements for whose benefit he is appointed, usually
the shareholders of a company.
The company’s auditors
as reported in the annual report. |
The amount of share
capital which a company is permitted to issued. Also called nominal
capital.
Non-collectable
accounts receivable. They represent losses which should be written off
immediately.
The company’s balance
date as reported in the annual report. Also called the reporting date.
The risk that movements
in the price of a futures contract do not correlate exactly with movements
in the price of the underlying financial instrument or commodity.
When share prices
are falling and experts expect further falls.
Benchmarking is
the process of gathering information about other companies is the your
industry to compare your performance against and to use to set goals.
A measure of how
changes in a share price correlate to overall movements in the share
market as a whole.
The price at which
someone is prepared to buy shares (opposite to offer).
A liability of an
entity arising either as a result of giving a promissory note or accepting
a bill of exchange drawn on it by a creditor.
An assets of an
entity arising either as result of receiving a promissory note or drawing
a bill of exchange on a debtor.
Shares, usually
highly valued, in a major company known for its ability to make profits
in good times or in bad, and with reduced risk or default. |
An elected body
or persons formed to control the planning and implementation of corporate
objectives.
A tradable debt
security, usually issued by a government or semi-government body to
raise money. Holders of the bond have lent money for which they receive
fixed rate of interest over a set period of time. The bond is repaid
with interest on the predetermined maturity date. Bonds can be traded
on the sharemarket.
An abnormal dividend
declared out of profits. If paid in cash it is regarded as an increment
to the normal dividend and is unlikely to be repeated in future periods,
for example an additional dividend paid in the centenary year of a company.
Instead of being paid in cash, the bonus dividend may be applied to
the payment, in full or in part, of amounts owing on a new share issue.
The dividend may also be applied to the payment of any uncalled capital
on shares which have already been issued.
Additional shares
issued by the company to existing shareholders for free, usually in
a pre-determined ratio to the number of shares already held.
The net amount shown
in the books or in the accounts for any assets, liability or owners’
equity item. In the case of a fixed asset, it is equal to the cost or
revalued amount of the asset less accumulated depreciation. Also called
carrying value. The book value of a firm is its total net assets, i.e.
the excess of total assets over total liabilities. |
The date at which
a company’s share register is closed off to identify the shareholders
and to calculate any entitlement to new issues and dividends.
Interest and other
costs incurred by an entity in connection with the borrowing of funds.
Bottom Line refers
to the bottom line of an income Statement. The bottom line shows the
net income available to shareholders. When a company talks about increase
the bottom line, they mean doing things to either increase the revenue
or decrease expenses so the company’s income increases.
Fee paid to stockbroking
firm for buying or selling of shares.
Bonus shares plan-usually
a plan whereby shareholders may elect to receive all or a portion of
the dividend in shares instead of cash. You should refer to announcements
by the company or contact the company to obtain further information
regarding the rules and operation of the plan.
When share prices
generally are rising.
Also known as the
economic cycle. The rise and fall of the economy, from a pea, Or boom,
to a trough (sometimes called a depression) and back to a peak. The
length and duration of each phase is not predictable.
Monday to Friday
inclusive, except govt. declared holidays, and any other day that stock
exchanges declare is not a business day. |
A strategy requiring
the simultaneous purchase of underlying securities and the writing of
calls representing the same number of shares.
Often No Liability
(N.L.) and sometimes Limited Liability (Ltd.) companies have shares
that are not fully paid. A call may be made for the payment of part,
or all, of this outstanding capital. Holders of shares in N.L. companies
may choose not to pay the call and forfeit their shares, hence the name
No Liability. Holders of shares in Limited Liability companies cannot
forfeit the shares and are legally obliged to pay a call.
An option contract
which gives the holder the right, but not the obligation, to buy the
underlying asset at the exercise price at or before a fixed expiry date.
Some warrants have
their upside potential capped at a certain level. This is sometimes
called a cap level. A Cap level is fixed by the issuer when the warrant
is issued. The disclosure documents will provide details.
Funding for investment
in capital assets or to operate a business. Also refers to the value
of an investment in business, or in assets such as property or shares.
Expenditure which
is expected to produce benefits in a future period(s), and which is
carried forward as an asset in the balance sheet at the end of the period.
The difference between
the proceeds from the sale of a security and the initial cost of the
investments. If the proceeds exceed the cost this is said to be a capital
gain.
Tax on the profit
from the sale of capital assets such as shares or property.
An increase in the
value in an asset such as an investment in shares. Capital growth is
realized as a capital gain when the asset is sold for more than its
purchase price.
The difference between
the proceeds from the sale of a security and the initial cost of the
investment. If the cost exceeds the proceeds then this is said to be
a capital loss.
A reserve which
is regarded as not being available for distribution as a dividend through
the Statement of Financial Performance for statutory reasons or because
of the requirements of the constitution of a company or because of a
resolution of the directors.
Sometimes the term is used to describe a reserve which if distributed
as a dividend is not subject to income tax in the hands of a shareholder
that is an individual or to bonus issue tax if distributed as a bonus
issue. |
Currency, coins,
cheques, and balance in bank accounts-a current asset.
The total cash receipts
(inflow) or cash payments (outflow) arising from a given asset, or group
of assets, for a given period. Net cash flow is the inflows less the
outflows.
A new issue of shares
for cash made to existing shareholders in proportion (e.g. 1 new share
for every 2 shares held) to their existing shareholding for the purpose
of raising additional capital for the company. It is usually issued
at a discount to the market price.
Cash settled warrants
are settled by a cash payment by the warrant issuer to the warrant holder,
e.g. most index warrants. The cash payment will be calculated as determined
by the terms and conditions of the warrant. Some warrants may offer
the choice to investors for cash settlement or physical delivery (e.g.
currency warrants).
The procedure by
which index futures and index options contracts are settled. Because
an investor cannot directly buy or sell an index, index futures and
options contracts are cash settled by allocating a dollar amount to
each index point.
A entity is a child
entity of another entity if the other entity is its holding company
or has control over it.
Class of security
on issue. Securities are in the same class only if the same rights and
obligations attach to them. Difference arising from the requirements
of the listing rules relating to restricted securities ar to be ignored.
Example: Partly paid securities are in a different class to fully paid
securities. Fully paid securities that rank equally except for the next
dividend or distribution are in the same class (but may be traded separately
until they merge with the other shares in the class). Fully paid ordinary
securities classified ar in the same clas as fully paid ordinary securities
that are not classifies as restricted securities.
Option contracts
of the same type-either call options or put options-covering the same
underlying security.
A fund that has
a fixed number of shares or units on issue.
A transaction in
which a party who has a bought (sold) option or futures position, exist
the position by selling (buying) an option or futures contract in the
same series.
A trade that liquidates
an investor’s written position.
The fee that an
advisor or a fund manager may receive for the buying or selling of securities.
Company Culture
is the term give to the shared values and practices of the employees.
Note that the actual culture may not match the published culture.
A contract by which
an entity is bound to issued new securities, usually at a set exercise
price, if the option holder wishes to take the new shares.
The basic and diluted
earnings per share (EPS) figures, as reported by the company in the
annual report.
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Consolidated
financial statements
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Statements issued
by legally separate but related companies that show financial position
and income as they would appear if the companies were one legal entity.
Such statements reflect an economic rather than a legal entity. Regulatory
authorities requires a company with subsidiaries to present to its shareholders
group accounts, normally in the form of consolidated financial statements,
when its own balance sheet is presented.
A condition or situation,
which exists at balance date, the ultimate outcome of which, gain or
loss, is uncertain and will be confirmed only on the occurrence or non-occurrence
of one or more uncertain future events which are not wholly within the
control of the entity after the date of approval of the financial statements.
A contingency may or may not give rise to an asset or a liability. The
treatment of a contingent asset or liability will vary from inclusion
as an item within the financial statements, if there is a high probability
of subsequent events confirming the existence of the asset or liability,
to inclusion by way of a note to the financial statements where the
probability confirmation is remote.
A potential expense,
one that may or may not eventuate, depending how events turn out, but
which should be provide for in properly kept accounts or budget, eg.
damages from a pending lawsuit. |
A written document
confirming a transaction between two dealers or broker and a client
which details the costs, type and quantity of shares traded.
Shares that have
been partly paid for. At a future date the shareholder will be required
to pay the balance outstanding, unless the company is a no liability
company in which case shares can be forfeited instead.
The process whereby
the price of a derivative contract aligns with the price of the underlying
financial instrument or commodity. This usually occurs at maturity.
The conversion ratio
is the number of warrants that must be exercised to require the transfer
of the underlying instrument.
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Convertible
debt security
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An unsecured note
or debenture that is classified as an equity security because it is
convertible into an equity security.
A loan made to a
company at a fixed rate of interest with the right to be either redeemed
(i.e. repaid by the company) for cash or converted into ordinary shares
at a predetermined date or within a certain period.
Securities which
are convertible by the holder, or automatically by their terms of issue,
into equity securities. Note: convertible securities includes company
option.
A corporate action
is an action taken by an entity for the purpose of giving an Entitlement
to Holders of a class of the a class of the entity’s securities. Example
of Corporate Actions include rights issue, bonus issues, dividends or
other payments, or offers under a buy –back scheme.
A corporation includes
all bodies corporate and certain types of unincorporated bodies, but
excludes certain corporate bodies.
For legal purposes a corporation is treated as a separate legal person.
A cost that is factored
into the pricing of derivatives instruments such as futures contacts.
It reflects the cost of holding the underlying shares over the life
of the futures contract, less the amount that the shareholder would
receive in dividends on those shares during this time. |
Interest voucher
usually attached to bonds and exchangeable for cash on its due date
(half yearly or yearly).
A warrant is said
to be covered if the warrant issuer places the underlying securities
of a warrant in a trust or other custodial arrangement.
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Cumulative
preference dividends
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Dividends on preference
shares that accrue as a commitment of the company if they are not paid
in any year. Arrears of cumulative preference dividends must be paid
before any dividends are paid to ordinary shareholders. Unless specifically
stated to be non-cumulative, dividends on all preference shares are
deemed to be cumulative.
Currency warrants
give holders exposure to movements in the exchange rate between two
different currencies. Holders of currency warrants may exchange an amount
of foreign currency for other currencies on or before the expiry date.
Cash or other assets
of the entity that would in the ordinary course of operations of the
entity be consumed or converted into cash within twelve months after
the end of the last financial year of the entity.
Obligations that
are expected or could be required to be discharged on demand or within
twelve months. In a company’s annual report, this figure shows the amount
of debt due to be repaid within twelve months.
A loan to a company
at a fixed rate of interest and for a fixed term, usually one to five
years. The debenture is secured by a trust deed over an asset, or assets,
of a company.
Capital funds raised
by a company through issuing debentures or increasing other liabilities
to finance its operation. For example, a company may increase its debt
capital by negotiating a long-term loan facility with a bank.
Sources of funds
other than equity finance.
The process of debt
financing through issuing debenture or bonds; or increasing other liabilities
to finance operations.
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Debtors
repayment period.
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In analysing shares
as investments, the debtors repayment period (also known as Debtor Days)
is calculated to show the length of time the company’s debtor take to
pay their accounts.
Debtors repayment period = Trade debtors *
365 days
Sales
revenue
Expenditure not
recognised as an expense of the period when occurred but carried forward
to a future period of the purpose of matching against subsequent revenues.
Also called deferred assets, deferred cost, and deferred expenditure.
Shares quoted “dd”
are the result of a reconstruction of the company’s share capital where
shareholders have surrendered old scrip to the company but the company
has yet to issue new scrip. Shareholders who wish to sell must do so
on a “dd” basis so buyers know that they cannot yet expect delivery
of scrip.
A liability of indeterminate
term introduced into the accounting records in order to match revenues
and expenses of the current period, e.g.a deferred income tax liability
relates to the proportion of income tax expense arising from timing
differences in a period. |
Removed shares or
securities that were once quoted on a Stock Exchange.
Upon exercise of
the warrant and making the relevant payments, deliverable warrants are
settled by a transfer of the underlying asset, eg. Equity warrants.
The deference between
the cost (or value) of an asset and its residual value allocated over
the series of accounting periods in the asset’s useful life. The depreciation
expense for a period is usually based on:
- The likely
useful economic life of the asset;
- The patterns
of reduction in services during life; and
- Its likely
residual (or salvage) value on disposal at the end of its life.
A derivative is
an instrument that derives its value from that of an underlying instrument
(such as shares, share price indices, fixed interest security, commodities,
currencies etc.) Warrants and exchange traded options are types of derivatives.
Persons elected
by shareholders who are responsible for the implementation of corporate
objectives. Can include Chairman, Deputy Chairman, Managing Director,
Joint Managing Director and Chief Executive Officer.
A document or prospectus
that outlines t he details of a new issue of securities to ensure that
investors are fully informed.
A portfolio that
holds a variety of assets over more than one asset class or one market.
This may include shares, property, or fixed interest.
Distribution of
part of a company’s net profit to shareholders. Usually expressed as
a number of cents per share.
Debts on which it
is considered that it is likely that a loss will be incurred through
payment not being received or not received in full. The expected loss
might relate to a specific debt but usually will be a proportion of
total debts outstanding which from experience it is known will not be
collected. Doubtful debts are incorporated into the accounting system
by means of a provision as a period-end adjustment.
Measures the earnings
that are attributed to each equivalent ordinary share over a twelve
month period. It is calculated by dividing the company’s earnings by
the number of shares on issue.
In sharemarket term,
equities is a synonym for shares and represent part-ownership of a company,
as distinct from debt securities such as bonds and debentures.
Normally, the financial
year ended, as released in the company’s Annual Report but can also
apply to shorter and half-yearly financial periods.
The initial raising
of capital by public subscription to securities, such as shares offered
on the sharemarket for the first time.
Method of analysis
using ratios and percentages calculated from financial data of a company
to assess the company’s quantitative and qualitative aspects. Ratios
of particular industry groups and/or major competitors may also be included
in the analysis to determine it’s suitability for investment.
A legally binding
agreement to buy or sell a security, commodity or financial instrument
at a fixed price on a specified date in the future.
Refers to the process
of increasing funds available for investment through borrowing; the
ratio of debt finance to equity finance; or as the use of long-term
debt in financing an entry. Gearing may be measured as EBIT/(EBIT –
Interest). Also known as Leverage. |
The future benefits
from unidefinable assets which are carried as intangible assets of an
entity. Goodwill reflect the entity’s ability to earn more than a normal
rate of return on its physical assets. Goodwill can arise from a number
of causes. It is usually recognised in the accounts only when it is
acquired through specific purchase. In this situation, it is a calculated
as the excess of cost of the acquired entity over the current or fair
market value of the net tangible assets acquired.
A debt security
issued by the government. Interest is usually paid twice yearly at a
fixed rate for the life of the bond. Usually 10 years.
A transaction which
reduces or offsets the risk of a current holding.
When the exercise
price of a call (put) option or warrant is below (above) the current
market price of the underlying asset.
Where a fund manager
holds the components of the index in order to replicate its performance.
This may be over one or more indices. The manager adopts a ‘buy and
hold’ approach rather than actively managing the fund.
Options over a share
price index. Index options are cash settled on exercise.
A managed investment
that invests in public infrastructure assets which companies and individuals
utilise during ordinary day-to-day activity. This may include transport,
telecommunication, materials handling and utilities facilities.
Illegal Insider
Trading is the trading in a security (buying or selling a stock) based
on material information that is not available to the general public.
The inability to
pay debts as and when they become due and payable.
Non-physical assets
giving an entity future economic benefits arising from some exclusive,
preferred, or protected position, e.g. franchises, goodwill, patents,
or trademarks.
Intellectual Property
(IP) is all of a company’s patents, trademarks, service marks, trade
names, trade secrets, and copyrights. It is distinguished from capital
property.
A ratio that shows
the number of times interest payments are covered by earnings before
interest and tax (EBIT). The higher the interest cover, the greater
the company’s ability to meet interest payments.
Interest Cover = Earnings Before Interest and Tax (EBIT)
Net Interest
Payments |
When a dividend
is paid more the once a year, dividends other than the final one are
called interim dividends. Typically, dividends are paid twice a year,
one interim and one final dividend.
The difference between
the current market price of the underlying asset and the exercise price
of the option or warrant, but not less than zero. Expressed another
way, the value of an option or warrant should it expire immediately
with the underlying asset remaining at its current price. When calculating
the intrinsic value for warrants, the conversion ratio needs to be taken
into account.
Tangible property
held for resale in the ordinary course of business, or in the process
of production for such sale, or to be consumed in the production of
goods or services for sale. Also called stock-on-hand, or stock-in-trade.
The value of securities
allotted in a company to its shareholders and debt holders. Where debt
has been issued the issued share capital is shown separately.
The shares of a
company that have been allotted to shareholders.
An association of
persons to jointly explore, finance or direct a particular development
with a view to mutual profit. Maybe in various forms, that is, 50/50,
75/25 with the right to increase to 60/40 etc.
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Key
Performance Indicators
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Key Performance
Indicators (KPI) are quantifiable measurements, agreed to beforehand,
that reflect the critical success factors (of the company, department,
project.)
Key Success Indicators
are quantifiable measurements, agreed to beforehand, that reflect the
critical success factors (of the company, department, project.)
A contract by which
the owner of an asset (the lessor) permits another (the lessee) to use
the asset for a stated time in return for payment at an agreed rate.
The asset remains at all times the property of the lessor although sometimes
the lessee is given an option to purchase the asset either during the
currency of the lease or at its termination.
A term used to describe
property held other than in absolute ownership.
Liabilities are
future sacrifices of economic benefits stemming from present legal,
equitable, or constructive obligations of an entity to transfer assets
or provide services to other entities in the futures as a result of
past transaction or events affecting the entity.
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Limited
liability Company
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A company the liability
of whose members are limited by shares or guarantee. In the case of
the former, liability is limited to the amounts unpaid on the shares,
in the case of the latter by the amount undertaken to be contributed
in the event of a winding up of the company.
Assets which you
can easily convert into cash, such as shares or fixed interest investments.
A payment to creditors
on a winding up or bankruptcy when the creditors cannot be rapid in
full or are repaid in instalments.
A margin is the
monetary amount calculated by the Options Clearing House (OCH) as necessary
to cover the risk of financial loss on an options or futures contract.
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The total number
of shares on issue on issue multiplied by their market price. This can
be applied to work out the market value of one company or of the value
of all companies listed on the exchange.
The prevailing price
of shares traded on the exchange. May be the last price at which the
shares traded, or the most recent price offered or bid for the shares.
The risk of a general
decline in the market.
The date on which
futures contract ceases to exist.
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Memorandum of Association
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Part of a company’s
constitution, the formal document subscribed by those wishing to form
a company and giving details of the company, e.g. its name, objects
and particulars of capital. The document and any subsequent alterations
must conform to the requirements of the country’s company (corporations)
law.
A charge over property
given by the owner (borrower/mortgagor) to a lender (mortgagee) to secure
repayment of a loan or to ensure satisfaction of a debt.
A term to describe
managed investments.
NAV of an investment
fund refers to the total value of the fund’s underlying investment portfolio,
less any fees, charges, expenses and other liabilities accrued by the
fund.
Total assets minus
total liabilities; proprietorship; owner’s equity.
Current assets minus
current liabilities; working capital.
The excess of all
revenues and gains for a period over all expenses and losses of the
period.
The price at which
someone is prepared to sell shares (opposite to bid).
Offer Period means;
(a) in relation to a Takeover Bid, the period for which offers under
the bid remain open; or (b) in relation to a Scheme, the period from
the date an announcement of intention to propose a Scheme is first received
by the Exchange until the date on which the Scheme is effected.
Often defined as
the profit (loss) for the relevant period resulting from the operation
of the entity or group during the period of a kind carried on regularly
to achieve the objectives of the entity or group. It is usually shown
before tax and is also called Profit (Loss) form continuing ordinary
activities.
An option is a contract
between two parties giving the taker (buyer) the right, but not the
obligation, to buy or sell an underlying asset at a particular price
on or before a particular date.
The most commonly
traded security in Australia. Holders of ordinary shares are part-owners
of a company and may receive payments in cash, called dividends, if
the company trades profitably. A class |
