Financial Terms

A

TermMeaning
Absolute (returns)The absolute return is a measure of the gain or loss on an investment portfolio expressed as a percentage of invested capital.
All Ordinaries IndexThe oldest index of shares in Australia, so called because it contains nearly all ordinary (or common) shares listed on the Australian Securities Exchange (ASX).
AnnuityAn Annuity is any continuing payment with a fixed total annual amount.
Asset ClassA group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. The three main asset classes are equities (stocks), fixed-income (bonds) and cash equivalents (money market instruments).
Australian Securities Exchange (ASX)The Australian Securities Exchange is Australia’s primary securities exchange. It was created by the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006.

B

TermMeaning
BondA bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity. Interest is usually payable at fixed intervals.
Budget DeficitA deficit is an excess of expenditures over revenue in a given time period.
Bull/Bear MarketA “bull/bear market”describes upward and downward market trends, respectively and can be used to describe either the market as a whole or specific sectors and securities.

C

TermMeaning
Cash FlowCash flow is the movement of money into or out of a business, project, or financial product.
Central BanksA central bank, reserve bank, or monetary authority is an institution that manages a state’s currency, money supply, and interest rates.
Closing PriceThe final price at which a security is traded on a given trading day.
Cumulative ReturnCumulative return is the entire amount of money an investment has earned for an investor, irrespective of time.
Current YieldThe current yield, interest yield, income yield, flat yield, market yield, mark to market yield or running yield is a financial term used in reference to bonds and other fixed-interest securities such as gilts. It is the ratio of the annual interest payment and the bond’s current clean price.

D

TermMeaning
DefaultA default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant (condition) of the debt contract.
DividendA dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, it can either re-invest it in the business (called retained earnings), or it can distribute it to shareholders.

E

TermMeaning
Earnings Per ShareEarnings per share (EPS) is the dollar value of earnings per each outstanding share of a company’s common stock.
Earnings YieldEarnings yield is the quotient of earnings per share divided by the share price. It is the reciprocal of the P/E ratio.
Emerging MarketsAn emerging market is a nation with social or business activity in the process of rapid growth and industrialization.
EquityThe value of an ownership interest in property, including shareholders’ equity in a business

F

TermMeaning
Fiscal PolicyFiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy.
Franked DividendFully franked shares have had Australian company tax deducted (30%).
Franking CreditsThe Australian tax system allows companies to attach franking credits to dividends paid. A franking credit is a nominal unit of tax paid by companies using dividend imputation. Franking credits are passed on to shareholders along with dividends.
FTSEThe FTSE 100 Index, also called FTSE 100, FTSE, or, informally, the “footsie”, is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization.

G

TermMeaning
GearingThe level of a company’s debt related to its equity capital, usually expressed in percentage form.
Government BondA government bond is a bond issued by a national government, generally with a promise to pay periodic interest payments and to repay the face value on the maturity date. Government bonds are usually denominated in the country’s own currency.
Gross Domestic Profit (GDP)Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period of time.

H

TermMeaning
Hang Seng IndexThe Hang Seng Index (abbreviated: HSI, Chinese) is a free float-adjusted market capitalization-weighted stock market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong.
Hedge FundsA hedge fund is a collective investment scheme, often structured as a limited partnership, that invests private capital speculatively to maximize capital appreciation.
HedgingA hedge is an investment position intended to offset potential losses/gains that may be incurred by a companion investment. In simple language, a hedge is used to reduce any substantial losses/gains suffered by an individual or an organization.

I

TermMeaning
InflationInflation is a rise in the general level of prices of goods and services in an economy over a period of time.
InterestInterest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds.
Internal Monetary Fund (IMF)The International Monetary Fund (IMF) is an international organization that was initiated in 1944 at the Bretton Woods Conference and formally created in 1945 by 29 member countries. The IMF’s stated goal was to assist in the reconstruction of the world’s international payment system post–World War II. Countries contribute money to a pool through a quota system from which countries with payment imbalances can borrow funds temporarily.

L

TermMeaning
LeverageLeverage (sometimes referred to as gearing in the United Kingdom and Australia) is a general term for any technique to multiply gains and losses .Leverage exists when an investor achieves the right to a return on a capital base that exceeds the investment which the investor has personally contributed to the entity or instrument achieving a return.
LiquidityLiquidity is an asset’s ability to be sold without causing a significant movement in the price and with minimum loss of value. Money, or cash, is the most liquid asset, and can be used immediately to perform economic actions like buying, selling, or paying debt, meeting immediate wants and needs.

M

TermMeaning
Managed FundA managed fund is a professionally managed investment portfolio. They can include investments in shares, property, fixed interest, cash and more.
Marginal Tax RateA marginal tax rate is the tax rate that applies to the last unit of currency of the tax base (taxable income or spending), and is often applied to the change in one’s tax obligation as income rises.
Market ValueMarket value is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may differ in some circumstances.
Monetary PolicyMonetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability

N

TermMeaning
NASDAQThe NASDAQ Stock Market, commonly known as the NASDAQ, is an American stock exchange. “NASDAQ” originally stood for National Association of Securities Dealers Automated Quotations.
Negative GearingNegative gearing is a form of leveraged investment in which an investor borrows money to buy an asset, but the income generated by that asset does not initially cover the interest on the loan (interest > income).
Net ProfitNet profit, also referred to as the bottom line, net income, or net earnings is a measure of the profitability of a venture after accounting for all costs.
Nominal ReturnThe amount of money generated by an investment before expenses such as taxes, investment fees and inflation are factored in.

P

TermMeaning
P/E RatioA P/E or “Price to earnings” ratio is calculated by dividing the price of the share by how much it is earning (note that earnings are not necessarily paid in dividends – they may be retained). It is essentially an estimate of how long it will take for the investment to pay for itself. i.e. If there is a P/E ratio of 10 then it would take 10 years (assuming earnings stayed the same), to make back the cost of buying the share. (Not taking in to account any taxation implications obviously). Analysts commonly use this figure as a means to try and assess the “fair price” of a stock.
Pension FundA pension fund is any plan, fund, or scheme which provides retirement income. Pension funds are important to shareholders of listed and private companies.

Q

TermMeaning
Quantitative EasingQuantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the national economy when standard monetary policy has become ineffective.

R

TermMeaning
Reserve Bank of Australia (RBA)The bank has the responsibility of providing services to the Government of Australia in addition to also providing services to other central banks and official institutions.

S

TermMeaning
S&P 500The S&P 500, or the Standard & Poor’s 500, is a stock market index based on the market capitalizations of 500 leading companies publicly traded in the U.S. stock market, as determined by Standard & Poor’s. It differs from other U.S. stock market indices such as the Dow Jones Industrial Average and the Nasdaq due to its diverse constituency and weighting methodology
Share PriceA share price is the price of a single share of a number of saleable stocks of a company, derivative or other financial asset.

U

TermMeaning
Unfranked DividendsUnfranked dividends are gross dividends without prepaid tax.

V

TermMeaning
VolatilityVolatility is a measure for variation of price of a financial instrument over time.

Y

TermMeaning
YieldYield is a measure of the percentage of income return you get from an asset. This measure applies to a number of assets, but especially shares and real estate.