FinanceTalking Financial Glossary

Profit & Loss. The profit and loss account or income statement shows the income earned during a period and the expenses incurred, and how they combine to make a profit or a loss.

Price to Book ratio (also known as price/NAV). The P/Bratio shows the company's share price to the net asset (or book) value per share. It shows how much investors are prepared to pay per ?1 of net assets.

Price to Book ratio (also known as price/NAV) . The P/BV ratio shows the company's share price to the net asset (or book) value per share. It shows how much investors are prepared to pay per ?1 of net assets.

Price Earnings ratio. The ratio of a company's share price to the profits per share (earnings per share or EPS). It shows how much investors are prepared to pay per ?1 of profit (or how many years it would take to get your money back if profits continue at the same rate). The higher the PE ratio, the higher investors rate your shares. This is usually because they like the quality and predict good growth without too much risk.

Price to Net Asset Value ratio (also known as price/book). The P/NAVratio shows the company's share price to the net asset (or book) value per share. It shows how much investors are prepared to pay per ?1 of net assets.

The total amount of money that the shareholders of a company have paid to the company for their shares.

The total amount of money that the shareholders of a company have paid to the company for their shares.

The Panel on Takeovers and Mergers is the body that oversees takeover activity in the UK. The Panel will get involved where the target company has public shareholders. It operates a code of conduct called the City Code, whose main aim it to ensure fair play during the course of the bid.

The Panel on Takeovers and Mergers is the body that oversees takeover activity in the UK. The Panel will get involved where the target company has public shareholders. It operates a code of conduct called the City Code, whose main aim it to ensure fair play during the course of the bid.

An informal name for securities, especially shares.

The profit shown in a company's accounts that is not yet realised. For example, a building may be worth more than book value, but the profit is only a paper profit until the building is sold.

All shares have a nominal or par value. This value bears no relation to the market price of the shares, which is determined by supply and demand. The nominal value is usually the very first issue price of the shares. From then onwards, the nominal value is of little significance except that legally, shares cannot be issued at a price below nominal value. When shares are issued, the nominal value is recorded in the balance sheet as share capital and any amount paid over nominal value is recorded as share premium.

This means ranking equally. When a new issue of shares is said to rank pari passu with existing shares, the new shares carry the same dividend rights and winding-up rights as the existing shares.

Shares on which the full nominal or par value has not been paid.

An association of two or more people formed for the purpose of carrying on a business. A partnership does not have a legal personality of its own and therefore partners are liable for the debts of their firm.

A passive investor does not try to beat a benchmark index like an active investor, but simply aims to mirror it by investing in companies precisely in accordance with the constituents of the index. Passive funds have far lower expenses, so the charges to investors are lower than for active funds.

A draft prospectus issued in advance of flotation to market the shares in advance of the official launch.

A method of appraising capital projects in which the principle criterion for acceptance is the length of time the project will take to recover the initial outlay it requires.

A type of deferred-coupon structure that allows the issuer the option of paying interest with additional bonds, rather than cash at any given coupon payment date. Also known as PIKs.

The dividend as a proportion of profits available to the shareholders. For instance, a company that pays out half its profits by way of dividend would have a payout ratio of 50%. See also dividend cover.

Persons Discharging Managerial Responsibility. People similar to board directors, who have access to price-sensitive information on a regular basis and who therefore must not deal in the company's shares in a close period (eg after the year end but before the results are announced).

Price Earnings ratio. The ratio of a company's share price to the profits per share (earnings per share or EPS). It shows how much investors are prepared to pay per ?1 of profit (or how many years it would take to get your money back if profits continue at the same rate). The higher the PE ratio, the higher investors rate your shares. This is usually because they like the quality and predict good growth without too much risk.

Shares with a very low market price (a matter of a few pence).

State and private pension contributions invested to provide funds from which pensions are paid. Pension funds are major investors in the equity markets. See also defined benefits and defined contributions.

Personal Equity Plan. The UK government scheme set up in 1987 to encourage individuals to invest directly in UK quoted companies, offering investors certain tax benefits. PEPs have now been superseded by ISAs.

Price Earnings ratio. The ratio of a company's share price to the profits per share (earnings per share or EPS). It shows how much investors are prepared to pay per ?1 of profit (or how many years it would take to get your money back if profits continue at the same rate). The higher the PE ratio, the higher investors rate your shares. This is usually because they like the quality and predict good growth without too much risk.

Shares which pay a contractual rate of interest rather than dividends (which are at the directors' discretion). PIBS are most common in Building Societies. They count as tier 1 capital for a bank or building society because the capital is permanent.

Similar to PIBS, Perpetual Tier 1 Notes pay interest but the capital is permanent, so the capital falls into tier 1 for bank regulatory purposes. Like many similar instruments, these were created to meet the requirement for tier 1 capital.

The UK government scheme set up in 1987 to encourage individuals to invest directly in UK quoted companies, offering investors certain tax benefits. Also known as PEPs. Now superceded by ISAs.

A tax on the profits from oil exploration and mining.

Permanent Interest Bearing Shares. Shares which pay a contractual rate of interest rather than dividends (which are at the directors' discretion). PIBS are most common in Building Societies. They count as tier 1 capital for a bank or building society because the capital is permanent. Also known as PIBS.

Payment in Kind Bonds. A type of deferred-coupon structure that allows the issuer the option of paying interest with additional bonds, rather than cash at any given coupon payment date.

Primary Information Provider. Under the UKLA Rules, listed companies are required to disseminate all inside information (price-sensitive information) via a Regulated Information Service (RIS) using one of a number of approved Primary Information Providers (PIPs) such as RNS, PR Newswire etc.

Private Investment in Public Equity. Private investors taking a minority stake in a listed company as part of a private equity transaction. For the listed company, PIPE transactions offer a more immediate and efficient access to capital than secondary share offerings. They are also good for credibility - as the company has received backing from sophisticated private equity investors. The funding may be equity or a mixture of equity and debt.

An area in a stock exchange, commodity market etc, in which a particular stock or commodity etc. is traded. Dealers in these markets are called pit traders.

An issue of shares not on a pre-emptive basis. Shares are placed with selected investors, rather than being offered to existing shareholders. Existing shareholders must vote to waive their pre-emptive rights for the company to be able to issue shares by way of a placing.

An issue of shares not on a pre-emptive basis. Shares are placed with selected investors, rather than being offered to existing shareholders. Existing shareholders must vote to waive their pre-emptive rights for the company to be able to issue shares by way of a placing.

Public Limited Company. A company which is registered as public and therefore legally allowed to sell its shares to the public. See also limited.

A UK unregulated market for trading in shares ? used to be called Ofex.

A tactic used by a company that fears an unwanted takeover. Typically the company ensures that a successful takeover bid will trigger some event that substantially reduces the value of the company.

Voting at an AGM in the UK can either be carried out by a show of hands, where each person has one vote, regardless of the number of shares he or she holds, or by a poll (like a ballot) where votes are counted according to the number of shares held.

The list of holdings in securities owned by an investor.

An analytical approach to the selection and management of a portfolio of investments. Shares are assessed to determine their volatility or risk and a portfolio is chosen with a view to cancelling out this risk by holding shares in a diverse selection of companies.

A company with high fixed costs (costs that don't vary with sales) is said to have high operational gearing. The implication is that if sales increase by a small amount, there will be a disproportionate increase in profits. Conversely, if sales fall by a small amount, there will be a disproportionately large decrease in profit. Sales volume is very important to companies with high fixed costs. Banks can theoretically increase profits significantly by doing a high volume of new business from the same cost base. The two-pronged approach of doing lots of new business and reducing costs should magnify this effect ie it creates 'positive jaws'.

Panel on Takeovers and Mergers.POTAM is the body that oversees takeover activity in the UK. The Panel will get involved where the target company has public shareholders. It operates a code of conduct called the City Code, whose main aim it to ensure fair play during the course of the bid.

Potential Problem Loans.

Prospectus Rules. The PR form part of the UKLA rules for companies listed on the London Stock Exchange. The Prospectus Rules set out the rules for preparing the prospectus - the marketing document which enables a company's shares to be listed across Europe. Alternatively, Public Relations.

The right of first refusal - usually relating to the right of shareholders to have first refusal over any new shares that a company issues.

A principle established in company law, according to which shareholders have the right to maintain their percentage stake in the company. So when new shares are issued, a company must first offer these shares to existing shareholders in proportion to their existing shareholdings by way of a 'rights issue' - an issue of shares to existing shareholders in accordance with pre-emptive rights.

The profit of a company after adding or deducting interest, but before deduction of corporation tax. Also known as income before tax or earnings before tax.

Preference share. A share in a company, usually offering a fixed rate dividend. Preference shareholders get their dividends before ordinary shareholders and they will be repaid before the ordinary shareholders in the event of a winding up. A preference share is an intermediate form of security between an ordinary share and a bond.

A share in a company, usually offering a fixed rate dividend. Preference shareholders get their dividends before ordinary shareholders and they will be repaid before the ordinary shareholders in the event of a winding up. A preference share is an intermediate form of security between an ordinary share and a bond.

The current value of an amount of money receivable at some time in the future. To calculate the present value of a cash flow, the amount is discounted back to present day values using an interest rate that reflects opportunity cost.

The ratio of a company's current share price to last year's earnings per share (profit per share). You would expect a relatively high P/E for growth companies and recovery situations and a relatively low P/E for ex-growth or mature companies, or where companies or sectors have bad prospects.

Information which, if it were made public, would be likely to have a significant effect on the price of a company's shares. In the UK, such information must be made public via a Regulatory Information Service (RIS), rather than disclosed selectively.

The ratio of the company's share price to the net asset (or book) value per share. It shows how much investors are prepared to pay per ?1 of net assets.

The ratio of the company's share price to the net asset (or book) value per share. It shows how much investors are prepared to pay per ?1 of net assets.

Many international companies have a primary listing (ie a main or first listing) on their own country's domestic stock exchange and secondary listings on other exchanges to enable the shares to be traded easily by overseas investors. Secondary listings usually carry lighter regulatory requirements because the company is already complying with the full requirements of the primary market.

If a security is newly issued, then the issuer receives funds direct from the lender/investor. This is called a primary market transaction. An IPO is an example of a primary market transaction. Subsequently, investors trade these securities on the secondary market.

An investment grade loan ? ie one that is unlikely to default. See also debt rating.

The total of the direct costs incurred in making a product.

A person on whose behalf an agent or broker acts. Could also refer to the amount of a loan excluding any interest owing.

Originally a commercial bank owned by one person or a partnership. These banks were normally quite small and conservative, specialising in certain banking services. Today there are few truly private banks in the old sense. Instead, the term most often refers to banks that give a high degree of personal service and specialise in managing investments for wealthy private individuals.

Individual private investors as opposed to institutions as customers of a stockbroker or fund manager.

Shares in unlisted companies. Private equity funds often invest in companies that want to take themselves off the stock exchange official list by doing management buy-out. Private equity funds may also provide early stage venture and development capital.

Any limited company that is not a public limited company and who is therefore not permitted to offer its shares for sale to the public.

The selling of shares in a company direct to institutional investors, without offering them to the public.

The process of selling a publicly owned company to the private sector.

A statement as to how a company's profits or balance sheet would have looked if a certain event had taken place at an earlier date. The idea of pro forma information is to show the accounts on a like for like basis so that more meaningful comparisons can be drawn.

An industry is pro-cyclical if it goes with the economic cycle (ie it is not countercyclical). For example, banks are often described as pro-cyclical since as the state of the economy worsens, banks will experience more and more defaults. This pro-cyclicality is problematic for a bank's capital ratios. As credit conditions worsen, the bank's ratios will deteriorate very rapidly. Tier 1 capital will fall as loan impairments mount up. At the same time, risk-weighted assets will increase (as credit quality reduces (and therefore the riskiness of the assets increases).

A statement as to how a company's profits or balance sheet would have looked if a certain event had taken place at an earlier date. The idea of pro forma information is to show the accounts on a like for like basis so that more meaningful comparisons can be drawn.

The profit after all the expenses that can be allocated to particular products ? ie after cost of sales, distribution, advertising and marketing etc. Allows us to compare the profitability of each product.

For a product, the excess of the selling price over the costs.

The profit and loss account or income statement shows the income earned during a period and the expenses incurred, and how they combine to make a profit or a loss.

A forecast by the directors of a company of the profits to be expected in a stated period. Explicit profit forecasts are unusual in the UK except perhaps in support of a flotation or a bid defence, when they are accompanied by an accountant's report. In the US, there is a legal safe harbour for forward looking information and some companies routinely disclose forecast profits.

Profit as a percentage of revenue (turnover or sales).

Selling securities etc to crystallise a profit.

An announcement made by a public company in advance of its earnings announcement indicating that profits will fall short of previously expected levels (consensus forecasts).

Trading on international stock exchanges using a computer to exploit differences between stock index futures and actual share prices. The programmes trigger trades automatically once certain limits are reached. Program trading accounts for a high proportion of trading volume on some exchanges.

A progressive dividend policy is one where the dividend is expected to rise at least in line with increases in earnings per share. However, if earnings per share falls, the dividend will not be reduced.

Proprietary or prop trading is when an investment bank trades in shares to make a profit for its own book. Goldman Sachs for example, does a large amount of prop trading.

Proprietary or prop trading is when an investment bank trades in shares to make a profit for its own book. Goldman Sachs for example, does a large amount of prop trading.

The marketing document produced when a company is floated on a stock exchange (also called listing particulars).

The Prospectus Rules form part of the UKLA rules for companies listed on the London Stock Exchange. They set out the rules for preparing the prospectus - the marketing document which enables a company's shares to be listed across Europe.

A provision is an allocation of profit to cover either the fall in value of an asset (depreciation, bad debts etc) or a future expense (such as reorganisation, pensions or tax). In the case of provisions for expenses, the amount is deducted from profits under accruals concept, but the cash may not be spent until a later accounting period. In this case, the provision will appear in the accounts as a creditor (payable).

In accounting, an amount of profit allocated to cover an expected bad debt. Often referred to as an impairment charge.

In accounting, an amount of profit allocated to allow for the depreciation of a fixed (non-current) asset.

A person who acts in the place of a shareholder at a company meeting at which votes are taken (such as the Annual General Meeting).

A shareholder can either vote in person at a shareholder meeting or he/she can authorise in writing another person to vote on his/her behalf (usually the chairman). So a proxy is a vote exercised by one person on the behalf of another.

Petroleum Revenue Tax. A tax on the profits from oil exploration and mining.

A principle of accounting designed to ensure that unrealised profits are not distributed to shareholders by way of dividend. The prudence concept should ensure that the accounts are conservatively stated.

A company which is registered as public and therefore legally allowed to sell its shares to the public.

A company which is registered as public and therefore legally allowed to sell its shares to the public. See also limited.

The US term for an offer for sale.

Where shares are marketed to particular institutions rather than offered generally.

A public to private transaction is when a listed company is acquired by a private company and is therefore 'taken private'. The shares will then be owned by the new purchaser, rather than the public/institutions. Very often, much of the funding from these transactions comes from private equity firms.

The UKLA rules, with which all main market listed companies must comply.

An option to sell a security, purchased in the expectation of a falling price.

Present Value. Today's value of the money that you expect to receive in the future, taking into account the opportunity cost (what you could have done with it if you'd had the money now). See also DCF.

Present Value of New Business Premiums (in life insurance). PVNBP is a measure of new business sales - today's value of the new business premiums. This includes single premium business written during the year and regular premium business written during the year ? all discounted back to present day values to take into account the time value of money. PVNBP expresses the value of premiums that the insurance company will get over the life of new policies in terms of what they are worth today.