FinanceTalking Financial Glossary

An individual or organisation that specialises in exploiting companies with undervalued assets by initiating hostile takeover bids.

A rise in prices in a market, such as a stock exchange or commodity market, after a fall. This is usually brought about by a change in sentiment.

The practice of trying to boost the price of a share and the company behind it by buying the securities in the market with the object of raising demand. If the price rises, the ramper may be able to make a quick profit by selling. This behaviour amounts to market abuse and is illegal.

The theory that share prices move, for whatever reason, without any memory of past movements therefore follow no pattern.

The Risk Asset Ratio measures the amount of a bank's total regulatory capital in relation to the amount of risk it is taking. The idea is that all banks must ensure that a reasonable proportion of their risk is covered by permanent capital. Banks must maintain a minimum RAR (total capital ratio) of 8%. In effect, this means that 8% of the risk-weighted assets must be covered by permanent or near permanent capital. The higher the capital adequacy ratios a bank has, the greater the level of unexpected losses it can absorb before becoming insolvent ? so the less risky it should be.

The annual amount of income from an investment, expressed as a percentage of the original investment.

Often refers to a company's PE ratio or credit rating.

The debt rating agencies grade government and corporate bonds according to their probability of default. The main agencies are American ? Moody's and Standard & Poors. The cost of borrowing is influenced strongly by these ratings.

Risk-based capital (RBC) is the amount of capital that an insurance company/bank must have, passed on an assessment of risks that the company is taking, to protect policyholders/depositors against losses.

Refers to the re rating of a company's shares. A re rating (revaluation by stock market analysts) might follow a change of management or a new strategy.

Refers to the re rating of a company's shares. A re rating (revaluation by stock market analysts) might follow a change of management or a new strategy.

REITs are an investment fund which invests in property. This is a more tax-efficient structure than investing in the shares of a real estate company. The problem with property companies is that the investor is hit by double taxation. The company has to pay corporation tax on its rental income and any chargeable gains, then the shareholder has to pay income tax on dividends and capital gains tax too. REITs do not pay corporation tax, so private investors can invest in commercial property and only pay tax once.

The actual interest rate less the current rate of inflation.

A realised profit is one that has arisen from a completed transaction, as opposed to a notional or unrealised profit where the transaction is not yet completed.

Historical volatility of the share price over a defined period.

Amounts of money due to a business from customers.

A person exercising receivership. A situation in which a lender holds a mortgage or charge over a company's property and when the company defaults, a receiver is appointed to realise the assets charged in order to repay the debt.

A situation in which a lender holds a mortgage or charge over a company's property and when the company defaults, a receiver is appointed to realise the assets charged in order to repay the debt.

A body authorised in the UK to conduct investment activities on behalf of clients. The London Stock Exchange is an RIE.

An analyst's view on a company or sector communicated to investors. The definition of recommendation sets are determined by the company the analyst works for. Typical recommendations are: Buy/Hold/Sell; Outperform/Inline/Underperform; Overweight/neutral/underweight.

A loan may be described as with recourse, when there is some comeback on the borrower if the loan is not repaid. See also non-recourse.

The US term for a draft prospectus. In the UK, these are known as pathfinders.

A preference share that is repaid at some point, often at the option of the holder.

Repayment.

Consists approximately of the current yield (interest as a percentage of the capital value) plus the capital gain (or loss) divided by the number of years to redemption. Usually relates to bonds.

A method of depreciation that applies a constant percentage reduction first to the cost of the asset and subsequently to the written down value. In this way reducing amounts are charged periodically to the income statement. Arguably, this method results in truer values for the depreciated asset, but as it is more complicated it is less common than equal annual instalments.

A list of the members (shareholders) of a company, which all UK companies must keep at their registered office. It contains the names and addresses of the members and the dates on which they became members and also the dates on which any ceased to be members. The register must state the number and the class of the shares held by each member and the amount paid for the shares.

A list of the members (shareholders) of a company, which all UK companies must keep at their registered office. It contains the names and addresses of the members and the dates on which they became members and also the dates on which any ceased to be members. The register must state the number and the class of the shares held by each member and the amount paid for the shares.

The appointed agent of a company whose task is to keep a register of shareholders (also known as members).

A regulatory announcement is one which is required under UKLA rules (usually because it is likely to be price-sensitive) and which in the UK must be issued via a Regulatory Information Service, before being disseminated more widely.

Under the UKLA rules, listed companies are required to disseminate inside information (price-sensitive information) using a Regulatory Information Service, one of a number of primary information providers (PIPs) approved by the FSA before the information can be disseminated more widely. The system is designed to ensure the orderly release of price-sensitive information to all investors simultaneously.

Insurance companies will often pass on parts of the risks they agree to underwrite to other insurance companies. This is called reinsurance.

Real estate investment trusts ? an investment fund which invests in property. This is a more tax-efficient structure than investing in the shares of a real estate company. The problem with property companies is that the investor is hit by double taxation. The company has to pay corporation tax on its rental income and any chargeable gains, then the shareholder has to pay income tax on dividends and capital gains tax too. REITs do not pay corporation tax, so private investors can invest in commercial property and only pay tax once.

Relative performance is the performance of a stock against an index, sector or a defined peer group expressed as a percentage.

Valuation relative to other similar companies using multiples such as the P/E ratio.

A committee of non-executive directors charged with deciding on the pay and incentive schemes for executive directors.

The price at which the assets of an organisation could be replaced.

A repurchase agreement. A transaction in which one party 'purchases' securities (primarily Government bonds) for cash and simultaneously the other party agrees to 'buy' them back at some future time according to specified terms - a method of overcoming short-term shortages of funds, on an overnight basis.

Reported Exchange Rates. Company results using the exchange rates that were in force during each year (ie actual results) as opposed to Constant Exchange Rates (CER) results in which the prior year figures are restated using the exchange rates that were in force during the current reporting year - the idea being to strip out the effect of changing currency rates and show comparatives on a like for like basis.

Reserves are profits which have been retained in the business, rather than being paid out by way of dividends. Profits retained in this way are not necessarily represented by cash, since they may have been reinvested in various assets. Also referred to as retained profits or retained earnings.

A binding decision made by the shareholders of a company. If a motion is put before the shareholders at a general meeting and the required majority vote in favour of it, the motion is passed and becomes a resolution. An ordinary resolution requires 50% of the vote. A special resolution required 75% of the vote.

Mass-market banking in which personal and domestic customers use local branches of the commercial banks. It typically offers a wide range of such services as personal loans, mortgages, pensions and insurance as well as providing current accounts and savings accounts, cash and credit cards.

Retail funding in a bank comes from customer deposits. You could look at customer deposits as a percentage of total assets or the ratio of loans and advances to customers to deposits (less than 100% shows that the bank is lending out less than it is getting in from customers.

Retained earnings or reserves are profits which have been retained in the business, rather than being paid out by way of dividends. Profits retained in this way are not necessarily represented by cash, since they will be reinvested in a fixed asset or working capital.

Retained profits or reserves are profits which have been retained in the business, rather than being paid out by way of dividends. Profits retained in this way are not necessarily represented by cash, since they will be reinvested in a fixed asset or working capital.

The return on an investment is the amount that the investor receives both by way of income (interest or dividends) and by way of capital growth.

Return on capital is the profit as a percentage of the capital invested in the business. See ROCE, ROE and ROIC.

Return on capital employed is usually calculated as the operating profit as a percentage of capital employed in the business ? the debt plus the equity. It is sometimes referred to as the return on invested capital.

Return on equity is the net profit (after interest and tax) as a percentage of the equity or shareholders' funds.

Return on invested capital is usually calculated as the operating profit as a percentage of capital employed in the business - the net debt plus the equity. It is sometimes referred to as the return on capital employed.

A worldwide agency dealing in news, financial information, and trading services, including screen-based information.

A revaluation of a company's assets, either because they have increased in value since they were acquired or because inflation has made the balance sheet values unrealistic.

A separate part of retained profits (reserves) which arises from the upwards revaluation of non-current assets (fixed assets such as property, plant and equipment) and therefore is unrealised.

The profit arising on the revaluation of assets. This profit remains unrealised until the assets are actually sold.

Another term for sales or turnover - the volume of goods or services sold multiplied by the price.

A smaller company buying a larger company.

A bank loan facility that is negotiated for a specified period, but which can be drawn down as and when it is needed.

Revenue per Available Room. RevPAR, is an important metric in the hotel industry. It is calculated by multiplying a hotel's average daily room rate (ADR) by its occupancy rate.

Rcognised Investment Exchange. A body authorised in the UK to conduct investment activities on behalf of clients. The London Stock Exchange is an RIE.

An issue of shares to existing shareholders in proportion to their existing shareholdings in accordance with pre-emption rights - a principle established in company law, according to which shareholders have the right to maintain their percentage stake in the company. Shares are offered at a (small) discount to the market price. The issue is usually underwritten by a stockbroker who agrees to take up any shares which shareholders do not want.

Regulatory Information Service, Under the UKLA rules, listed companies are required to disseminate inside information (price-sensitive information) using a Regulatory Information Service, one of a number of primary information providers (PIPs) approved by the FSA before the information can be disseminated more widely. The system is designed to ensure the orderly release of price-sensitive information to all investors simultaneously.

The Risk Asset Ratio measures the amount of a bank's total regulatory capital in relation to the amount of risk it is taking. The idea is that all banks must ensure that a reasonable proportion of their risk is covered by permanent capital. Banks must maintain a minimum RAR (total capital ratio) of 8%. In effect, this means that 8% of the risk-weighted assets must be covered by permanent or near permanent capital. The higher the capital adequacy ratios a bank has, the greater the level of unexpected losses it can absorb before becoming insolvent ? so the less risky it should be. Also known as the solvency ratio.

Capital which has been invested into a project in which there is a substantial element of risk, especially money invested in a new venture or an expanding business in exchange for shares in the business. From the perspective of an investor, risk capital is equity rather than debt (where repayment and interest are both contractual entitlements).

The theoretical rate of return of an investment with zero risk. The risk-free rate represents the interest an investor would expect from a risk-free investment over a specified period of time.

Usually refers to the extra return that the investor requires to compensate for additional risk. The equity risk premium is the extra that shareholders expect for investing in shares rather than a risk-free investment such as government bonds. Over the last 90 years, the risk premium has been between 3% and 9%. Currently, most commentators believe that the risk premium is around 3% or 4%.

Risk-based capital (RBC) is the amount of capital that an insurance company/bank must have, passed on an assessment of risks that the company is taking, to protect policyholders/depositors against losses.

Risk-weighted assets measure credit risk in a bank's banking book ? ie loans etc (both on and off the balance sheet). A credit risk is a risk that the bank will not be able to recover the money it is owed. Risk weighting are assigned to all the bank's assets with weightings ranging from 0% for things like cash to 100% for risky assets such as loans to private sector companies. Under the new Basle II regulations, banks have the option of applying one of two approaches. They can either adopt a standardised approach with risk weights according to the type of asset AND the credit rating of the counterparty (eg a loan to a AAA corporate would be 20% risky under Basle II but would have been 100% risky under Basle I), or they can use an internal ratings based approach with risk weights calculated internally on the basis of statistical parameters. This approach is only available to banks with adequate risk management systems (approved by the FSA).

Return on Assets. Usually calculated as the operating profit as a percentage of total assets in the business.

Return on Average Capital Employed. Usually calculated as the operating profit as a percentage of the average capital employed in the business during the year ? the debt plus the equity. It is sometimes referred to as the return on invested capital.

Investor roadshows are a series of meetings with existing and potential investors at their offices. Roadshows are often undertaken after results or during the course of a deal (deal-related roadshows).

Return on Capital Employed. Usually calculated as the operating profit as a percentage of capital employed in the business ? the debt plus the equity. It is sometimes referred to as the return on invested capital.

Return on Equity. Ususally calculated as the net profit (after interest and tax) as a percentage of the equity or shareholders' funds.

Return on Embedded Value (in life insurance). RoEV shows the after tax profit as a percentage of the equity on an embedded value basis (ie valuing all existing contracts at present day values).

Return on Invested Capital .Usually calculated as the operating profit as a percentage of capital employed in the business - the net debt plus the equity. It is sometimes referred to as the return on capital employed.

A relief from capital-gains tax allowing tax on the disposal of an asset to be postponed by deducting the capital gain from the base cost of another asset acquired by the company making the original disposal.

The rate (of growth for example) calculated by extrapolating financial data collected from a period of time less than one year (say half a year) to a full year.

Risk-Weighted Assets. RWA measures credit risk in a bank's banking book ? ie loans etc (both on and off the balance sheet). A credit risk is a risk that the bank will not be able to recover the money it is owed. Risk weighting are assigned to all the bank's assets with weightings ranging from 0% for things like cash to 100% for risky assets such as loans to private sector companies. Under the new Basle II regulations, banks have the option of applying one of two approaches. They can either adopt a standardised approach with risk weights according to the type of asset AND the credit rating of the counterparty (eg a loan to a AAA corporate would be 20% risky under Basle II but would have been 100% risky under Basle I), or they can use an internal ratings based approach with risk weights calculated internally on the basis of statistical parameters. This approach is only available to banks with adequate risk management systems (approved by the FSA).