From “The Press”, financial review Investment terms

Press, 4 August 1981, Page 12

From “The Press”, financial review Investment terms

The share market has terms which are peculiar to investing. These terms may confuse a newcomer and an explanation of them is:—-

Asset Backing: the company’s net assets, after meeting liabilities, which cover capital.

Bear: one who sells shares in anticipation of a falling market, perhaps with the intention of buying again at a lower level.

Authorised Capital: the amount of capital which the company is allowed to issue under its rules. Frequently, the authorised amount exceeds the capital issued.

Bonus Dividend: a cash distribution made from profits or reserves paid in addition to the usual dividend. Bonus Issue: shareholders are given free shares, the number of which depends on how many are held and the terms of the issue. A one-for-four bonus issue means that a shareholder owning 400 shares would receive 100 shares.

Bull: a buyer on a rising market, hoping that he can resell later at a profit.

Call: if the shares are not fully paid up (i.e.. a share with a face value of 100 c of which only 75c has been paid) when the directors make a call for a further payment which may be part

of or the balance of the face value.

Capital: usually refers to the ordinary shares issued and paid up. The modern practice is to exclude preference capital.

Convertible Notes: a loan to the company, usually unsecured, which instead of being repaid in cash, is converted into shares at a predetermined rate. Cum Dividend: the buyer of the shares takes the dividend owing.

Cumulative Preference Shares: holders of these receive dividends before the ordinary shareholders. Any arrears of preference dividends must be made good before the ordinary shareholders receives dividends.

Cum Rights: the buyer takes part in a new share issue contemplated by the company. Dividend Yield: shows how much an investor would receive if the current dividend were held steady, at the current market price. If a share with a face value of IOOc sold at 150 c. then the buyer's dividend yield on a declared dividend of 10 per cent would be 6.7 per cent. Earning Rates: are an indication of profitability by the company and are usually expressed on shareholders’ funds and capital. The rate on shareholders’ funds is calculated by averaging the funds at. the. beginning and end of each year and then

dividing this into the profit multiplied by 100. In each case, preference capital and preference dividend is omitted from the calculation.

Equity: the' equity of a company, is the -value of the net assets as represented by the ordinary shares. Therefore ordinary*- shares are sometimes called equities. The holders of equities bear the risk:, they carry the rewards of good, and the penalty of bad, trading. Ex Dividen: the. buyer of the shares is not entitled to the dividend owing.

Ex Issue: the buyer is not entitled to take part in the issue contemplated by the company.

Face Value: the original value of . the share. Also called the nominal or par value.

Final Dividend: the last dividend made by the company for the year’s - trading.

Issued Capital: the capital issued .to shareholders by

Interim Dividend: the dividend declared for the first six months of trading by the company.

Interim Report: made by directors to shareholders, outlining how the company fared in the first six months of its trading year.

directors from authoriseo capital. If the authorised capital is $lOO,OOO then directors might issue $50,000, leaving another $50,000 as unissued capital.

Listed Companies: those which have complied with stock exchange regulations for their shares or stock.

Marketable Parcel:the number of shares that can be traded as a unit.

Odd Lots: a parcel of shares that is short of the

minimum required for a marketable parcel. Paid Up Capital: the amount of the issued capital which has been paid. If 100,000 shares with a face value of 100 c have been issued but only 50c on each share paid up, then the paid up value totals $50,000.

Par Value: the same as face or nominal value.

Pari Passu: rank equally with an in all respects. Participating Preference Shares: enable the holder to receive dividend increases made to ordinary’ shareholders. perhaps subject to an upper limit,

Preference Shares: often a misnomer and' may be preferred only as to dividend payment. Sometimes they give priority when the company is wound up. Shareholders receive a fixed rate of dividend.

Premium: occurs when a share is issued at a price above its par value.

Renunciation: where a shareholder can give ,up his right to new shares to another.

Rights: allows a shareholder to take up shares in a new issue. Whoever buys rights then take up the issue instead of the shareholder.

Scrip: a, company’s share certificate.

Shareholders’ Funds: the company’s paid up capital plus reserves. Ordinary funds have preference capital excluded.

Stag: one who applies for new issues in the hope of a quick sale and a profit once the shares are traded on the share market.

Underwriter: one who contracts to take up shares or stock not taken in an issue.