|
10-K
A report similar to the annual report, except that it contains more detailed information about the company’s business, finances, and management. It also includes the bylaws of the company, other legal documents, and information about any lawsuits in which the company is involved. All publicly trade companies are required to file a 10-K report each year to the SEC.
ADR
American Depository Receipt. A negotiable certificate issued by a U.S. bank representing a specific number of shares of a foreign stock traded on a U.S. stock exchange. ADRs make it easier for Americans to invest in foreign companies, due to the widespread availability of dollar-denominated price information, lower transaction costs, and timely dividend distributions.
Acquisition
Acquiring control of a corporation, called a target, by stock purchase or exchange, either hostile or friendly. also called takeover.
AMEX
American Stock Exchange. The second-largest stock exchange in the U.S., after the New York Stock Exchange (NYSE). In general, the listing rules are a little more lenient than those of the NYSE, and thus the AMEX has a larger representation of stocks and bonds issued by smaller companies than the NYSE. Some index options and interest rate options trading also occurs on the AMEX. The AMEX started as an alternative to the NYSE. It originated when brokers began meeting on the curb outside the NYSE in order to trade stocks that failed to meet the Big Board’s stringent listing requirements, but the AMEX now has its own trading floor. In 1998 the parent company of the NASDAQ purchased the AMEX and combined their markets, although the two continue to operate separately. also called The Curb.
Annual Report
Audited document required by the SEC and sent to a public company's or mutual fund's shareholders at the end of each fiscal year, reporting the financial results for the year (including the balance sheet, income statement, cash flow statement and description of company operations) and commenting on the outlook for the future. The term sometimes refers to the glossy, colorful brochure and sometimes to Form 10-K, which is sent along with the brochure and contains more detailed financial information. All 10-Ks for public companies and mutual funds incorporated in the U.S. are available on the SEC's website for free.
Audited Financial Statements
A company's financial statements which have been prepared and certified by a Certified Public Accountant (the auditor). In the U.S., the auditor certifies that the financial statements meet the requirements of the U.S. GAAP. An auditor can have an unqualified opinion, in which he or she agrees with how the company prepared the statements, or a qualified opinion, in which he or she states which aspects of the company's statements he or she does not agree with. In extreme cases, the auditor may express no opinion on financial statements at all, in the case that the scope of the audit was insufficient.
Auditor
An individual qualified (at the state level) to conduct audits.
Blue Sky Laws
State regulations governing the sale of securities and mutual funds, designed to safeguard investors from being lured into fraudulent or unscrupulous deals.
Board of Directors
Individuals elected by a corporation's shareholders to oversee the management of the corporation. The members of a Board of Directors are paid in cash and/or stock, meet several times each year, and assume legal responsibility for corporate activities. also called directorate.
Bond
A certificate of debt that is issued by a government or corporation in order to raise money with a promise to pay a specified sum of money at a fixed time in the future and carrying interest at a fixed rate. Generally, a bond is a promise to repay the principal along with interest (coupons) on a specified date (maturity).The main types of bonds are corporate bond, municipal bond, treasury bond, treasury note, treasury bill, and zero-coupon bond. It is a tradable debt instrument that might be sold at above or below par (the amount paid out at maturity), and are rated by bond rating services such as Standard & Poor's and Moody's Investors Service, to specify likelihood of default. The Federal government, states, cities, corporations, and many other types of institutions sell bonds. It is relatively more secured than equity and has priority over shareholders if the company becomes insolvent and its assets are distributed.
Brokerage Firm
Used interchangeably with broker when referring to a firm rather than an individual. also called brokerage house or brokerage.
Broker/Dealer
Any individual or firm in the business of buying and selling securities for itself and others. Broker/dealers must register with the SEC. When acting as a broker, a broker/dealer executes orders on behalf of his/her client. When acting as a dealer, a broker/dealer executes trades for his/her firm's own account. Securities bought for the firm's own account may be sold to clients or other firms, or become a part of the firm's holdings.
Business Model
A description of the operations of a business including the components of the business, the functions of the business, and the revenues and expenses that the business generates.
Business Plan
A document prepared by a company's management, detailing the past, present, and future of the company, usually designed to attract capital investment.
Bylaws
The official rules and regulations which govern a corporation's management. Drawn up at the time of incorporation, along with the charter.
CEO
Chief Executive Officer. The executive who is responsible for a company's operations, usually the President or the Chairman of the Board.
Chief Financial Officer
CFO. The executive who is responsible for financial planning and record-keeping for a company.
Chairman of the Board
The highest-ranking officer in a corporation's board of directors. Presides over corporate meetings. Sometimes has executive authority over a firm, sometimes does not.
Chief Operating Officer
COO. The executive who is responsible for the day-to-day management of a company.
Closed Corporation
A corporation in which all of the voting stock is held by a few shareholders, such as management or family members. also called private company.
Common Stock
Securities representing equity ownership in a corporation, providing voting rights, and entitling the holder to a share of the company's success through dividends and/or capital appreciation. In the event of liquidation, common stockholders have rights to a company's assets only after bondholders, other debt holders, and preferred stockholders have been satisfied. Typically, common stockholders receive one vote per share to elect the company’s board of directors (although the number of votes is not always directly proportional to the number of shares owned). The board of directors is the group of individuals that represents the owners of the corporation and oversees major decisions for the company. Common shareholders also receive voting rights regarding other company matters such as stock splits and company objectives. In addition to voting rights, common shareholders sometimes enjoy what are called "preemptive rights". Preemptive rights allow common shareholders to maintain their proportional ownership in the company in the event that the company issues another offering of stock. This means that common shareholders with preemptive rights have the right but not the obligation to purchase as many new shares of the stock as it would take to maintain their proportional ownership in the company. also called junior equity.
Consolidation
The combining of separate companies, functional areas, or product lines, into a single one. Differs from a merger in that a new entity is created in the consolidation.
Convertible Security
Bond, preferred stock, or debenture that is exchangeable at the option of the holder for common stock of the issuing corporation.
Corporation
The most common form of business organization, and one which is chartered by a state and given many legal rights as an entity separate from its owners. This form of business is characterized by the limited liability of its owners, the issuance of shares of easily transferable stock, and existence as a going concern. The process of becoming a corporation, call incorporation, gives the company separate legal standing from its owners and protects those owners from being personally liable in the event that the company is sued (a condition known as limited liability). Incorporation also provides companies with a more flexible way to manage their ownership structure. In addition, there are different tax implications for corporations, although these can be both advantageous and disadvantageous. In these respects, corporations differ from sole proprietorships and limited partnerships.
Dilution
The change in earnings per share or book value per share that would result if all warrants and stock options were exercised and all convertible securities were converted.
Director
One of several individuals elected by a corporation's shareholders to establish company policies, including selection of operating officers and payment of dividends.
Disclosure
The release of relevant information.
Earnings
Revenues minus cost of sales, operating expenses, and taxes, over a given period of time. Earnings are the reason corporations exist, and are often the single most important determinant of a stock's price. Earnings are important to investors because they give an indication of the company's expected future dividends and its potential for growth and capital appreciation. That does not necessarily mean that low or negative earnings always indicate a bad stock; for example, many young companies report negative earnings as they attempt to grow quickly enough to capture a new market, at which point they'll be even more profitable than they otherwise might have been. also called income.
Earnings per Share
EPS. 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"). Note that last year's EPS would be actual, while current year and forward year EPS would be estimates.
Exchange
Any organization, association or group which provides or maintains a marketplace where securities, options, futures, or commodities can be traded; or the marketplace itself.
Form S-1
A registration statement used in the initial public offering of securities.
Full Disclosure
An obligation to disclose all the facts relevant to a business transaction or to a security, as required by the SEC or another government entity.
Fundamental Analysis
A method of security valuation which involves examining the company's financials and operations, especially sales, earnings, growth potential, assets, debt, management, products, and competition. Fundamental analysis takes into consideration only those variables that are directly related to the company itself, rather than the overall state of the market or technical analysis data.
Incorporation
The process by which a business receives a state charter, allowing it to become a corporation.
Initial Public Offering
IPO. The first sale of stock by a company to the public.
Insider
A shareholder who owns more than 10% of a corporation, or an officer or director or any individual who has inside information.
Inside Information
Material information about a company which is known by the company's board of directors, management, and/or employees but not by the public. The SEC forbids trading based on such information.
Insider Trading
Trading by insiders; or illegal trading by insiders who trade based on insider information.
Investment Advisers Act of 1941
1941 Congressional law requiring all investment advisers to register with the SEC, designed to protect investors from fraud and misrepresentation.
Investment Bank
An individual or institution which acts as an underwriter or agent for corporations and municipalities issuing securities. Most also maintain broker/dealer operations, maintain markets for previously issued securities, and offer advisory services to investors. investment banks also have a large role in facilitating mergers and acquisitions, private equity placements and corporate restructuring. Unlike traditional banks, investment banks do not accept deposits from and provide loans to individuals. also called investment banker.
Issuer
A company or municipality offering (or having already offered) securities for sale to investors. Examples include corporations, investment trusts, and government entities.
Listing
The acceptance of a security for trading on a registered exchange.
Management
The group of individuals who make decisions about how a business is run.
Market Price
A security's last reported sale price (if on an exchange) or its current bid and ask prices (if over-the-counter); i.e. the price as determined dynamically by buyers and sellers in an open market. also called market value.
Material Information
Information which would be likely to affect a stock's price once it becomes known to the public. Examples include a takeover, a divestiture, significant management changes, and new product introductions. also called material news.
Merger
The combining of two or more entities into one, through a purchase acquisition or a pooling of interests. Differs from a consolidation in that no new entity is created from a merger.
Nasdaq
A computerized system established by the NASD to facilitate trading by providing broker/dealers with current bid and ask price quotes on over-the-counter stocks and some listed stocks. Unlike the Amex and the NYSE, the Nasdaq (once an acronym for the National Association of securities Dealers Automated Quotation system) does not have a physical trading floor that brings together buyers and sellers. Instead, all trading on the Nasdaq exchange is done over a network of computers and telephones. Also, the Nasdaq does not employ market specialists to buy unfilled orders like the NYSE does. The Nasdaq began when brokers started informally trading via telephone; the network was later formalized and linked by computer in the early 1970s. In 1998 the parent company of the Nasdaq purchased the Amex, although the two continue to operate separately. Orders for stock are sent out electronically on the Nasdaq, where market makers list their buy and sell prices. Once a price is agreed upon, the transaction is executed electronically.
National Association of Securities Dealers
NASD. A selfregulatory securities industry organization responsible for the operation and regulation of the Nasdaq stock market and overthe-counter markets. The NASD investigates complaints against member firms and tries to ensure that all of its members adhere to both its own standards and those laid out by the SEC. The NASD has the power to expel its members from an exchange in the case of wrongdoing, but it cannot take legal action against a member other than by reporting it to the SEC. The association is run by a Board that takes half of its representatives from the securities industry and half from the public.
National Market System
The trading system for over-the-counter stocks under the sponsorship of NASD and Nasdaq or the trading system where prices for stocks and bonds on NYSE and the regional exchanges are listed simultaneously.
Net Income
For a business, same as net profit. For an individual, gross income minus incurred expenses, used to calculate income tax owed. also called bottom line.
NYSE
New York Stock Exchange. The oldest and largest stock exchange in the U.S., located on Wall Street in New York City. The NYSE is responsible for setting policy, supervising member activities, listing securities, overseeing the transfer of member seats, and evaluating applicants. It traces its origins back to 1792, when a group of brokers met under a tree at the tip of Manhattan and signed an agreement to trade securities. Unlike some of the newer exchanges, the NYSE still uses a large trading floor in order to conduct its transactions. It is here that the representatives of buyers and sellers, professionals known as brokers, meet and shout out prices at one another in order to strike a deal. This is called the open outcry system and it usually produces fair market pricing. In order to facilitate the exchange of stocks, the NYSE employs individuals called specialists who are assigned to manage the buying and selling of specific stocks and to buy those stocks when no one else will. Of the exchanges, the NYSE has the most stringent set of requirements in place for the companies whose stocks it lists, and even meeting these requirements is not a guarantee that the NYSE will list the company. also called Big Board.
Open Market
A market which is widely accessible to all investors or consumers.
OTC Bulletin Board
An electronic quotation system for unlisted, non-Nasdaq, over-the-counter securities.
Over-the-Counter
OTC. A security which is not traded on an exchange, usually due to an inability to meet listing requirements. For such securities, broker/dealers negotiate directly with one another over computer networks and by phone, and their activities are monitored by the NASD. OTC stocks are usually very risky since they are the stocks that are not considered large or stable enough to trade on a major exchange. They also tend to trade infrequently, making the bid-ask spread larger. Also, research about these stocks is more difficult to obtain. also called unlisted.
P/E Ratio
Price/earnings ratio. The most common measure of how expensive a stock is. The P/E ratio is equal to a stock'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 P/E ratio, the more the market is willing to pay for each dollar of annual earnings. The last year's price/earnings ratio (P/E ratio) would be actual, while current year and forward year price/earnings ratio (P/E ratio) 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 a P/E ratio at all. also called earnings multiple.
Preferred Stock
Capital stock which provides a specific dividend that is paid before any dividends are paid to common stock holders, and which takes precedence over common stock in the event of a liquidation. Like common stock, preferred stocks represent partial ownership in a company, although preferred stock shareholders do not enjoy any of the voting rights of common stockholders. Also unlike common stock, a preferred stock pays a fixed dividend that does not fluctuate, although the company does not have to pay this dividend if it lacks the financial ability to do so. The main benefit to owning preferred stock is that the investor has a greater claim on the company’s assets than common stockholders. Preferred shareholders always receive their dividends first and, in the event the company goes bankrupt, preferred shareholders are paid off before common stockholders. In general, there are four different types of preferred stock: cumulative preferred, non-cumulative, participating, and convertible. also called preference shares.
President
Highest ranking officer in a corporation after the Chairman of the Board. For smaller companies, often the same person as the Chief Executive Officer.
Prospectus
A legal document offering securities or mutual fund shares for sale, required by the Securities Act of 1933. It must explain the offer, including the terms, issuer, objectives (if mutual fund) or planned use of the money (if securities), historical financial statements, and other information that could help an individual decide whether the investment is appropriate for him/her. also called offering circular or circular.
Public Company
A company which has issued securities through an offering, and which are now traded on the open market. also called publicly held or publicly traded. opposite of private company.
Quarterly Report
Unaudited document required by the SEC for all U.S. public companies, reporting the financial results for the quarter and noting any significant changes or events in the quarter. Quarterly reports contain financial statements, a discussion from the management, and a list of "material events" that have occurred with the company (such as a stock split or acquisition). also called Form 10-Q.
R&D
Research And Development. Discovering new knowledge about products, processes, and services, and then applying that knowledge to create new and improved products, processes, and services that fill market needs.
Registered Security
A security for which a registration statement has been filed with the SEC.
Registration Statement
A carefully prepared set of documents, including a prospectus, which is filed with the SEC prior to an initial public offering.
Regulation A
An SEC regulation that governs offerings of $1,500,000 or less, which qualify for simplified registration.
Regulation D
An SEC regulation that governs private placement exemption.
Regulation FD
SEC regulation adopted in 2000 that eliminated the practice of selective disclosure. The rule requires that when a public company chooses to release any information, it must be done in such a way that the general public has access to it at the same time as institutional investors and analysts. If information is accidentally released to specific parties, the company must disseminate that information widely within 24 hours.
Revenue
Total dollar payment for goods and services that are credited to an income statement over a particular time period. Revenue figures will usually be net of discounts or any payments that are returned to the customer or client. By subtracting expenses from revenue, a company's net income can be calculated. In terms of reporting revenue in a company's financial statements, the question of when revenue should be considered received (or "recognized") is sometimes not clear. For example, revenue could be recognized when the deal is signed, when the money is received, when the services are provided, or at other times. There are rules specifying when revenue should be recognized in different situations, and in general, companies should recognize revenue only when the good or service is fully transferred over to the customer/client, and when the amount of revenue to be received can be reliably determined.
Reverse Merger
The acquisition of a public company by a private company, allowing the private company to bypass the usually lengthy and complex process of going public.
Road Show
A series of meetings with potential investors and brokers, conducted by a company and its underwriter, prior to a securities offering, especially an IPO.
Rule 13d
An SEC rule requiring disclosure by anyone acquiring a beneficial ownership of 5% or more of any equity security registered with the SEC. If the company is listed on an exchange, the form must be filed with the exchange, too.
Rule 144
An SEC rule specifying the conditions under which a holder of unregistered securities may publicly sell them without filing a formal registration statement. This rule allows executives who hold very large blocks of their company's stock to sell a portion of that stock every six months without SEC registration, provided that they have already held the stock for two years.
Safe Harbor
The ability of a company's management to discuss in good faith a company's prospects and financial projections with analysts and investors without fearing litigation.
Securities Acts Amendments of 1975
Congressional law amending the Securities Act of 1933 to enable the establishment of a National Market System, and to encourage fair and efficient handling of securities transactions.
Securities Act of 1933
First Congressional law regulating the securities industry. Required registration and disclosure and included measures to discourage fraud and deception.
Securities Exchange Act of 1934
The act which created the SEC, outlawed manipulative and abusive practices in the issuance of securities, required registration of stock exchanges, brokers, dealers, and listed securities, and required disclosure of certain financial information and insider trading.
SEC
Securities and Exchange Commission. The primary federal regulatory agency for the securities industry, whose responsibility is to promote full disclosure and to protect investors against fraudulent and manipulative practices in the securities markets. The securities and Exchange Commission enforces, among other acts, the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940 and the Investment Advisers Act. The supervision of dealers is delegated to the self-regulatory bodies of the exchanges. The securities and Exchange Commission is an independent, quasi-judiciary agency. It has five commissioners, each appointed for a five year term that is staggered so that one new commissioner is being replaced every year. No more than three members of the commission can be of a single political party. The securities and Exchange Commission is comprised of four basic divisions. The Division of Corporate Finance is in charge of making sure all publicly traded companies disclose the required financial information to investors. The Division of Market Regulation oversees all legislation involving brokers and brokerage firms. The Division of Investment Management regulates the mutual fund and investment advisor industries. And the Division of Enforcement enforces the securities legislation and investigates possible violations.
Shareholder
One who owns shares of stock in a corporation or mutual fund. For corporations, along with the ownership comes a right to declared dividends and the right to vote on certain company matters, including the board of directors. also called stockholder.
Shares Outstanding
The shares of a corporation's stock that have been issued and are in the hands of the public. also called outstanding stock.
Technical Analysis
A method of evaluating securities by relying on the assumption that market data, such as charts of price, volume, and open interest, can help predict future (usually short-term) market trends. Unlike fundamental analysis, the intrinsic value of the security is not considered. Technical analysts believe that they can accurately predict the future price of a stock by looking at its historical prices and other trading variables. Technical analysis assumes that market psychology influences trading in a way that enables predicting when a stock will rise or fall. For that reason, many technical analysts are also market timers, who believe that technical analysis can be applied just as easily to the market as a whole as to an individual stock.
Underwriter
An intermediary between an issuer of a security and the investing public, usually an investment bank.
Venture Capital
VC Funds made available for startup firms and small businesses with exceptional growth potential. Managerial and technical expertise are often also provided. also called risk capital.
|
