Glossary

Learn & be a stock guru...

The financial world has developed a special investment-oriented language to help describe the stock market, investments, securities for the stock market, stock market analysis, and its conditions. At times you may be confronted with a term which is totally alien or has a completely different meaning from what you thought. Misunderstanding these terms can sometimes lead to the wrong conclusion, and that can cost you money!

What you don't know can hurt you.

Earnings

Another word for profit, or net income, in this case the sum of the trailing four quarters' net income from continuing operations and discontinued operations.

Since many investors use earnings reports to make their investment decisions, there is an unfortunate tendency for companies to try to put a positive ""spin"" on their earnings reports by whatever methods necessary. Investors need to understand the different types of earnings presentations to get a clear picture of a company's financials. There are three types of earnings often presented:

• Actual earnings. What a company earned including all current revenue and expenses.
• Operating earnings. Includes only revenue and costs from on-going operations. Excludes one- time non-operational charges such as gains or losses on sales of assets or one-time acquisition costs. Inventory write-downs and currency impacts are to be included in operating earnings (though the market often views them as special).
• Pro-forma earnings. Compares current quarter costs and losses against similar accounting practices and similar categories from the prior period. Excludes revenue and costs from operations that were not in the comparable quarter.

Earnings Estimates

Analysts' estimates for earnings per share from continuing operations, adjusted to exclude extraordinary items.

Quarter and Fiscal Year EPS Estimates are what analysts expect the company to earn per share for the next fiscal quarter or year. Compared with earnings for the year-ago period, this is a useful indicator not only of the company's ability to turn a profit, but of how fast it is growing

Earnings Growth

The percent change in earnings projected for a company over some given period. Growth rates for the fiscal year following the current fiscal year are calculated as the percent change between the estimate for the current year and estimate for the following year

Earnings Per Share (EPS)

Net income divided by common shares outstanding. A company that earns Rs.1 million for the year and has a million shares outstanding has an EPS of $1. This EPS figure, which represents how much of earnings each share is entitled to, is important as the basis for various calculations an investor might make in assessing a stock's priciness. The most widely used indicator of whether a stock is over- or undervalued, for example, is the price/earnings (P/E) ratio, which relates share price to earnings per share.

Earnings Surprise

The difference between what analysts expected a company to earn and what was actually earned. Earnings estimates have gained importance in recent years, and companies that don't measure up often find their shares hammered. (The difference can also be expressed as a percentage.)

EBIT

Earnings before interest and taxes. This is the figure for operating income after depreciation but without allowing for debt service or what is owed to the government for taxes.

EBITDA

Also known as operating profit before depreciation, EBITDA is the operating revenue less cost of sales, operating expenses, and SG&A expenses.

Effect of Exchange Rate Changes

Includes any gains/losses from the translation from foreign currency to Pak Rs.

Elliott Wave Theory

Inspired by forces of nature, Ralph Nelson Elliot observed that the movements in the stock market could be predicted by identifying a repetitive pattern of waves using price charts. The underlying premise of the Elliott Wave Theory is that of building up and tearing down. He concluded that there are five price-change waves in the direction of the main trend followed by three corrective waves, often referred to as a ""5-3"" move.

Emerging Markets Fund

An international mutual fund that invests in developing countries, such as those in Southeast Asia and Eastern Europe. The economies of many such emerging nations are growing fast, and buying shares in an emerging markets fund offers you a chance to cash in on that growth. But those same countries are also extremely volatile economically and politically, so emerging markets funds tend to be more risky than those that invest in American companies.

Employee Stock Purchase Plan (Espp)

A plan that enables employees to purchase company stock at a discount to the fair market value.

Energy Sector

A category that includes oil and natural-gas companies

Entry Level

A term used to specify the recommended price at which to purchase a stock or option. For example, an advisory service may say ""Our recommended entry level for XYZ stock is Rs.100.""

EPS (1-year growth rate)

The year-to-date percent change in earnings per share

EPS (latest 12 months)

The sum of the last four quarters of earnings per share

EPS Estimate (QTR., FY)

The average estimate for the quarter or year by analysts covering a given company

EPS Growth Next Year

This is calculated using the formula 1-(estimate for the next year/estimate for current year)

EPS Growth Quarter vs. Quarter

The percent change between current quarter EPS versus the same quarter one year ago.

EPS Growth Year vs. Year

The percent change between annual EPS versus EPS one year ago

EPS Growth YTD vs. YTD

The percent change between the current year-to-date EPS versus the year-to-date EPS figure of one year ago.

EPS Percent Change

The difference between the latest fiscal year EPS from total operations and the EPS from total operations one fiscal year ago, expressed as a percentage

Equity

Your equity is the market value of your property, less the amount you owe on it and must repay when you sell.

Equity Securities

Any security that represents an ownership stake rather than an IOU. Equity securities include common and preferred stock. Bonds are not equity securities; they are simply loans to the company. Bondholders can expect repayment of principal from the business, while stockholders hope for dividends and price appreciation. In the event the business goes bad, the bondholders have a claim on the company's assets that supersedes the claims of equity holders

Estate

Everything you own -- house, bank accounts, investment portfolios, life insurance, personal property,etc.

Estate planning

An overall strategy that coordinates the disposition of everything you own -- house, bank accounts, investment portfolios, life insurance and retirement plans.

Europe Stock

A Morningstar category for international equity funds with at least 75% of their stock holdings in Europe. Regional funds may be riskier than diversified international funds as profits tend to rise and fall in concert with that region's economic conditions.

European Currency Unit (ECU)

A medium of exchange (currency) in which prices are quoted in Europe.

European-Style Option

An option contract that may be exercised only during a specified time period just prior to its expiration.

Eurotop 100

The EUROTOP 100 Index (EUR) is a benchmark tracking the performance of the European stock market. It is comprised of 100 of the most actively traded and highly capitalized stocks on the largest exchanges in nine European countries: Belgium, France, Germany, Italy, Netherlands, Spain, Sweden, Switzerland, and the United Kingdom. It is denominated in U.S. dollars.

Even Lots

Transactions where stocks are purchased or sold in multiples of 100 shares, also referred to as round lots. It's best to buy or sell stocks in even lots rather than odd lots (less than 100 shares or not a multiple of 100) since most brokers charge a higher commission on odd-lot orders

Ex-Dividend

A stock is called "ex-dividend" when buyers are no longer entitled to receive the last declared dividend. Typically, the price falls to reflect the value of the dividend and then rises again later, as shareholders look ahead to the next payout.

Exchange

The organization that provides for the trading of the listed security. The biggest, most established companies generally trade on the Pakistan Stock Exchange, but many giants and other companies also trade on the Lahore & Islamabad Stock Exchanges.

Exit Level

A term used to stipulate the recommended price at which to sell a stock or option. For example, an advisory service might say, ""Our recommended exit level for XYZ stock is Rs.100.""

Expectational Analysis

An approach to investment analysis that takes into account and measures the beliefs of investors and speculators relative to the prevailing technical trends and fundamental facts, in order to try and gauge the future direction of stock prices. According to contrarians, when the public is bullish, it's time to sell. Similarly, when the public gets bearish, it's time to buy. Historically, this has been true.

Extraordinary (Gains) Losses

Includes income (or losses) from events and transactions that are, as the name implies, extraordinary. A retailer might settle an expensive lawsuit, or sell a poorly performing mail-order operation. These items don't happen every day or even every year, and so are separated from operating results.

Extraordinary Income

Income from events and transactions that are, as the name implies, extraordinary. A retailer might settle an expensive lawsuit, or sell a poorly performing mail-order operation. These items don't happen every day or even every year, and so are separated from operating results.