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.

Naked Calls

A form of option writing in which the investor sells a call against securities he doesn't own. This is one of the riskiest of market transactions, because the writer's risk is unlimited. If you do own the security, then you've written a ""covered call."" If you sold a naked call and the option owner exercised his right to buy the stock, you would be obligated to acquire the called shares in the open market at whatever price it was trading at. There is no limit to how high this price could go.

Naked Puts

A form of option writing or selling in which the seller owns neither the underlying security nor a different option on that same security with the same (or later) expiration date and higher striking price. Writing naked puts is not recommended unless the seller has already decided that he would be willing to purchase the underlying security at the put strike price.

Negative Volume Index

The Negative Volume Index (NVI) focuses on days when the volume decreases from the previous day. The usefulness of this index is based on the premise that ""smart money"" quietly takes positions on days when volume decreases. When volume increases, the crowd-following, ""uninformed"" investors are in the market. In his book Stock Market Logic, Norman Fosback points out that the odds of a bull market are 95 out of 100 when the NVI rises above its one-year moving average. The odds of a bull market are roughly 50/50 when the NVI is below its one-year average. Therefore, the NVI is most useful as a bull market indicator.

Net Asset Value (NAV)

The current value of a share in a mutual fund. It's just the fund's assets minus liabilities divided by the number of outstanding shares. Most funds calculate their NAV after the close of trading each day. For conventional mutual funds, your share is worth the day's NAV, but in closed-end mutual funds, the NAV and the market price aren't usually the same. That's because closed-end fund shares trade like stocks, from investor to investor, and sell at a premium or discount to their NAV, depending on a variety of factors (such as transaction costs and investor expectations).

Net Assets

This figure is recorded in millions of dollars and represents the fund's total asset base, net of fees and expenses.

Net Cash from Continuing Operations

The sum of depreciation and amortization, deferred income taxes, operating gains/losses, extraordinary gains/losses, other non-cash items, accounts receivable, inventories, other current assets, short-term debt and other current liabilities.

Net Cash from Discontinued Operations

Cash gains resulting from the sale of discontinued operations (but not an extraordinary gain or loss).

Net Cash from Financing Activities

The sum of issuance of debt, issuance of capital stock, repayment of long-term debt, repurchase of capital stock, payment of cash dividends, and other financing charges, net.

Net Cash from Investing Activities

The sum of the sale of property, plant, and equipment, sale of short-term investments, purchases of property, plant, and equipment, purchase of short-term debt, and other investing changes.

Net Cash from Operating Activities

The sum of net cash from continuing operations and net cash from discontinued operations.

Net Change in Cash and Cash Equivalents

The difference between the cash and cash equivalents at the beginning of the reporting period and at the end of the reporting period.

Net Income (Loss)

Also known as earnings or profit, net income is what it's really all about: making money. Thus, net income is probably the most closely watched item in a company's financial reports. Unfortunately, net income is subject to a good many judgments by both corporate managers and accountants, as well as various charges that exist largely on paper. Net income can also be swollen by earnings from discontinued operations, meaning net will be much lower next year. Because of the many issues surrounding net income, many investors prefer to focus on other measures of profit that remove some of the smoke and confusion generated by taxes, depreciation and other factors. Some like to look at cash flow or earnings before interest and taxes, and some even like to look at sales.

Net Income from Continuing Operations

Includes income taken before the following: preferred dividends; extraordinary gains and losses; income from cumulative effects of accounting change; non-recurring items; income from tax loss carryforward; other gains/losses. (see above)

Net Income from Discontinued Operations

Gains from sales of discontinued operations. However, it does not include extraordinary gains/losses.

Net Income from Total Operations

Taken from total operations (continuing plus discontinued operations), after taxes and minority interest and before extraordinary gains/losses.

Net investment income

A term that means investment income minus investment expenses.

Net Profit Margin

The latest 12 months' net income from total operations divided by the latest 12 months' sales. A measure of profitability, net profit margin varies widely by industry. In the supermarket business, for instance, enormous sales are generated to produce relatively modest profits. Software firms and drug companies often show the opposite pattern.

New Listing

A stock that recently began trading on a given exchange.

No-Load Fund

A mutual fund with no up-front or back-end sales charge. This is not to say that no-load funds do not charge anything; various management and other fees vary widely among funds, and are usually expressed as a percentage of assets. In general, total fees of 1 percent or less annually are considered reasonable. Studies comparing no-load funds to their loaded brethren have found no significant difference in performance.

Nominal Return

The opposite of ""real return,"" nominal return is the return on an investment without taking account of inflation. Thus, the nominal return on a bond might be 8 percent, but if inflation is running at 3 percent, the real return is only 5 percent.

Noncompetitive Bid

A bid submitted at a Treasury auction for a specific amount of securities but at an unspecified price. The buyer agrees to pay the average price of accepted competitive bids.

Noncurrent Assets

Assets not expected to be converted into cash, sold, or exchanged within the normal operating cycle of a company, typically one year.

Noncurrent Liabilities

Liabilities due after one year.

Nonvoting Stock

Stock that carries no power to vote on matters put before the shareholders. Preferred stock usually is nonvoting. Some classes of common stock, while not nonvoting, carries fewer votes than other classes, a system set up in some companies to keep control in the hands of family members or other insiders.

Normalized Income

Net income from total operations minus special charges.

Number of Analysts

The number of analysts providing earnings estimates.

Number of Employees

The number of people employed by the company.

Number of Shares

The quantity of shares held of a given security.