Glossary: E to F
March 31, 2010
Earnings: The amount a company says it added to shareholders' funds after all the costs of delivering a product or service have been accounted for. See Earnings Per Share.
Earnings Per Share (EPS): Net income divided by the current number of shares outstanding. This is one of the principal elements used in determining at what value the shares should trade.
EBITDA: Horrible acronym standing for Earnings Before Interest, Tax, Depreciation and Amortisation.
Enterprise Value: The sum total of the market value of a company's debt and equity. It represents an open market valuation of the business or enterprise that supports it. In other words, how much a company is actually worth. It has no direction relation to book value. Commonly shortened to EV and divided by EBITDA to give a valuation ratio favoured by high-powered City types.
EPIC: EPIC stands for Exchange Price Information Code. It is a three or four character code, unique to every company listed on the London Stock Exchange, used as a shorthand method of identifying a company. They are sometimes referred to as Symbols or Tickers.
Equalisation: Unit trusts hold a collection of shares and therefore receive a constant stream of dividend payments. This income is normally only paid out to investors twice a year. When a new investor buys into the fund part of his purchase is represented by accrued dividends. At his or her first distribution payment, part of the sum will represent the return of capital equal to the accrued dividends. This amount is regarded as capital, not income, and is called an equalisation payment. Easy.
Equities: A concept that comes from "equitable claims." Equities are essentially shares of stock. Because they represent a proportional share in the business, they are equitable claims on the business itself.
Ex-Dividend: A share sold without the right to receive the dividend payment which is marked as due to those shareholders who are on the share register at a pre-announced date. These shares have "xd" next to their price listings in the papers.
Exceptional Items: These are features in the profit and loss statement that are not expected to occur regularly. They are typically profits or losses recorded by selling businesses, or charges incurred in closing activities down. They make interpreting of accounts, especially earnings per share, more difficult. It is one reason why companies also produce adjusted figures to show the underlying performance of the company.
Exchange Traded Funds (ETFs): A fund that tracks an index but that can be bought and sold via a broker.
Execution-only Stockbroker: Stockbrokers who offer fewer of the services championed by advisory stockbrokers, but charge cheaper transaction fees. Basically, you tell them to buy or sell a particular share and they get on and do it with no frills and no hassles. Often they hold your shares in a nominee account. Execution-only brokers are ideal for do-it-yourself investors. They are called discount brokers in the USA.
Exit Charge: A sales charge paid for redeeming a unit trust or other investment. See Front-End Loading.
Fair Value: The theoretical price at which a company is "fairly valued," meaning that it would not be reasonable to assume that the shares will rise. Fair value at any given point is derived from a number of qualitative and quantitative aspects of the business.
Final Salary Scheme: Most occupational pension schemes still calculate the pension as a percentage of final salary (maximum 40/60ths), also known as a defined benefit scheme, although are changing more and more to money purchase schemes.
Financial Ombudsman Service: Got a complaint about a financial product that you've been unable to resolve with the company that supplied it? Then give these people a try.
Financial Conduct Authority (FCA): The regulator for the financial services industry. Check out their web site here.
Fixed Asset: Something solid a company owns that hurts your shin if you fall over it; like a factory. See Intangible Asset.
Flotation: See New Issue.
Flying Freehold: A term used to describe that part of a freehold property which is built above land which is not part of the property freehold, e.g. a bedroom built over a common access passageway.
Flying Trapeze: Circus act involving high levels of skill, courage and sequins.
Fool: One who exhibits a high degree of Foolishness. Also, a user of The Motley Fool websites. Always spelled with a capital 'F'
Foolishness: The state of being wry, contrary, canny and capable of looking after your own investments. Fools believe in shares as the long-term path to wealth creation and believe in buying and holding good companies for the long haul based on their fundamental financial and business strengths. Also see Wisdom.
Free Float: The proportion of company's shares that are available to buy and sell. Some public companies have one or two shareholders who hold 50% or even more of its shares.
Front-End Loading: A sales charge paid when many types of investment are purchased. In extreme cases, it can amount to the whole of the first two years' contributions. Have a very good reason indeed to buy an investment product with heavy front-end loading charges. See Mis-Selling.
FT 30: For many years, the FT 30 was the index most often quoted in relation to the London Stock Exchange. It was originally conceived as being the UK equivalent to the Dow Jones Industrial Average, but is little quoted now.
FTSE 100: An index containing the 100 largest companies by market capitalisation on the London Stock Exchange. Came into being in 1984 and largely superseded the FT 30.
FTSE 250: An index, created in 1992, containing the next 250 largest companies by market capitalisation on the London Stock Exchange after those in the FTSE 100. Together with those in the FTSE 100, the companies in this index make up the FTSE 350.
Fund Sector: The category, by geography or industry, in which the fund will invest.
Fundamental Analysis: An investing method that involves looking at a company's accounts to see whether it is appropriately valued.
Futures: A type of derivative that allows you to bid for the right to pay a future value on either an index option or a commodity. Futures are generally a high-risk investment.