Glossary of Financial Terms

Active fund manager

Someone who manages a fund by selecting individual shares, aiming to do better than the stock market. Contrasts with a Tracker Fund. Most active fund managers do not beat the market.


A professional whose job it is to evaluate risk. Many actuaries help insurance companies decide what premiums to charge or what rates they should be paying to people who want to buy an Annuity.

Additional Voluntary Contributions (also known as AVCs).

Additional payments paid into company pension schemes by employees who want to improve the benefits they will get on retirement.


A personal representative appointed to administer the estate of a deceased person.

Advance corporation tax

Basic rate tax paid on dividends by a company to the Inland Revenue on behalf of the shareholder.

Advances, debtors

This is the Banking equivalent of stocks, being the money advanced to customers as financial loans or equivalent.

Advisory Stockbroker

A stockbroker who advises you on what shares your buy and sell. He will typically charge more than an EXECUTION ONLY stockbroker who merely carries out your instructions.


Stands for the Association of Investment Trust Companies.


Member of the Alternative Investment Market


The gradual elimination of a liability, such as a mortgage, in regular payments over a specified period of time. Such payments must be sufficient to cover both principal and interest. Writing off an intangible asset investment over the projected life of the assets


Professionals who work for the big brokerage and merchant banking houses whose job it is to analyse and report on national economies, individual companies and various sectors of a stock market.

Annual General Meeting (AGM)

The meeting of shareholders held to approve the accounts and to re-appoint directors and auditors. Normally held 21 days after publication of the annual report. It must be held within 18 months of the previous AGM. A meeting that should be attended by shareholders as an opportunity to question directors on business and performance prospects and results.

Annual Percentage Rate (known as APR)

The total amount it costs you to borrow money worked out on a yearly basis. It includes not just the interest rate you are paying, but also any fees, such as valuation fees to building societies or annual fees for credit cards. Annual Percentage Rate (known as APR) - the total amount it costs you to borrow money worked out on a yearly basis. It includes not just the interest rate you are paying, but also any fees, such as valuation fees to building societies or annual fees for credit cards.

Annual Report & Accounts

The directors report to shareholders setting out, in both text and financial terms, details of the companys performance during the past year and the state of its finances and assets as at the latest reporting date, the Balance Sheet date.

Annual Report

A yearly report produced by a company or a fund describing its performance throughout the year, with comments from the chairman and executives on that performance.


A regular income, usually lasting for life, which has been purchased with a capital lump sum. Typically, you will buy an annuity with your pension fund when you choose to retire.

Annuity rates

The rate applying when an annuity is purchased.

APCIMS (Association of Private Client Stockbrokers and Investment Managers)

The official body of Stockbrokers and fund managers specialising in the provision of investment services for private clients.

Arbitrage and Arbitrageur

A form of speculation on currencies, shares or bonds. The arbitrageur (also known as an arb) will often try and take advantage of different prices of shares or currencies in different market, locking in a small percentage profit.

Asset Management

Another way of describing the process of managing other peoples money. An asset manager is a fund manager who manages your money for you, hopefully making it grow.


A general term which can refer to physical items like property or even shares or investments. Alternatively, it can refer to invisible (or intangible) things such as a brand name or the goodwill of a business.

Associated Companies

Where the company has an interest in another company that represents more than 20%, but less than a majority, of the voting rights in that companys share capital, then this is deemed to be an investment in an "Associated Company" and the profits of the investment are consolidated into the results of the investment holding company. Under a 20% interest only dividends received will feature in the holding companys accounts. Over a 50% interest, the investment is deemed to be a subsidiary company and its results and net assets will be fully consolidated in the holding companys own accounts

At Best

An instruction you can give to your broker. It basically authorises them to make the requested trade at the best price possible at the time of trading. The alternative is to place a limit on the order


A check on the accounts of a limited company, carried out by an accountant who is supposed to be independent of the company. The accountant (known as an auditor) has to say whether the companys accounts fairly reflect the financial performance of the company.


An outside accountant employed to make routine checks on a business to ensure the companys accounts are being kept properly.

Balance sheet

The statement of the capital position of a company at any one time. It shows what it owns (assets) and what it owes (its liabilities).


An investor who is negative towards shares, believing prices will fall. A Bear market is one where share prices across the entire market are generally, and consistently, falling.

Bear and bull markets

A bear market is one where prices are falling usually across the whole market for a prolonged period of weeks, months or even years. A bull market is one with a rising trend. Investors who think the market is about to fall are bearish while those who think the market will rise are bullish.

Bearer bonds

A bond or share whose ownership is not registered. Whoever has physical possession is considered to be the owner.

Bid Offer Spread

The difference between the buying and selling price of shares or units in a unit trust. The "bid price" is the price you can sell at (the price the market will bid you for your shares), while the "offer price" is the price you can buy at (the price the market offers to sell to you at).

Bid Price

The price the market maker will pay you for your shares when you sell (see Spread).

Blue chip Shares

In a very large well established and highly regarded company. It is named after the highest value chip in poker.


A bond is a certificate of debt issued by companies and governments to raise cash. It usually pays interest and can be traded in a market. A bond is longer term than a and usually guarantees to repay the capital at an agreed future date. UK Government bonds are known as gilts or gilt-edged securities because in the nineteenth century, There are several time periods for UK gilts short (under five years to maturity), mediums (between five and fifteen years) and longs (which mature after fifteen years).


Additional sums of money added at regular intervals, usually of one year, to a savings policy. Once added, the annual bonus cannot be taken away.


A short-hand term, used to describe either a stockbroker or an independent financial adviser. A stockbroker buys and sells shares on your behalf. An independent financial adviser usually advises you on a range of different savings and investment products. He is supposed to be independent because he is not tied to one particular investment company.


An investor who is positive towards shares, believing prices will rise. A Bull market is one where share prices across the entire market are generally, and consistently, rising.

CAC 40

The index of the 40 largest French companies, typically used as a shorthand indication of how the French stock market is performing.


An amount of money, a lump sum, that can be invested in assets or is available to invest.

Capital Employed

The funds employed by the company in its activities. This represents the value, in the Balance Sheet, of the companys share capital, reserves and debt. It can be expressed either before or after intangible assets, dependent upon the circumstances and requirement.

Capital gains

The increase in the capital value of investments or assets.

Capital Gains Tax

Tax charged on gains you make from dealing in shares.

Capital secure

A term used to denote capital which is safeguarded from the volatility that affects equity-based investments.

Capital transfers

Assets passed on to someone other than a spouse which are subject to inheritance tax.

Capped Rate Mortgage

One where the interest rate on your mortgage is guaranteed not to increase over a certain level (it is capped), but will fall if interest rates fall.

Cash Flow Statement

The statement in the Annual Accounts that indicates, for the financial period, the sources of all cash, both from operations and from external sources of finance, and how this has been used for trading, capital preservation, investment and taxation purposes.


In a Balance Sheet context applicable to insurance companies only, this is the aggregate of cash balances for the company AND its insurance funds.

Cash securities

The value of all liquid assets employed in the business, either as ready cash or invested in short term securities and readily convertible into cash.

Change on the week

The change in price from the market close on the last trading day in the previous week. Note On the first day of trading in a week the day change and week change can differ, as the day change is taken from the market opening, whereas the week change is from the previous close - market forces can lead to a difference between the close and open prices, although usually only by a small margin.


Graphs of share and market (index) performance used to determine relative trends and, based on historic movements, identify likely future moves. The key aspect of Technical Analysis.


The practice of dealing in shares or other securities purely to generate commission for the person doing the churning, not for the client. Strictly illegal

Collective funds

Any scheme where investors pool their resources to spread their investment risks. Popular forms of collective funds include unit and investment trusts in Britain and mutual funds in America.


The charge made by your stockbroker for conducting your buy or sell instructions. This may either be a percentage of the value involved or, for small deals below a stated and agreed value, a fixed rate.

Commutation of a pension

A government concession to take a certain tax-free lump sum out of an accumulated pension fund.

Compound growth

Method of growth in which the interest is added back to the capital at each stage to increase the total all the time.


Non-redeemable, i.e. open-ended, gilt-edged stock. It has no maturity date.


Liabilities Potential liabilities that the company MAY face in the future if certain circumstances should arise. Indicated in the Notes to the Accounts it will include, for example, the likely costs arising from guarantees given to third parties.

Contract Note

The record the investor receives from his stockbroker confirming the terms of the deal that the stockbroker has undertaken on their behalf.

Corporate bond

A fixed interest loan raised by a company which guarantees to repay the capital on an agreed future date.

Corporate Governance

The term used, following recent Government sponsored reports, to describe the policies and procedures that the companys directors employ in their conduct of the companys affairs, and their relationships with shareholders to whom they are responsible as managers of the shareholders interests in the company, and of its assets


A short sharp fall in the stock market or in a particular share.

Creative Accounting

The term used to indicate accounting and financial reporting practices which, whilst not illegal, are intended to convey a circumstance or position that is either misleading or illusory, creating a position of profitability or soundness that may not be totally valid.


Credit is given by banks when they advance loans to their customers, and businesses when they allow their customers to take goods and defer payment for them.


Applicable to insurance companies only this is the aggregate sum of all short term liabilities of the company AND its insurance funds.

Creditors long

This is all liabilities payable more than one year after the Balance Sheet date. This includes provisions and deferred taxation, loans and debt, including convertible debt, repayable more than one year after the Balance Sheet date.

Creditors short

This is all current liabilities payable on demand or within one year of the Balance Sheet date. For Banks this also includes short term bank liabilities such as deposits.


A new system for settling and registering share purchases which does away with the need for share certificates. You can still ask for a share certificate if you prefer - but many stockbrokers will charge extra for providing one.

Cum Dividend

Literally means, with dividend. If you buy a share cum dividend it means you are entitled to receive the next dividend paid on it. The opposite of ex-dividend which means you buy without the right to receive the dividend that has just been declared on the share.

Current Assets

The value of the assets held at the Balance Sheet date that are represented by cash, or can be expected to be converted into cash within the next 12 months.

Current Liabilities

The value of those liabilities at the Balance sheet date that the company is required to settle (pay) either on demand, or within the next 12 months.


The German stock market index of large companies. See also FTSE 100 and Dow Jones Industrial. Germany also has an index for newer, smaller companies, called the Neuer Market.


A type of debt instrument that is not secured by physical asset or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital. Like other types of bonds, debentures are documented in an indenture.


Amounts owing to the company, including the value of sales made under credit, where settlement from the customer is still awaited.

Debtors others

Insurance companies only . This is the aggregate of all short term sums due to the company and its insurance funds.


To fail to pay a debt.

Defined contribution scheme

Money purchase scheme, the contributions go into a pot whose growth depends upon the investment performance of the fund; the fund is then used to purchase an annuity.


The opposite of inflation; when general prices in the economy are falling.


The loss in value of an asset with time or through usage.


A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.

Futures contracts, forward contracts, options and swaps are the most common types of derivatives. Derivatives are contracts and can be used as an underlying asset.

Derivatives are generally used as an instrument to hedge risk, but can also be used for speculative purposes. For example, a European investor purchasing shares of an American company off of an American exchange (using U.S. dollars to do so) would be exposed to exchange-rate risk while holding that stock. To hedge this risk, the investor could purchase currency futures to lock in a specified exchange rate for the future stock sale and currency conversion back into Euros.

Discount Broker

A stockbroker or financial intermediary who charges less commission than the norm or actually return commission, usually by adding it to your investment. The term has been used to refer to financial advisers who rebate commission they earn on sales of unit trusts and Peps.

Div per share

Dividends are regarded as a crucial investment measure. It is the declared net dividend per share payable to registered shareholders for the financial period. This is the income a shareholder receives on each share invested in the company.

Dividend cover

The indicator as to the rate that the company may be paying its dividends out of its earnings, and its ability to continue to pay dividends at that rate.


The sum paid by the company to its shareholders as their direct financial reward from holding the companys shares. It is the income received from an investment in the companys shares.

Dividend yield

The ratio between the dividend and what was actually paid for the share.

Dow Jones

Industrial Average ("The Dow"). The 30 large American companies whose performance, presented as an index, is the most common measurement of how well the US stock market is performing.

Earnings Per Share (eps)

The relationship of the profit, after tax, attributable to each share in issue. The key component of company performance featured in the price earnings ratio (P/E ratio or PER). The main subject of broker research on future corporate performance and a key factor in arriving at share and corporate value.

Economic cycle

This is a round of economic events that proceed in an irregular succession.


Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability. EBITDA = Operating Revenue + Operating Expenses + Other Revenue Its name comes from the fact that Operating Expenses do not include interest, taxes, or amortization. EBITDA is not a defined measure according to Generally Accepted Accounting Principles (GAAP), and thus can be calculated however a company wishes. It is also not a measure of cash flow. EBITDA differs from the operating cash flow in a cash flow statement primarily by excluding payments for taxes or interest as well as changes in working capital. EBITDA also differs from free cash flow because it excludes cash requirements for replacing capital assets (capex). EBITDA is used when evaluating a company's ability to earn a profit, and it is often used in stock analysis.


Professionals who study the behaviour of the economy.


EPS is computed after including all exceptional and extraordinary items, both of a trading and non-trading nature, and after deducting tax and minority interests.

Equalisation of assets

A process by which spouses can share out their assets into equal sized portions to avoid paying large amounts of inheritance tax if the otherwise wealthier partner dies before the other. It can also be used to avoid or reduce liability to capital gains tax.


Commonly used to mean the ordinary shares of a company. They are freely traded stocks and shares in publicly quoted companies that do not carry a fixed rate of interest; instead they entitle their holders to a share in the growth of the company through an annual dividend payment. The equity holders are the companys owners.


When appended to the share price, means "excluding". Thus a share price quoted ex dividend (xd or ex div.), means that you will not receive the announced dividend when you buy the shares. Conversely, you will still receive the dividend when you sell the shares xd, even though you do not hold the shares anymore at the actual time of the dividend payment.


Literally without dividend. When a share goes ex-dividend the anyone who buys it will not receive the dividend which has recently been declared.

Execution-only services

Even if you have done the research and know what you want to buy, you still have to use a financial intermediary, but the purchase should be cheaper because the advisor does not have to do the work.

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