Asset allocation: A fundamental concept in portfolio management in which an investment adviser determines the investment profile for a client, including their risk tolerance and time horizon, then uses this information to split the client's funds between appropriate classes of investments. As relative movements in the market for the various asset classes change the mix of assets in the portfolio over time, the adviser must rebalance the portfolio.
- Authorized capital is the capital to which an organization is authorized to use in the business and maximum amount that can be used for the working of organization.
The authorized capital is the notional amount of capital that a new company is allowed to cash in from would-be shareholders as payment for the company shares. In practical terms the authorized capital represents the amount of money that the founders of the firm expect to be necessary in order to finance the launch and initial development of the new business. Most companies would state an exact amount of authorized capital in their Articles of Association, expressed in dollars or other currency. The authorized capital should not be confused with the paid-up capital – the latter is basically that portion of the authorized capital that has actually been paid in by the shareholders at any given time. It is a common and perfectly legal practice for offshore companies to register a large authorized capital but have no, or very small amount of paid-up capital.
Balance sheet: A financial report of a corporation, showing the corporation's assets, liabilities, and stockholders' equity at a point in time (usually month-end, quarter-end, or year-end).
Bear market: A situation in a market for investments in which price trends are generally downward.
Book value: The value of a corporation's assets or liabilities on its balance sheet. Assets are valued at their original purchase price less any depreciation taken for accounting purposes. The book value of common stock is the corporation's assets less its liabilities and the liquidation value of its preferred stock. Book value may have little relationship to market value.
Bond: A long-term debt instrument issued by a corporation or government entity. The bondholder loans the issuer money and the issuer promises to pay the bondholder interest at a specified rate on the loan for a specified period of time and then to repay the loan at expiration. The bondholder is a creditor of the issuer rather than a partial owner.
BONUS ISSUE: When a company’s FREE RESERVES are high, it may choose to capitalize part of it by issuing bonus shares to existing shareholders in proportion to their holdings, to convert the reserves into equity. Bonus shares are issued free of cost, but since the number of shareholders remains the same and their proportionate holdings do not change, bonus shares do not improve the shareholders’ ownership of the company. After an issue of bonus shares, the price of a company’s share drops, more or less in proportion to the issue. However, since the dividend rate is often maintained, the shareholders gets a larger yield on the increased holding and when the share price APPRECIATES, he makes further gains.
Bull market: A situation in a market for investments in which price trends are generally upward. Bull market:
A bull market is a financial market where prices of instruments (e.g., stocks) are, on average, trending higher. The bull market tends to be associated with rising investor confidence and expectations of further capital gains.
A market in which prices are rising. A market participant who believes prices will move higher is called a "bull". A news item is considered bullish if it is expected to result in higher prices. An advancing trend in stock prices that usually occurs for a time period of months or years. Bull markets are generally characterized by high trading volume.
CDBL: Central Depository Bangladesh Limited (CDBL) was incorporated as a public limited company on 20th August 2000 to operate and maintain the Central Depository System (CDS) of Electronic Book Entry, recording and maintaining securities accounts and registering transfer of securities; changing the ownership without an physical movement or endorsement of certificates and execution of transfer instruments, as well as various other investor services including facilitation of the secondary market trading of Treasury Bills and Government Bonds issued by the Bangladesh Bank.
A depository is like a bank for shares instead of money. Instead of holding shares in the form of certificates, investors have accounts in the depository and are able to move securities and settle stock exchange transactions by an electronic update of their accounts.
Virtually all established markets have depositories including India, Japan, Malaysia, Pakistan, Sri-Lanka and Thailand, UK and USA.
The core service of a depository is the efficient delivery, settlement and transfer of securities through a computerized book entry system.
The need for a depository arose from shortcomings in the present settlement system, resulting in:
- Lengthy delays in delivery settlement and transfer of securities;
- Tedious procedures for verification of securities and transfer deeds;
- Considerable time involved in dispatching cash dividends and bonus shares;
- Risk of damaged, lost, forged and duplicate securities;
- Serious problems associated with physical custody;
- Tedious procedure involved in pledging of physical securities to raise capital.
Central Depository Bangladesh Limited (CDBL), a joint venture company setup by banks, stock exchange, Asian Development Bank and other institutions operates the Central Depository System (CDS) in Bangladesh.
CDBL, by converting physical certificates into electronic form, will eliminate the risks of damaged, lost, forged and duplicate share certificates. The instantaneous delivery through electronic book entry will result in immediate transfer of ownership, which presently can take over a month. CDBL, in the long term, will also reduce the costs of the investing public.
Circuit breakers: Trading halts, curtailment of automated trading systems and/or price movement limits used by the exchanges to attempt to prevent the free-fall of stock or stock index futures markets. Circuit Breaker is the maximum permissible deviation of the price (specified as percentage) of the incoming order from the Circuit Breaker Base Price for that instrument. Orders violating circuit breaker will result rejection of the order.
'Circuit Filter' Circuit Filter is the maximum permissible deviation of the price (specified as percentage), of an aggressor order from the last trade price.
Commission: The fee charged by a broker/dealer for acting for others in executing buying or selling orders.
Diluted earnings per share:
Diluted earnings per share (Diluted EPS) takes the basic earnings per share figure one step further. Basic EPS only takes into account the number of shares outstanding at the time. Diluted EPS, on the other hand, estimates how many shares could theoretically exist after all stock options, warrants, preferred stock and / or convertible bonds have been exercised.
Dividend Per Share:
- The dividend is described as the amount each share receives, as in, “AB bank declared a dividend of 10 tk per share.” Dividends are usually offered by established companies, as emerging companies require all the capital they can generate to fund operations and expansion.
- This makes it easier to assess a company's performance in situations such as when one company has a higher profit than a rival, but also has many more shares, meaning that profit is less valuable in terms of individual shares. In principle, the earnings per share represents the dividend the company would pay if it decided to distribute all its profits to shareholders, rather than retain any of it for future spending.
Dividend yield is an easy way to compare the relative attractiveness of various dividend-paying stocks. It tells an investor the yield he / she can expect by purchasing a stock. This allows a basis of comparison between other investments such as bonds, certificates of deposit, etc.
To calculate the dividend yield, divide the annual dividend by the current stock price.
An Example: If company Aftab auto was trading for tk10 per share and paid a tk 1 dividend, how much will the stock yield each year for the investor? Using our formula (Annual Dividend ÷ Current Stock Price = Dividend Yield), we find the answer is 10%.
Here, annual dividend = 1
Current stock price: 10
So that d .Y= .1(10%).
EPS: One of the most widely used indicators of the worth of a share. It shows what a company has earned for each of its shares. it is a ratio calculated b dividing the net profit after tax (PAT) by the number of equity shares of a company, which include any shares the company is committed to issuing, but has not yet issued, such as those arising out of conversion of debentures.
Earnings per share
Earnings per share (EPS) are the earnings returned on the initial investment amount.
Earnings Per Share (Basic Formula)
Earnings Per Share (Net Income Formula)
One of the challenges of evaluating stocks is establishing an “apples to apples” comparison. What I mean by this is setting up a comparison that is meaningful so that the results help you make an investment decision.
Comparing the price of two stocks is meaningless as I point out in my article “Why Per-Share Price is Not Important.”
Similarly, comparing the earnings of one company to another really doesn’t make any sense, if you think about it. Using the raw numbers ignores the fact that the two companies undoubtedly have a different number of outstanding shares.
For example, companies A and B both earn $100, but company A has 10 shares outstanding, while company B has 50 shares outstanding. Which company’s stock do you want to own?
It makes more sense to look at earnings per share (EPS) for use as a comparison tool. You calculate earnings per share by taking the net earnings and divide by the outstanding shares.
EPS = Net Earnings / Outstanding Shares
Using our example above, Company A had earnings of $100 and 10 shares outstanding, which equals an EPS of 10 ($100 / 10 = 10). Company B had earnings of $100 and 50 shares outstanding, which equals an EPS of 2 ($100 / 50 = 2).
So, you should go buy Company A with an EPS of 10, right? Maybe, but not just on the basis of its EPS. The EPS is helpful in comparing one company to another, assuming they are in the same industry, but it doesn’t tell you whether it’s a good stock to buy or what the market thinks of it. For that information, we need to look at some ratios.
Before we move on, you should note that there are three types of EPS numbers:
- Trailing EPS – last year’s numbers and the only actual EPS
- Current EPS – this year’s numbers, which are still projections
- Forward EPS – future numbers, which are obviously projections
FACE VALUE: Face value of a share is the value which is decided by the company issuing it, at the time of initial offering.
FIFO: First-In, First-out, a method of accounting for which shares or inventory items are being sold from a pool of similar shares or items. Assumes that when a sale is made, the items purchased first are sold first.
If there is one number that people look at than more any other it is the Price to Earnings Ratio (P/E). The P/E is one of those numbers that investors throw around with great authority as if it told the whole story. Of course, it doesn’t tell the whole story (if it did, we wouldn’t need all the other numbers.)
The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is the most popular metric of stock analysis, although it is far from the only one you should consider.
You calculate the P/E by taking the share price and dividing it by the company’s EPS.
P/E = Stock Price / EPS
For example, a company with a share price of $40 and an EPS of 8 would have a P/E of 5 ($40 / 8 = 5).
What does P/E tell you? The P/E gives you an idea of what the market is willing to pay for the company’s earnings. The higher the P/E the more the market is willing to pay for the company’s earnings. Some investors read a high P/E as an overpriced stock and that may be the case, however it can also indicate the market has high hopes for this stock’s future and has bid up the price.
Conversely, a low P/E may indicate a “vote of no confidence” by the market or it could mean this is a sleeper that the market has overlooked. Known as value stocks, many investors made their fortunes spotting these “diamonds in the rough” before the rest of the market discovered their true worth.
What is the “right” P/E? There is no correct answer to this question, because part of the answer depends on your willingness to pay for earnings. The more you are willing to pay, which means you believe the company has good long term prospects over and above its current position, the higher the “right” P/E is for that particular stock in your decision-making process. Another investor may not see the same value and think your “right” P/E is all wrong.
P/E: Market price/ Eps
Example : ab bank; Given that: market price 2000
So, P/E : 20
Hedging: An investment strategy by which the investor tries to eliminate all potential future gain or loss on an investment. For example, investors may hedge their investments with stock options, future contracts, or by selling short.
Income statement: The financial statement showing a corporation's performance over a period of time, such as a month, a quarter, or a year. The income statement shows revenues, cost of sales, and expenses.
Initial public offering: The initial sale of securities to the public, often called an IPO. IPO means when a company wants to raise fund from the general public, it goes for public offering after completing necessary regulatory compliances.
Insider: Anyone in a position to influence the decisions of a corporation. Insiders include officers, directors, principal stockholders, and their respective immediate families. Insiders of a corporation are also referred to as affiliated persons or control persons.
Institutional investor: A investor who is a bank, savings and loan association, insurance company, registered investment company, government investment adviser, or any other person, corporation, partnership, trust, or other entity with large scale assets
Interbank market: The market for foreign currencies in which the largest participants are the money center banks. The interbank market for currencies exists all over the world.
Interest: Money paid as compensation for the loan of someone else's money.
Liabilities: All claims on the assets of an individual or corporation. Includes accrued payable amounts, long-and short-term debt, debentures, and notes. Does not include the ownership equity.
Market order: An order to buy or sell as soon as possible at the best available price.
Market capitalization or market cap is a way of measuring the size of a company and is calculated by multiplying the current stock price by the number of outstanding shares. A stock trading at $55 with 100,000,000 outstanding shares would have a market cap of $5.5 billion.
Market Capitalization is the total market value, at the current stock exchange list price of the total number of equity shares issued by a company.
Market Capitalization = ∑ (No. of Issued Share * Close Price)
'Market Lot' :A Market Lot is the smallest tradable unit for an instrument except those traded in the Oddlot book. All order quantities can only be an integral multiple of the Market lot . Any number of shares less than the marketable lot makes an odd lot, difficult to buy and disadvantageous to sell. When companies issue bonus or rights shares in less than 1:1 ratio, odd lots are often the result.
MSA ( Member Server Application ) : Brokers can use MSA to monitor and control their trader(s). There can be only one MSA per broker house. All the traders (TWS) have to connect to the trading system through MSA. This System is being upgraded in 2011.
Net Asset Value: In a mutual fund, the assets of the fund less its liabilities divided by the number of shares outstanding, usually referred to as the NAV. This is the price a mutual fund shareholder receives when selling shares of the fund.
NET ASSET VALUE:
(Market value of securities owned by the fund + cash and other assets – total of all the fund’s liabilities) / number of outstanding shares.
This is calculated at the end of business each day and is referred to as the net asset value per share.
Odd lot: Less than the usual trading unit of LOT SIZE shares of stock.
Odd Lot In the stock market shares are generally bought and sold in MARKET LOTS, which are easy to trade. Any number of shares less than the market lot makes an odd lot. Odd lots typically arise from BONUS or RIGHTS issues. Apart from the difficulty in buying or selling odd lots, there is another disadvantage: you may have to sell an odd lot at a considerably lower price than that quoted for a market lot. There is, however, some good news. The government has now advised all listed companies to form a trust to deal in odd lot shares. The trustee will sell shares only of that company, through brokers, and not indulge in independent trading. The company will send the rights and bonus shares of the scrip to the trustee, and when the trustee has consolidated them into marketable lots he will go to a recognized broker dealing in the shares of the company. The holder of the scrip will pay a small service charge and the usual brokerage.
Omnibus account: A special account a broker/dealer opens with another firm to trade on behalf of a subsidiary or affiliate. Also, an account an investment adviser opens to trade on behalf of his or her clients, where the brokerage firm does not know the individual identities of the clients.
Option: A contract that gives the right to a holder to buy (call option) or sell (put option) a fixed amount of a security at a specific price anytime before the stated expiration date (does not exist in the Bangladesh Market yet). If the holder does not exercise his option, the option expires and he forfeits the amount he paid for the option (the premium). This provides hedging possibilities for the investor.
- The total amount of shareholder capital that has been paid in full by shareholders.
2. The share capital which is authorized and paid for is called paid up equity capital. Say one company has authorized share capital of 100 Cr but has issues shares worth 60 Cr only so 60 cr is it paid up capital.
Power of attorney: A written statement executed by a customer to give someone else the right to enter orders in the customer's account. Must be witnessed by a notary public or other public official.
Price to Earnings ratio: The ratio of the price of a common stock to its earnings per share, often referred to as the P/E ratio. It is used to measure how expensive a stock is, relative to its earnings.
Primary market: The buying and selling of new issues. Resales are handled in the secondary markets.
Record Date: While a company a dividend, right/ bonus shares or intends to hold any AGM/ EGM; it declares a book legislature closer provider/ Record Date to register the name of shareholders.
Only shareholders whose names appear on the register after the book closure/ Record Date are eligible to attend in the AGM/ EGM and also to receive dividends & bonus shares and entitlement to right shares, if any.
Rights Issue: Issue of shares at par or at a premium by an existing company to its shareholders in a certain proportion (and additional shares, if available) to their holdings, as a matter of their right to receive preferential treatment. An existing shareholder, instead of subscribing to such an issue, can let his rights lapse, or renounce his rights in favour of another person (free, or for a consideration) by signing the renunciation form. The renouncer may or may or may not have the right to apply for shares additional to his entitlement, depending upon the terms the company attaches to the renunciation of rights.
Secondary market: The market in which previously issued securities are traded among public investors. Most securities transactions occur in the secondary market.
Securities and Exchange Commission: The federal agency that regulates the securities markets and administers federal securities laws. Commonly known as the SEC.
Spot Market Commodities market in which goods are sold against cash and delivered immediately.
Stock dividend: A dividend in the form of stock. Shareholders are given additional shares of stock, rather than being paid cash. Stock dividends are stated as a percentage. For example, if a 10% stock dividend is paid, the owner of 100 shares receives an additional 10 shares.
Stock split: Issuing additional new shares for those now outstanding. For example, a 2 for 1 stock split doubles the number of shares outstanding. The price is likely to fall to one-half the previous price.
TESA (The Electronic Security Architecture) is The DSE trading system and is used to trade Ordinary shares of listed companies, Mutual funds, Bonds and Debentures.
The Touchline Price for an instrument is the best offer (sell) and best bid (buy) price amongst all orders in the order book. The touchline buy price is the highest price amongst all buy orders and the touchline sell price is the lowest price amongst all sell orders.
TWS (Trader Workstation) : Traders can trade on the stock exchange using either TESA supplied workstation software or through their own custom developed broker system. TESA supplied workstation is referred to as TESA trading workstation in this document. TESA provides traders with trading services such as entering orders and viewing orders. This is being upgraded in 2011.