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Investor Glossary

A

Abnormal items Items derived from events or transactions which, though attributable to the ordinary operations of the business, are significant by reason of their size and effect on the results of the period. They are taken into account in arriving at the operating profit. Abnormal items have now been replaced by "Significant Items" and under IFRS will not exist. Accumulation fund A superannuation fund where the benefit received by the investor is determined by the contributions that have been invested and the investment earnings, less any fees and taxes. Allocated annuity A superannuation income stream similar to an allocated pension but offered by a life office, rather than paid from a super fund. Allocated pension A type of income stream paid from a super fund. The income stream can be varied each year within government-prescribed minimum and maximum limits. Your pension payments are a mixture of investment earnings and the return of your original purchase price. You can buy an allocated pension only with eligible termination payments that are unrestricted 'non-preserved'. All Ordinaries Accumulation Index: a measurement of the average movements in share price of a selection of major Australian companies listed on the Australian Stock Exchange. It is an accumulation index, which means that it assumes that dividends have been reinvested. Amortisation The process of allocating acquisition cost or other value of assets either to periods as expenses or period costs, or to inventory accounts as product costs. The term is normally used in conjunction with non-physical assets. Under IFRS amortisation will be replaced by annual asset revaluations. Annualised return The return or profit, expressed on an annual basis, the writer of the option contract receives for buying the shares and writing that particular contract. Annuity An income stream that pays a regular income either for a fixed term (usually called a 'term certain' annuity) or for life. An annuity can be purchased with ordinary (i.e. non-ETP) or superannuation (ETP) money. A complying annuity is a special type of annuity that complies with specific conditions that enable you to qualify for the pension RBL. Application To apply for an investment in a managed investment. Appreciation The increase in the value of an asset. Approved early retirement scheme A scheme approved by the Australian Taxation Office where the services of employees of a particular age and/or occupation are terminated to enable reduction in the employer's operation or replacement of these employees with younger employees. Payments made under an approved early retirement scheme are treated for tax purposes in the same way as bona fide redundancy payments. Assessable income The amount of income that is assessed for taxation, before any tax deductions are taken into account. Assessable income includes your regular income (such as salary) plus other amounts specifically included in the Income Tax Assessment Act (such as capital gains and ETPs) but not including income exempted under the Income Tax Assessment Act. Asset allocation A representation of how a portfolio is invested among the various available asset classes. For example, a balanced fund may have an asset allocation of 30% Australian shares, 25% international shares, 10% property, 20% fixed interest, 10% international fixed interest, 5% cash. Asset classes Types of investments, such as shares, fixed interest securities, property, cash and international investments. ASX code A unique code used by the Australian Stock Exchange (ASX) to identify listed companies. Australian Financial Services Licence (AFSL) AFSL is a licence granted by the Australian Securities and Investments Commission (ASIC) under the Corporations Act 2001 (Cth) (Corporations Act) which permits the holder of the licence to provide specified financial services in accordance with the Corporations Act and any applicable licence conditions. The AFSL replaces licences issued under the old regime, such as securities dealers licences and investment advice licenses. AWOTE Average Weekly Ordinary Time Earnings is a measure of wage and salary levels of employees in Australia. Used to index various dollar thresholds such as your RBLs. Back to Top

B

Balanced fund Sometimes called a diversified fund, a type of managed fund whose investment strategy is to have some proportion of its investments in all major asset classes, and to create a risk/return balance between different types of investments. Bank accounts debit tax (BAD) A State and Territory Government duty imposed on withdrawals from bank, building society and credit union accounts and cash management trusts with a cheque facility. The NSW Government abolished this duty on 1 January 2002. It is due to be abolished in other states and territories on 1 July 2005. Bear market A market that is decreasing over time. The opposite to a bull market. Benefit In relation to superannuation, a member’s entitlement in the form of a lump sum, pension or annuity. Beneficiary A person entitled to receive income and capital distributions from a trust and for whom the assets of the trust are held on behalf of the trustee, or a person entitled to receive a benefit from a superannuation fund if you die while still a member of the fund. Benefit A broad term used to describe a super entitlement that is paid to you and/or your beneficiaries. It can be in the form of a lump sum or a pension or annuity. Beta A measure of how changes in a share price correlate to movements in the share market as a whole. A positive beta means that the share price is positively leveraged to the stock market, while a negative beta means the stock price is negatively leveraged to the stock market. In general a beta between +0.5 and -0.5 means there is little correlation between the stock price and the market. Blue chip shares Shares in well established companies that have historically shown ability to pay dividends in uncertain markets. Bona fide redundancy payment Money paid to an employee who has been laid off because his/her services are no longer required. Part of such a payment, based on the number of whole years service with the employer, is tax free, not counted for RBL purposes and cannot be rolled over. For a redundancy payment to be 'bona fide', certain conditions must be met, essentially to ensure that a particular position is terminated and not filled by another person. Book value The net amount shown in the books or in the accounts for any asset, liability or owners’ equity item. In the case of a fixed asset, it is equal to the cost or revalued amount of the asset less accumulated depreciation. Also called carrying value. The book value of a firm is its total net assets, i.e. the excess of total assets over total liabilities. Broker An agent who executes an investor's orders to buy or sell securities. Brokerage A fee charged by a financial adviser or stockbroker for a transaction. Sometimes also referred to as commission. Bull market A market that is increasing over time. The opposite to a bear market. Back to Top

C

Capital expenditure Expenditure which is expected to produce benefits in a future period(s), and which is carried forward as an asset in the balance sheet at the end of the period. Capital gains/growth Occur when the market value of an investment increases. Capital gains tax A tax on the gains of an investment, payable only when the investment is sold or disposed of in some other way. Cash One of the asset classes. Examples include coin and note currency in circulation and in deposit accounts and money market securities. Cash flow The total cash receipts (inflow) or cash payments (outflow) arising from a given asset, or group of assets, for a given period. Net cash flow is the inflows less the outflows. Defined as either: Net profit After Tax plus Depreciation and Amortisation; or Cash Flow From Operations as defined in the Cash Flow statement (after tax, before dividends and usually adjusted for working capital changes). Free Cash flow is Cash Flow less "maintenance" Capital Expenditure. Cash Management Trust (CMT) A managed investment in which the primary investments are cash as defined above. While offering security, they can also offer a competitive rate of interest. Company name Complete name of listed company, as reported to the Australian Stock Exchange. Company options A contract by which an entity is bound to issue new securities, usually at a set exercise price, if the option holder wishes to take the new shares. Company reported EPS Defined as both "basic" and "diluted" earnings per share (EPS). Adjusted Net Profit divided by Number of Shares. Net profit is before significant items. Issued Shares is time weighted average (see Equivalent Fully Paid Weighted Average). Compound interest Interest calculated on the principal and interest already accrued. Concessional component One of the components of a lump sum eligible termination payment (ETP). Until 1 July 1994 this component included certain disablement, redundancy and approved early retirement benefits. Constitution Also known as a trust deed, it is a document that governs the operation of a managed investment and setting out, amongst other things, investment, application and withdrawal procedures. Consumer Price Index (CPI) An index measuring the prices of items of goods and services. Allows comparison of the relative cost of living over time, typically know as inflation. Contributions Amounts of money invested in a fund. Contribution fee As the fee for the initial and every subsequent investment you make into a fund. Contributions Tax Tax applied to certain contributions to a superannuation fund. Conversion ratio The conversion ratio is the number of warrants that must be exercised to require the transfer of the underlying instrument. The terms of issue may only require one warrant to be exercised to trigger settlement. Alternatively, a number of warrants may need to be exercised. Convertible debt security An unsecured note or debenture that is classified as an equity security because it is convertible into an equity security. Convertible note A loan made to a company at a fixed rate of interest with the right to be either redeemed (i.e. repaid by the company) for cash or converted into ordinary shares at a predetermined date or within a certain period. Corporations law A national scheme of legislation dealing with the regulation of companies and the securities and futures industries. Coupon Interest voucher usually attached to bonds and exchangeable for cash on its due date (half yearly or yearly). Cum dividend Cum means ‘with’. Shares quoted cum dividend entitle the buyer to the current dividend. The price of the shares will usually reflect the amount of the dividend. Similarly, shares ‘cum rights’ entitle the buyer to participate in the new issue of shares. Cumulative Refers to the right of some preference shares to receive a dividend for each financial period even though no dividend has been declared. When such a dividend has been omitted it becomes an arrear. Currency gains A security's capital gain due to movements in the currency in which the security was denominated. Current ratio A measure of liquidity that shows a company’s ability to pay its short-term debts. Current Ratio = (Current assets / Current liabilities) and expressed as "number of times covered". Capital asset pricing model (CAPM) CAPM is a valuation technique that has become popular in some markets, and uses the Weighted Average Cost of Capital (WACC) to discount future estimated cash flows of the company. Back to Top

D

Debt/equity ratio Shows the relationship between funds provided by borrowing and funds provided by shareholders. The debt/equity ratio shows to what extent a company is financed by debt (also called the gearing or leverage ratio). Debt/Equity ratio = (total debt / shareholder equity) x 100 Deductible Expenses that can be offset against income assessable for tax. Some contributions to superannuation funds may be deductible to individuals. Defined Benefit Fund A superannuation fund which defines the member's retirement benefit as a multiple of their salary. The multiple is usually based on the member's period of service and is not linked to contributions made over the period of employment. The opposite to a defined contribution or accumulation fund. Delta A measure indicating the sensitivity of an option’s price to price movement in the underlying security. A measure of the rate of change in an option’s theoretical value for a one-unit change in the price of the underlying security. Depreciation The difference between the cost (or value) of an asset and its residual value allocated over the series of accounting periods in the asset’s useful life. The depreciation expense for a period is usually based on: (i) the likely useful economic life of the asset; (ii) the pattern of reduction in services during life; and (iii) its likely residual (or salvage) value on disposal at the end of its life. Refer to Accounting Standard AASB1021, ‘Depreciation’. Derivatives Are investment products whose value is based on, or derived from, some other item such as the price of some other asset or a market index. Discounted cash flow The Cash Flow forecasts (as discussed above), discounted back to today’s dollars using some discount rate. The discount rate is usually the Weighted Average Cost of Capital (WACC). Distributions Income payments from managed investments. Such payments comprise a share of any net income and realised capital gains earned over a financial year. The components which generally make up a distribution are profits from the sale of assets, income and currency gains. Dividend Distribution of part of a company’s net profit to shareholders. Usually expressed as a number of cents per share. Dividend yield The dividend in cents per share divided by the current market price (%). A related concept is franking. Dividend franking A concept introduced to prevent double taxing of company profits. Using the concept that shareholders own the company, it is unreasonable to expect a company to pay tax and then the owners of the company to again pay tax when the profits are distributed to the owners. Thus the amount of "tax forgiveness" for shareholders is equal to the actual amount of tax remitted to the Australian Tax Office (ATO) prior to the dividends being paid. Note that this is not the same as the accounting tax paid, or the amount of tax provisions, which may be paid after the dividend is paid. The amount of franking on the dividends is thus a function of: The $M tax paid to the ATO The amount of dividends paid ($M, or the cps equivalent). If the tax paid is greater than or equal to the dividends paid, then franking is 100%. If a company pays a low amount of tax, dividends can be 100% franked if the dividend paid is low. Dividend cover A ratio showing the number of times a company’s dividend is covered by its net profit. Dividend Cover ratio = (net profit / dividend paid) A low dividend cover points to a company paying out most of their net profit, while a high cover suggests much of the profit is being retained. Dividend imputation (dividend franking) The tax credits passed on to a shareholder who receives a franked dividend. Under provisions of the Income Tax Assessment Act, imputation credits entitle investors to a rebate for tax already paid by an Australian company. Dividend rate The dividend expressed as cents per share. Dividend reinvestment plan (DRP) An alternative to cash dividends, allowing shareholders to receive new shares instead of cash. These shares are often issued at a discount and no brokerage or stamp duty is paid. Dividend yield The annual dividend shown as a percentage of the last sale price for the shares. A simplified rate of return on an investment. Dollar cost averaging Is investing a set amount of money, at regular intervals, over a period of time. This means an investor could gain an advantage from rises and falls in the investment price, buying more when the price is low and less when the price is high, and so reducing the risk of loss. DPS adjusted Total dividend, in cents per share, for the year, adjusted by a dilution factor to take account of issues and reconstructions. DRP Means "dividend reinvestment plan" – usually a plan whereby shareholders may elect to receive all or a portion of the dividend in shares instead of cash. You should refer to announcements by the company or contact the company to obtain further information regarding the rules and operation of the plan. Back to Top

E

Earned for ordinary adjusted The statutory consolidated profit attributable to ordinary shareholders. It is group net profit after tax (including abnormal items but before extraordinaries) less minority interest and preference dividends, and is adjusted by the inclusion of any potential revenue and cost items associated with potential fully paid shares. Note: Abnormal items will not be accounted for or disclosed when the Accounting Standard derived from AASB Exposure Draft 93 becomes operative. Earnings Income or profit of an entity. May be expressed as gross or net. Earnings before interest and tax (EBIT) A key measure of the financial performance of a company. It is similar to net profit, except that the effects of tax benefits, deductions and loans are factored out, providing a better measure of companies underlying performance. Earnings per share (EPS) Measures the earnings that are attributed to each equivalent ordinary share over a twelve month period. It is calculated by dividing the company's earnings by the number of shares on issue. Earnings per share The profit, as defined above, divided by the number of shares, as defined above. EPS = Profit ($M) / Number of shares (M) * 100 Earnings momentum Companies that report profits that continue to surprise on the upside, or for which broker estimates continue to be upgraded, will be supported by the market with higher prices. The reappraisal of company earnings potential is the earnings momentum. Continued upgrades to forecasts are a positive momentum, and usually results in positive share price moves. EBIT Earnings Before Interest and Tax Reported profit is an unreliable number, because of the ability of companies to adjust this number by capitalising interest and redefining depreciation schedules, and by classifying some goodwill (amortised) as brandnames (not amortised). To overcome some of these accounting problems, analysts revert to profit numbers "higher up" the Profit and Loss account. One common number used is EBIT, which is Earnings Before Interest and Tax. It is the pre-financing profit of the business, after payments for capital (depreciation and amortisation) have been paid. EBITDA Earnings Before interest, Tax, Depreciation and Amortisation This is a number closer to operating cash flow (with the major difference being working capital changes). A purer form of profit without distorting effects of depreciation and amortisation schedules. It is the profit that the business generates before funding the capital, or debt and equity interests. As such, it does not consider gearing. Often used by analysts in preference to profit after tax. Eligible termination payment (ETP) Used to describe money that is already in the superannuation environment. A payment from a superannuation fund, approved deposit fund or employer to a person upon resignation, retrenchment, disablement, death or retirement. Sometimes such payments can be taken in cash, at other times they must be rolled over. Enterprise value (EV) The total value of the company – including the value of equity and debt interests. Mathematically, it is the market capitalisation of the company (price * number of shares) plus the market value of debt (or book value if a proxy for market value of debt cannot be estimated). It is thus the value of all funding vehicles for the company, which have to be serviced by operating profits. Entry Price The price per unit or share of an investment in which applications are made. Equities In share market terms, equities are a synonym for shares and represent part-ownership of a company, as distinct from debt securities such as bonds and debentures. From a business perspective, equities represent the total interests of parties in the assets of that business entity. Lenders and creditors have a 'specific entity', and owners have 'residual' equity. Equity accounting The method of accounting by which an equity investment in an associated company reports to the profit and loss account as a single line after tax contribution entry. The balance sheet investment in the associate is included under "Investments", rather than as a complete consolidation of all line items into the balance sheet. Equity interests The sum of paid up capital, reserves, and accumulated profits or losses, disregarding redeemable preference share capital and outside equity interests, as shown in the consolidated financial statements. Equivalent fully paid shares on issue The equivalent fully paid ordinary shares on issue is derived from taking into account the number of actual fully paid shares at period end as well as the number of potential fully paid shares. Contributing, new, and deferred shares are treated as fully paid; options and convertible notes are treated as increasing the number of fully paid shares by the number of shares which will be created upon exercise of the options or conversion of the convertible notes. European exercise, European style A type of option or warrant which allows the holder to exercise only on the expiry date. Ex bonus, ex bonus date Shares sold ex bonus entitle the seller to retain the bonus shares being issued. The ex bonus date occurs seven business days prior to and including the Record Date. The Record Date is the date on which the company closes its books to determine which shareholders are registered to receive the bonus shares. The share price may fall on the ex bonus date to reflect the dilution effect as the company's assets are spread over a greater number of shares on issue. Ex date The date on which shares change from being quoted "cum" to "ex". It is usually the fourth business day prior to the record date. Ex dividend date Shares are quoted ‘ex dividend’ four business days before the company's Record Date. To be entitled to a dividend a shareholder must have purchased shares before the ex dividend date. The share price may fall on the ex dividend date, with the fall in price being related to the amount of dividend being paid, on the basis that the buyer will not, in the ordinary course of events, receive the dividend because they will not be registered by the Record Date. Exit price The price at which an investor can withdraw their units from a fund or trust. Ex rights Securities quoted ex-rights entitle the seller to retain the right to participate in a New Issue then current. Ex-dividend Shares sold ex-dividend entitle the seller to retain the current dividend. Shares are usually quoted ex-dividend five business days before the company's books close. Exchange traded options (ETOs) Options which are bought and sold on the options market operated by ASX Derivatives. Back to Top

F

F.p.ord shares Abbreviation for Fully Paid Ordinary Shares. Financial lease A lease which effectively transfers from the lessor to the lessee substantially all the risks and benefits incident to ownership of the leased asset without transferring legal ownership. Financial period ending Normally, the financial year ended, as released in the company's annual report but can also apply to shorter and half-yearly financial periods. Fixed Interest securities Include bonds and represent loans to borrowers, which could include governments, banks and companies. In return for the loan, the borrower generally pays a pre-determined rate of interest for an agreed term. Franked dividend A dividend paid by a company out of profits on which the company has already paid tax. The investor is entitled to an imputation credit, or reduction in the amount of income tax that must be paid, up to the amount of tax already paid by the company. Franking (of dividends) Company dividends are usually accompanied by an imputation credit that can be used to reduce tax paid by the shareholder. The amount of imputation credit available depends on the accumulated tax paid by the company to the Australian Taxation Office (which may not be the same as the tax noted in the profit statement). The total amount of franking credit available to pass to shareholders is equal to the total tax paid by the company, less credits already forwarded to shareholders (since the date that dividend imputation was introduced). If a company pays more dividend than the franking credits available, then the dividend can only be partially franked. If the company pays a dividend no more than the credits available, then the dividend can be fully franked. The shareholder can claim the dollar amount of the franking credit as a tax deduction against tax payable. Franking rate The company tax rate at which the dividend is franked. (now usually 30%) Futures A derivative investment in which parties agree on an obligation to buy or sell a specified quantity of an underlying asset at some time in the future, and the price. Back to Top

G

Gearing There are several definitions for gearing. The two most common definitions are: Net Debt / Equity Net Debt / (Net Debt + Equity) Equity is after preference and minority capital is deducted. Net Debt is gross debt (including leases) less cash and short term investments, etc. Goodwill The future benefits from unidentifiable assets which are carried as intangible assets of an entity. Goodwill reflects the entity's ability to earn more than a normal rate of return on its physical assets. Goodwill can arise from a number of causes. It is usually recognised in the accounts only when it is acquired through specific purchase. In this situation, it is calculated as the excess of cost of the acquired entity over the current or fair market value of the net tangible assets acquired. IFRS does not recognize internally generated goodwill including brand names, capitalized expenses and trade marks. Growth assets A term given to assets such as shares and property which are expected to provide strong investment returns over the long term. Growth fund A managed investment which is predominantly invested in growth assets. Back to Top

H

Hedge fund A managed investment where the fund manager is authorised to use derivatives and borrowing with the aim of providing a higher return. Hedging Undertaking one investment to protect against the potential loss in another investment. Options and futures are often used to hedge an investment. Back to Top

I

Immediate annuity A regular income stream purchased with a lump sum investment, where the income stream starts immediately after the purchase. They are usually provided by a life insurance company for the purposes of retirement income. Imputation credits The tax credits passed on to a shareholder who receives a franked dividend. Under provisions of the Income Tax Assessment Act, imputation credits entitle investors to a rebate for tax already paid by an Australian company. Income Regular payments from an investment derived from interest on cash or bonds, dividends on shares, or rent from properties. Industry sectors Companies listed on ASX are divided into two broad sectors: Resources and Industrials. This division reflects the Australian economy, with the current breakdown being approximately 84% Industrials and 16% Resources. Within these two broad sectors, ASX listed companies (see listed company) are grouped into GICS classified sectors (refer to separate documents available from SHAW discussing GICS) Interest Gross interest paid. This includes financial charges, but does not include interest capitalised. Interest paid is not netted off against interest received. Other uses of the term: the charge or cost for the use of money; and a share of profits or assets of an entity, e.g. minority interest, interest in a partnership. Interest cover A ratio that shows the number of times interest payments are covered by earnings before interest and tax (EBIT). The higher the interest cover, the greater the company's ability to meet interest payments. Interest Cover = Earnings Before Interest and Tax (EBIT) / Net Interest Payments = number of times covered. Interest The return earned on money which has been invested or loaned, the price paid for its use. Invalidity component A component of an ETP made after 30 June 1994 for permanent disability/invalidity. Investment An asset purchased with the intention of producing capital growth or income, or both, for the owner. Investment risk The variability of returns. Generally, the higher the potential return over time, the higher the level of risk involved. Issued capital The value of securities allotted in a company to its shareholders and debt holders. Where debt has been issued the issued share capital is shown separately. Contrast authorised capital, issued shares and paid-up capital. Issued shares The shares of a company that have been allotted to shareholders. Back to Top

L

Lifetime pension or annuity A retirement income investment where an individual invests their superannuation or other money and receives an income periodically. The capital is not accessible, and there is little income flexibility. The payments are guaranteed to be made for the person's lifetime. Liquidate To sell an investment or to convert an investment into cash. Listing rules The ASX Listing Rules govern the procedures and behaviour of all ASX listed companies (see listed company) and listed trusts. Only public companies and public trusts are permitted to be listed on ASX. A public company (or trust) is one in which any member of the general public can acquire shares (or units) and there are no restrictions on the maximum number of shareholders (or unitholders). In addition to prescribing pre-requisites for listing, the Listing Rules require that listed companies and trusts report announcements to ASX to keep the market informed of their activities and report profit results and other financial information within specific deadlines. Listed security A security which is bought and sold via an exchange, such as shares on the stock exchange. Loss Occurs where the sale price of an asset is less than the initial cost. Lump sum A superannuation benefit taken in cash rather than being rolled over to a pension or annuity. Lump sum tax Tax payable on a lump sum benefit payment from a superannuation fund. Back to Top

M

Managed investment An investment product where investors pool their money with that of other investors in a fund so that the fund can buy a wide range of investments. These investments are managed by a professional fund manager who makes the investment decisions. Also known as a managed fund, managed investment scheme or unit trust. Management Expense Ratio (MER) A ratio expressing the management, fees and certain other expenses of a managed fund as a proportion of the net asset value of the fund. Margin loan A line of credit established for the purpose of investing in shares or unit trusts, often to make use of negative gearing. Market capitalisation The total number of shares on issue multiplied by their market price. This can be applied to work out the market value of one company or of the value of all companies listed on the exchange. Market price The prevailing price of shares traded on ASX. May be the last price at which the shares traded, or the most recent price offered or bid for the shares. Maximum Deductible Contribution (MDC) The maximum amount per annum allowed to be contributed into a superannuation fund for which a tax deduction is allowed. The limit is dependent on your age. Money market A market where short-term securities, such as promissory notes and bills of exchange, are traded. Securities in the money market all have terms of one year or less. Back to Top

N

Negative gearing Purchasing an investment with borrowed funds where the interest on the borrowing exceeds the income from the investment. Net asset value The value of a company, or managed investment, which is the assets less liabilities Net profit The excess of all revenues and gains for a period over all expenses and losses of the period. Net tangible asset backing Refers to the net physical assets owned by shareholders of a company at balance date. It expresses the asset value per share, i.e. shareholders' funds less intangibles, less preference capital, divided by the number of ordinary shares. As defined in the Listing Rules for the purpose of rule 4.12 in relation to a class of securities: NTA = (A - I - L) / N A = Total Assets. I = Intangible Assets. L = Total Liabilities ranking ahead of, or equally with, claims of that class of securities N = Total Number of securities on issue in that class. In calculating this, partly paid securities which are in that class when paid up are taken into account by assuming that the unpaid amount is paid. Net tangible assets (NTA) An indication of what each share in a company is worth if all the assets were liquidated, all the debts were paid and the residual was distributed to the ordinary shareholders on a per share basis. Calculated as shareholder funds less intangible assets, divided by the number of shares on issue. Back to Top

O

Options A derivative investment giving the holder an option to buy or sell a specified quantity of an underlying asset at some time in the future, at a price which is agreed when the contract is executed. Back to Top

P

Pari passu On an equal footing, or proportionately. A term frequently used with respect to share issues to indicate that the new shares being issued will rank equally in all respects with previously issued shares either immediately or at some specified time in the near future. Pension A regular income stream paid to an individual, either by the government (such as an Age Pension) or from a superannuation fund. PE Ratio The share price (in cents per share) divided by the earnings per share (eps) earnings per share = profit / number of shares on issue Profit is usually defined as the net profit after tax, before significant items, before amortisation expenses, and after any preferential dividends and income security payments. Number of shares is usually time weighted for any issues or consolidations made through the year. The number may be adjusted for rights and options on issue to calculate the equivalent number of fully paid ordinary shares on issue. If this is done, then the reported profit is also adjusted for the notional effect of converting the options and rights to fully paid shares (eg, the interest expense may fall if monies would be received). Percentage franked A franked dividend is a dividend paid by a company out of profits on which the company has already paid tax. The shareholder is entitled to an imputation credit, or reduction in the amount of income tax that must be paid, up to the amount of tax already paid by the company. The % figure represents the % of tax already paid by the company. Sometimes the percentage franked is also referred to in company announcements as a franked amount or imputed credit. Portfolio The full range of an investor's, or managed fund's, investment holdings. Post 1983 component That part of a superannuation benefit that relates to employment service, or superannuation fund membership, since 30 June 1983. Pre 1983 component That part of a superannuation benefit that relates to employment service, or superannuation fund membership, before 1 July 1983. Preservation A requirement to retain superannuation benefits within the superannuation environment until a specified condition has been met. Under current laws most benefits are compulsorily preserved until a person has retired (between 55 and 60) or reached a certain age (65). Price momentum A technical term, and relates to the share price history. In orderly markets, theory suggests that well structured companies will continue to outperform the market. Thus, a share price that has a history of outperformance will on average continue to outperform. A positive price momentum is seen to be a good predictor of continuing outperformance, on average. Product Disclosure Statement (PDS) An offer document that sets out information on a product, including the features of the product, fees that apply, the benefits and risks of investing in the product, commissions that may affect returns, information about complaints handling and cooling-off rights, and other information that might reasonably be expected to have a material influence on an investor's decision to invest. Profit The term has various meanings and needs to be defined in each use. In common usage it is net profit after tax and minority interest. Profit after tax For equity investments, the Profit After Tax is defined as the profit after tax and minority interests, but before abnormal items. It includes equity accounted profits, and is after preference dividends. Property securities In a managed investment the term "property" generally refers to investments in property securities - which are units or interests in property trusts listed on the stock exchange. Funds which invest in property securities usually diversify by investing across a range of different property sectors such as commercial, office, industrial, hotel and retail properties. A property securities fund generally invests in property trusts that are listed on the sharemarket, or in property-related companies. Pro rata Proportional(ly). Prospectus (now called the Product Disclosure Statement or PDS) The document issued by a company or fund setting out the terms of its public equity issue or debt raising. This provides the background and financial and management status of the company or fund, subject to the requirements of the ASX Listing Rules and the Corporations Law. Back to Top

Q

Quantitative analysis The valuation of companies using numerically determinable factors, such as PE, Yield, Price Momentum, Earnings Surprise, Gearing, and NTA. An objective analysis. Qualitative analysisThe valuation of companies using factors that are important but difficult to numerate. These factors tend therefore to be more subjective. Factors include company strategy, vision, management, intangibles, and technical analysis. Quick ratio Also called the acid test. The ratio of a company's current assets excluding inventory, to its short-term debt. This ratio is a more conservative analog of the current ratio; inventory is excluded since the liquidation price of inventory is likely to be below its book value. Back to Top

R

Realise To sell an investment. Realised capital gain When an investment is sold and a capital gain is realised. Reasonable Benefit Limit (RBL) The maximum superannuation benefit a person can build up over their lifetime which is taxed on a concessional basis. Amounts over a RBL may be taxed at a maximum rate of 47%, excluding the Medicare Levy. Redemption/redeem To withdraw, or sell, an investment. Reinvest Where income from an investment is used to make an additional investment, generally at no fee, increasing the potential to receive higher capital growth and distributions in the future. Responsible Entity The entity that operates a managed investment under the constitution. Return The amount of earnings from an investment in a given timeframe — usually expressed as a percentage per year. Risk The variability of returns. Generally, the higher the level of risk an investor is prepared to accept, the higher the potential return over time may be. Rollover/rolling over The transfer of an eligible termination payment within the superannuation environment between superannuation funds, or from a superannuation fund to a pension or annuity. Back to Top

S

Salary sacrifice An amount of pre-tax salary that an employee decides to contribute to super or allocate to a fringe benefit instead of taking it as cash salary. Sector A group of securities with common characteristics, such as resource sector companies or financial companies. Security (1) an asset traded on a financial market, such as shares or bonds or (2) an asset pledged to ensure the repayment of a loan. Shares Represents ownership in part of a company. When you buy a share in a company you become a part of the business and share in the future of that business. Also known as an equity. Spouse contribution A contribution to a superannuation fund from a spouse. Taxation offsets may possibly be claimed for such contributions. Stockbroker A person who buys and sells securities on behalf of others in return for brokerage or commission. Superannuation A tax effective means of putting aside money during your working life for use in retirement. Superannuation fund A concessionally-taxed investment fund for superannuation monies. These funds can accept both ETPs and contributions. Generally, balances can't be withdrawn until retirement. These can be run by an employer as a company fund or by a fund manager as a personal fund, or they can be self-managed by an individual. Surcharge A superannuation surcharge is a tax paid by high-income earners on certain super contributions and employer-paid ETPs. Switching Transferring units between managed investments by selling the units of one managed investment and using the proceeds to buy units in the other. This may trigger a capital gain. Synthetics: see derivatives. Back to Top

T

Tax deductible An expense that can be offset against assessable income. Tax rebate/offset Now known as tax offsets - an amount of money that reduces tax payable. Trust deed Of a managed investment, see constitution. For a superannuation fund, it is a document that governs the operation fo the fund. Back to Top

U

Undeducted contributions A term given to after-tax money invested in a superannuation fund, such as investing after-tax salary. Unit price The price for each unit of a managed investment. This is calculated by dividing the value of the assets of the managed investment by the number of units on issue to investors. Units A share of a managed investment, which represents an entitlement to the asset within the fund. Unit trust See managed investment. Unrealised capital gain Occurs when an investment increases in value but is not sold or realised. Back to Top

V

Vesting Relates to superannuation - an employee's entitlement to optional employer superannuation contributions. Vesting is usually expressed on a scale, for example for each year of service employees are entitled to a further 20% of optional employer contributions. This means that after five years of service, an employee is entitled to 100% of these contributions if they leave the employer. Back to Top

Y

Yield The dividend, or interest rate, on an investment expressed as a percentage of the price. Back to Top