Dictionary


M-R

M1

The sum of currency in circulation, checkable deposits and traveler's checks.

M2

M1 plus savings deposits, time deposits and money market mutual funds.

h4>Market capitalization

It is the value ypu obtain when multiply the outstanding shares of a company by the price of a share unit.

Market order

Market orders are orders to buy or sell a contract/security at the current best price, whatever that price may be.

Market risk

Risk associated with stock prices, interest rates and exchange rates.

Market timing

Try to profit from markets based on short-term forecasts.

Market value index

Index tracking the market based on the evolution of securities market values.

Maximum drawdown

Maximum drawdown is the percentage decrease in investment from its highest level to its lowest.

MBO

Management buyout happens when a firm is sold to the management.

Mega cap (ultra cap)

Stocks with a market value over $25 billion.

Micro cap

Stocks with a market value under $250 million.

Mid cap

Stocks with a market value between $1 billion to $5 billion.

Money Market funds

Money market funds invest in short term paper like treasury bills (short term bonds, less than one year maturity). They are very safe but provide a modest performance. The performance for money market funds is correlated with short-term interests.

Money supply

The sum of currency, checking account funds and traveler's checks.

Monte Carlo simulation

A method consisting of generating random outcomes in order to estimate VAR.

Mortgage backed securities

Fixed income securities representing claim in a pool of mortgages.

Mutual fund

In a mutual fund, investors are pooling money. The fund is a legal entity guaranteeing the proper management to investors. The management of the money is delegated to a fund manager.

Net Asset Value (NAV)

The net asset value is calculated by summing the portfolio assets less any liabilities (like the fees). The net asset value of a mutual fund is calculated periodically (every days, every months for example).

Open Ended Funds

The majority of mutual funds are open funds. Open funds continuously issue shares.

Operating margin

(Sales-cost of good sold-operating expenses)/sales

Operating profit margin

Net earnings/sales

Measures how much profit is generated per sale.

Operational risk

Any risk arising from deficiencies in procedures, infrastructure, technology, resources, supervision or trade data.

Option

A option gives the right, but not the obligation, to buy or sell an underlying asset from or to another party at a fixed price over a specific period of time.

Passive investment

An investment approach in which the portfolio construction is not altered by short term expectations. Indexing is an example of passive investment.

Payout ratio

Dividend per share/ earning per share

PEG ratio

Price earning to growth ratio: Price earning/Annual EPS growth. The PEG ratio measures the relation between stock price, earning per share and company growth.

Pension funds

Pooled funds invested in order to provide retirement income.

Plain vanilla swap

An interest rate swap in which on party pays a fixed rate and the other pays a floating rate, all in the same currency.

Portfolio

All the securities held by an individual or corporation for investment purposes.

Price multiples

Price multiples are ratios of stock’s market price to some fundamental variable.

Price earning ratio

The price-earning ratio is very simple it is the Market value per share/ earning per share. If the PE is 10, this mean the investor is ready to pay 10 times the current earnings. Each industry has its level of PE but as a yardstick, PE under 10 is considered cheap and PE over 20 is considered expensive.

Price to book value

The price to book value ratio is the market value per share/total tangible assets- total liabilities. Again each industry has its own level of PB. But as a general thing a PB less than 1 means the total market value is less than the book value (which is good). The company could be cheap or meeting some difficulties.

Price to cash flow

The price to cash flow is bit more advanced. It is calculated the following way: Market value per share/cash flow per share. The interesting point is that it removes the effect of depreciation and other non-cash factors.

Price weighted index

Index tracking the market based on the evolution of individual security’s prices.

Private equity

Private ownership in a non publicly traded company.

Prospectus

A legal document issued by a company about an investment.

Quick ratio

(Current assets-inventory)/current liabilities

Real return

Inflation adjusted return.

Receivable turnover

Net receivable sales/Average net receivable

Calculates how many times the account receivables have been collected during an accounting period.

Recession

A downturn in economic activity with a declining GDP and rising unemployment.

REITS

Real estate investment trusts are pools of money invested in real estate properties and/or real estate debt. They trade like equities and pay out at least 90% of their income in dividends.

Restrictive fiscal policy

A increase in tax rates and/or reduction in government expenditures.

Restrictive monetary policy

Measures designed to reduce the general level of prices (rate of inflation).

Return on assets

Net earnings/Total assets

Risk management

Risk management includes various aspects: Identifying, measuring and taking actions that bring the actual level of risk to a desired level.

ROE

Return on equity: Net earnings/owner’s equity. ROE measures the profits for each dollar invested.

ROIC

A tax favored retirement plan. Contributions are not tax deductible but accumulation and capital withdraw is free of taxes.

Roth IRA (US)

Return on invested capital: Net earnings/(owner’s equity + long-term debt)

Back to top