Glossary of commonly used terms

A

• Annual general meeting (AGM)
  The annual meeting of a company’s shareholders which is required by the Corporations Act.
• ASX 
  Australian Securities Exchange

B

• Bear market
  When prices generally are falling and further falls are expected.
• Bookbuild
  A process by which institutions participating in a capital raising trade shares with each other in order to determine a final price which can then be used as the basis to allocate shares to all applicants who applied for shares.
• Bull market
  When prices generally are rising and further rises are expected.
• Buy-back
  When a company repurchases existing shares from shareholders to reduce the number of shares on issue.

C

• CBOE Australia
  Formerly Chi-X Australia, Cboe Australia Pty Limited (is an alternative trade execution venue to the ASX which uses its own trading system and provides trading in both ASX listed securities and Cboe Australia only quoted securities.
• Corporations Act
  The Corporations Act of Australia 2001.
• Corporate Governance Statement
  The statement made by a listed entity under listing rule 4.10.3 stating the extent to which it has followed the Council’s recommendations on an “If not, why not” basis.

D

• Debt-to-equity ratio
  A measure of a company’s gearing (borrowing) which is calculated by dividing all financial debt by the book value of shareholder funds (equity).

E

• Earnings before interest and tax (EBIT)
  An indicator of a company’s financial performance calculated as revenue minus expenses excluding tax and interest. Also referred to as operating earnings.
• Earnings per share (EPS)
  Measures a company’s earnings attributable to each equivalent ordinary share over a twelve-month period.  It is obtained by dividing a company’s net profit (less preference dividends) by the total number of shares on issue.
• Executive director
  A director who is also employed full time by the company.
• Extraordinary general meeting (EGM)
  A meeting of shareholders to consider special items of business which require the approval of shareholders (usually 75% of shares voted).
• Environmental Social Governance (ESG)
  The consideration of material environmental, social and governance factors alongside financial factors in the investment decision-making process.

F

• Fair value
  A measurement of value which estimates the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. Because fair value is a market-based measurement, it is measured using the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk.
• First strike (remuneration report)
  Corporations legislation introduced the two strikes rule in 2011. A first strike occurs when over 25% of shares voted at an AGM vote against a listed company’s remuneration report.

G

• Goodwill 
  The difference between the price paid to acquire a business asset and its book value.
• Gross margin
  The ratio of revenue to cost of goods sold, usually expressed as a percentage.

I

• Independent non-executive director
  A director who is free of any interest, position or association that might influence or be perceived to reduce their capacity to bring an independent judgement to bear on issues before the board.
• Intangible asset 
  Non-physical assets with no fixed value, such as goodwill and intellectual property rights.

L

• Listed investment company (LIC) 
  A listed managed fund which primarily provide access to a selected pool of company shares, although they may also incorporate other asset classes.
• Listing Rule 
  An ASX listing rule.
• Long term incentive plan (LTIP or LTI Plan)
  An incentive scheme used by listed companies to reward senior executives for the achievement of the company’s long-term objectives. Awards are generally paid in equity to further align executives’ interests with those of their shareholders.

M

• Market value
  Prevailing price of securities traded on ASX or another market.

N

• Net assets 
  Total assets (current assets plus fixed assets) minus total liabilities.
• Net profit
  Total gross profit minus all business expenses. When net profit figures are quoted, the author usually makes it clear whether the figure is before tax (NPT) or after tax (NPAT).
• Non-executive director
  A director who is not an executive director.
• Non-renounceable rights issue
  An offer of rights that may only be taken up or forfeited, and cannot be traded on the market.

O

• Option 
  An option confers the right, but not the obligation, to buy or sell a financial product at a specified price.

P

• PAITREO
  Pro-rata, accelerated institutional, tradeable, renounceable entitlement offer.
• Performance right
  A right but not an obligation to purchase a share or unit, typically at zero cost, within a given period upon attainment of predefined performance hurdles.
• Pro-rata issue
  An offer of securities to all existing holders of securities in a class on a pro-rata basis.

R

• Real Estate Investment Trusts (REITs)
  A trust which provides exposure to the value and rental income from properties owned by the trust. 
• Renounceable rights issue
  An offer of rights where shareholders can choose to take up the rights offered, let them lapse, or trade them on the market.
• Return on assets (ROA)
  Measures how much profit a company is making on the assets used in its business.  If a company is geared, then the value of assets is greater than book value (equity) and ROA usually is less than ROE.
• Return on equity (ROE)
  Measures the rate of return on the ownership interest (shareholders equity) of members, ie. book value (not to be confused with market price of shares). It measures a company’s efficiency at generating profits from every unit of shareholders’ equity and shows how well a company uses investment funds to generate earnings growth.
• Return on investment (ROI)
  Measures whether a proposed investment is wise, and how well it will repay the investor. It is calculated as the ratio of the amount gained (taken as positive), or lost (taken as negative), relative to the initial investment.
• Rights issue
  An offer of additional shares to existing investors at a pre-determined ratio.

S

• S&P/ASX 200
  A benchmark for the Australian equity market, generally consisting of the top 200 companies by market capitalisation.
• Scaleback
  Scaleback is the corporate action used to scale down the number of shares or rights a shareholder is entitled to.  This occurs when an issuer receives applications for more shares than it intends to issue, and may need to scale down the number of shares issued to each investor.
• Self-managed superannuation fund (SMSF)
  A DIY superannuation fund, which is independently established and run, rather than run by a bank or financial institution. The trustee/s of the fund make decisions about how the fund is run and which investments are made.
• Share purchase plan (SPP)
  An offer to existing shareholders in a listed company the opportunity to purchase a limited number shares in that company, without brokerage fees and often at a discount to the market price.
• Short selling
  Where an investor or fund manager borrows a security and subsequently sells the security with an obligation to purchase back the security and return it at a later date.  The short seller believes that the borrowed security price will decline, enabling it to be bought back at a lower price.
• Short term incentive plan (STIP or STI Plan)
  An incentive scheme used by listed companies to reward executives within the next year for full or partial achievement of a set of objectives.
• Statutory profit
  Statutory profit is net profit after tax (NPAT) derived from the profit figure given by statutory financial statements compiled in accord with Australian Accounting Standards (now referred to as IFRS – International Financial Reporting Standards) and entailed in Australian law by the Corporations Act.

T

• Total shareholder return (TSR)
  A concept used to compare the performance of different companies’ securities over time. It combines share price appreciation and dividends paid to show the total return to the shareholder. The absolute size of the TSR will vary with stock markets (absolute TSR), but the relative position reflects the market perception of overall performance relative to a reference group (relative TSR).
• Two strikes rule
  Corporations legislation introduced in 2011, under which two consecutive votes against a listed company’s remuneration report of over 25% will lead to a vote on whether to spill the Board.

U

• Underlying profit
  A company’s statutory profit as adjusted in order to present a figure which reflects the directors’ assessment of the result for the ongoing business activities of the company.

W

• Weighted average cost of capital (WACC)
  An average derived for the cost of funds employed by a company, starting with interest cost of borrowings and including a value for shares on issue (perhaps expressed in terms of funds which could be raised by issuing shares).