Acquisition
A purchase of all or part of a company so as to obtain ownership of its operating resources and/or to control its business.
Amortisation
See depreciation
Analyst
Analysts (financial analysts) assess financial market information in order to develop forecasts of future stock market developments.
Annual financial statements
The annual financial statements document a company’s financial results for the past fiscal year. In addition to a balance sheet and an income statement, a company must also release information such as a cash flow statement, a segment report, and a statement of changes in equity. The annual financial statements are prepared by the board of management, and are audited by a certified independent auditor.
Articles of incorporation
Contractual basis of a stock corporation stating the company name, headquarters, business purpose, amount of capital stock and further basic rules and regulations.
Asset deal
Acquisition of a company by transferring individual assets (and occasionally debts) – rather than shares/equity securities – to the purchaser.
Authorised capital
An amount designated to be converted into shares so as to increase the capital stock of a stock corporation. Authorised capital must be approved at a stockholders’ meeting by voters representing a majority of the total capital stock and by at least three-fourths of the votes cast. The existence of authorised capital allows the Board of management to perform a capital increase within five years of the authorisation's approval.
Balance sheet
A balance sheet is a complete breakdown of a company’s assets and liabilities as of a given date, and serves as a measurement of the company’s ability to perform. It lines up the company’s assets, on one side, against its equity and liabilities, on the other. The balance sheet is included in the annual report, along with other statements like the income statement and the cash flow statement.
Basis points
Unit for measuring interest rates. 100 basis points correspond to one percentage point.
Bear market
A steep general decline in stock prices, usually over a longer period. Opposite of a bull market.
Bearer share
Transferable share certificate that does not specify the owner of the share. The bearer of the share is entitled to the rights and obligations stated on the share certificate.
Antonym: Registered share
Benchmark
In business, a benchmark is a standard against which to evaluate success. Benchmarking is a method and principle of watching and learning from the best in the field.
Bond
A debt instrument that entitles the owner to receive repayment of the bond’s par value plus interest. Bonds may be issued by governments, banks or companies, and are sold through banks. They enable the bond’s issuer to obtain long-term financing by borrowing. The total amount of a bond issue may be divided into segments or “tranches.” The most important features of a bond are its maturity (the date when the issuer will repay the principal), its interest rate, and how its interest is paid.
CAGR
Abbreviation for compound annual growth rate
Call option
The right to purchase shares at a previously set amount (strike price) within a certain period or at a certain time.
Capital expenditure
A long-term investment in operations to expand or improve a company’s production infrastructure. Net capital expenditures increase the company’s portfolio of capital equipment. Replacement expenditures provide replacements for goods consumed in the production process. Gross capital expenditures are the total of net and replacement expenditures.
Capital increase
A way to increase a company’s equity. A distinction can be made here between an effective capital increase, in which “fresh” capital is provided to the company from external sources, and a nominal capital increase from corporate funds.
Capital invested
Capital invested comprises the assets on which the company must obtain a return by generating an appropriate cash inflow; in some cases the cost of ultimately reproducing the assets must be earned in addition.
Capital reserves
The paid-in surplus from the issuance of shares, i.e. the amount by which capital contributions exceed the nominal value of the capital stock.
Capital stock
The registered capital of a stock corporation. Numerically, it corresponds to the par value of all outstanding shares of stock.
Cash dividend
The portion of the dividend that is actually paid out to stockholders (after deducting corporate income tax) is called the cash dividend.
Cash flow
Key indicator for assessing a company’s financial strength; in addition to gross cash flow, the statement of cash flows also reports the cash flow from operating activities (net cash flow), which shows the amount of funds available from operating activities for financing investments, repaying debts or distributing dividends. The cash flows from investing and financing activities are also reported.
Cash flow statement
A cash flow statement shows a company’s cash disbursements and receipts, together with the net cash outflow or inflow, for a given accounting period (see cash flow).
Common stock
In contrast to preferred stock, common stock always carries voting rights.
Consensus
The “consensus” is often considered equivalent to the “market’s expectations.” It is calculated as the average of analysts’ estimates for certain key figures of a company, such as its operating result or earnings per share (EPS).
Consolidation
(1) In the stock market, consolidation is a phase of stabilisation in trading prices following phases of substantial fluctuations or jumps.
Continuing operations
(2) In an industry, consolidation means a reduction in the number of companies, owing to either takeovers by competitors or bankruptcy.
Convertible bond
(3) In financial reporting, consolidation means the elimination of sales revenues, income and expenses, and gains and losses arising from transactions among
Corporate compliance
the individual companies in a group (consisting of a parent company and its subsidiaries), along with the receivables and liabilities existing between them, so as to present the results of the group as if it were a single entity (consolidated financial statements).
Corporate Governance
Revenue and earnings reporting for continuing operations pertains only to business operations that are expected to remain in the company’s portfolio for the foreseeable future; opposite of discontinued operations.
Cost of capital
A bond that can or must be converted into company stock at a pre-determined ratio. Conversion rights, unlike warrants, cannot be traded separately from the bond.
Credit rating
Corporate compliance comprises the observance of statutory and company regulations on lawful and responsible conduct.
Currency risk
Corporate governance comprises the long-term management and oversight of the company in accordance with the principles of responsibility and transparency. The Corporate Governance Code sets out basic principles for the management and oversight of listed companies.
Depreciation
A way of reflecting, in a company’s balance sheet, the decline in the value of an asset over a specific period of time due to use. In general, “depreciation” is the term used for property, plant and equipment; “amortisation” is used for intangible assets. Amongst others there are two principal methods. With straight-line depreciation or amortisation, the asset’s cost of acquisition or construction is spread uniformly over its anticipated useful life. With the declining-balance method, the carrying amount of an asset is reduced by larger increments at the beginning of the depreciation or amortisation period, and by smaller increments later on.
Disclosure obligation
Requirement to publish business-related data, which can vary depending on the company’s legal form and its size. Stock corporations are generally required to publish (consolidated) annual financial statements along with a (Group) management report. Further capital market obligations also exist, such as ad-hoc reporting and the disclosure of directors’ dealings.
Discontinued operations
Business operations already divested or earmarked for divestiture in the near future; opposite of continuing operations.
Diversification
Expanding a company's range of products and services to embrace new areas that are usually related to existing activities.
Divestment, divestiture
Sale of an asset. The opposite of a capital expenditure or acquisition.
Dividend
The dividend is the portion of the profits paid out for each share of a stock corporation’s stock. The annual stockholders’ meeting decides on the amount of the dividend and when and how it will be paid.
Earnings per share
Earnings per share - EPS is calculated by dividing Group net income by the weighted average number of shares.
Employee stock
Stock issued to a company’s employees, usually on preferred terms. The goal is to give the employees an individual, direct stake in the company’s success, and also in its business risks.
EMTN and multi-currency EMTN program
The multi-currency European Medium Term Notes (EMTN) program is a documentation platform that enables a company to raise capital by quickly issuing debt on the global capital market. Maturities, currencies and conditions can be very flexibly designed.
EPS
Earnings per share (see above).
Equity
In contrast to liabilities – the other main item on the same side of the statement of financial position – equity is a combination of the funds raised by a company’s owners to finance it, and generated profits retained by the company. Equity – unlike debt capital – is generally available to the company for an unlimited period.
Exceptional items
Exceptional items
Fiscal year
The period for which a company’s annual financial statements must be prepared. A fiscal year can never be more than twelve months.
Foreign exchange
Claims for payments in foreign currencies traded on foreign stock exchanges, usually in the form of assets held in foreign banks or bills of exchange or checks payable abroad; banknotes and coins denominated in foreign currencies are not considered to be foreign exchange.
Forward contract
A forward contract, like a futures contract, allows the holder to buy or sell a specific type of asset at a specific time at a given price. Unlike a futures contract, however, a forward contract is not traded on the stock exchange.
Free float
The percentage of a corporation’s stock that is not held by large, long-term stockholders.
Futures contract
A futures contract is an exchange-traded contract in which the base value, quantity and quality, delivery date and price of the asset to be provided in the future are determined at the signing of the contract. Unlike a warrant, a futures contract certifies not a right but a future obligation.
Group
A grouping of legally independent enterprises by way of intermeshing financial ownership (equity interests) to form a single economic unit under a single management.
Holding company
A holding company is an “umbrella” company that manages or administers a number of other companies in which it holds interests. The companies it manages are still legally independent, but as a rule a holding company has a controlling influence in all strategic issues and is responsible for such matters as the efficient management of the entire corporate group. A holding company itself does not sell goods or services.
IAS
The International Accounting Standards, adopted by the International Accounting Standards Board (IASB), an independent, privately financed committee founded in London in 1973. International Accounting Standards remain in effect under IFRS (International Financial Reporting Standards), whose application has been mandatory in Europe since 2005.
IASB
Abbreviation for International Accounting Standards Board. The IASB is the publisher of the International Financial Reporting Standards (IFRS).
IFRS
International Financial Reporting Standards: since 2005, the basis for preparing the consolidated financial statements of all European companies listed on a stock exchange.
Impairment
Impairments are non-scheduled, downward valuation adjustments made to reflect unforeseen declines in the value of assets. Depreciation and amortisation, on the other hand, are scheduled adjustments.
Impairment loss
An expense that reduces the carrying amount of an asset to a lower fair value beyond any scheduled amortisation or depreciation.
Income before/after taxes
Reported profits for an accounting period before or after the deduction of income taxes. Income before taxes offers greater comparability with the results of previous years and with those of other companies.
Income statement
The income statement compares expenses and income for a given period, usually a quarter or a fiscal year. If total income exceeds total expenses, the company has earned a profit. If expenses exceed income, the company shows a loss.
Intangible assets
Non-physical assets that are recognised in the statement of financial position. Includes items such as acquired goodwill, patents, technologies and trademarks.
Interest
Interest is the compensation a lender requires for temporarily providing capital to a borrower. The rate of interest charged depends on a number of factors, such as the yield curve and the borrower's credit rating.
Investment
Making capital available on a long-term basis to maintain, expand and improve the economic means of production. Net investment is the addition to existing assets. Reinvestment is the replacement of assets depleted by the production process. Gross investment is the total of net investment and reinvestment.
Investment fund
Investors' assets pooled by an investment management company.
Investment management company
Also known as investment companies or investment trusts, such entities invest the money provided to them by investors according to set principles and goals.
Investor
An individual or institution that commits capital to the market with the expectation of return. A distinction is often made between private investors, who invest as individuals, and institutional investors. Strategic and financial investors are also differentiated according to their respective investment goals.
Investor Relations
Investor relations (IR) is the deliberate, strategic fostering of the relationship between a company and the individual members of the financial community. The concept comprises all measures and decisions aimed at maintaining productive relations with existing stockholders and attracting new potential equity providers. They center on a comprehensive, consistent and timely exchange of information between the company and the financial markets. Important investor relations tools include investor conferences, corporate presentations to analysts and investors in the world's major financial centers ("road shows"), presentations on specialist topics or R&D, visits to the company by investors, one-on-one discussions with them and an IR website customised to the needs of the financial community.
IPO
short for the U.S. term "initial public offering", a corporation's first offering of stock to the public.
Issue
The release of new securities, especially stocks and bonds.
Issue price
Price at which shares are issued by stock corporations within the scope of a capital increase or IPO.
Joint venture
An entity founded by two or more legally independent companies for the purpose of carrying out projects together. In most cases, each of the parties to a joint venture makes an equal capital contribution.
Liabilities
Liabilities are obligations to third parties that represent a financial charge. In contrast to provisions, the future payment of liabilities – in terms of their existence, amount and timing – is assured. Liabilities comprise current liabilities such as those to suppliers, and noncurrent liabilities such as bonds.
Liquidity
A company’s ability to pay its debts (bills, payments of principal, etc.) on time.
Listing
In the case of securities, liquidity depends on the number of units of a security currently in circulation, and on the number of market participants who are willing to buy or sell such paper. If a security is liquid, supply and demand are great enough that a transaction – the purchase and sale of the security – can be arranged at any time.
Margin
A term for the difference between the cost and the market price of a commodity or service. “Margin” may also mean the difference between debit and credit interest. In the market practice called “arbitrage,” margin is the difference in price between two different trading forums.
Market capitalisation
The market value of a company listed on a stock exchange. Market capitalisation is calculated by multiplying the number of shares of a company’s stock times the stock’s current trading price.
Moody's
Moody's is one of the two best-known and most important rating agencies; the other is Standard & Poors.
Net income (net loss)
Net income or loss is a corporation’s profit or loss after taxes and after minority stockholders’ interests. It is reported in the income statement.
Option
The right (not the obligation) to buy or sell stock within a certain period or on a certain date for a price agreed upon in advance (the “strike” price). The option has a notional value if the strike price is lower than the stock’s going trading price. If the going trading price is below the strike price, the option has no value.
Preferred stock
Stock on which higher dividends are paid than on common stock but which does not carry voting rights.
Premium
When securities are issued, the premium is the difference between the issue price and nominal amount. In the case of new stock issues, the premium is recognised in equity in the statement of financial position under the item "capital reserves."
Property, plant and equipment
The term for the physical assets of a company that are used on a continuing basis, including land, buildings, technical equipment and machinery, fixtures and furnishings, and so forth.
Provisions
Provisions – sometimes known also as allowances or accruals – are recorded for liabilities, whose existence, amounts or due dates are uncertain. An accounting item is formed for these potential amounts so that future expenditures can be allocated to the periods when they were actually incurred from an economic perspective. Provisions are established for such charges as taxes and pensions.
Public relations (PR)
The provision of information by a company to the general public about the company, its markets, business trends etc. in order to maintain public confidence.
Quarterly report
An interim financial report issued by a corporation for each quarter of a year.
Registered share
Shares dedicated to a certain person that is registered in the company's registrar.
Reserves
Equity above and beyond a company’s nominal liable capital.
Retained earnings
Net profits kept within a business after dividends have been paid.
Return
The yield on capital employed, in percent. There are at least two ways of calculating returns:
Return on capital employed
(1) Dividend yield = ratio of dividend to the trading price of the stock;
Return on equity
(2) Return on sales = ratio of a company’s profits to sales revenues.
ROCE
Acronym: ROCE. This figure measures the return on capital employed in percent. There are two ways of calculating returns:
Shareholder/Stockholder
A person owning shares in a stock corporation.
Shareholder value
A management concept that aims to maximize benefits to a company’s stockholders. The emphasis is on increasing enterprise value or the value of the stock.
Spot rate
Prices fixed for securities that only have one price quoted per trading day (single price quotation) or for continuously quoted securities that do not meet the set minimum trading quantity.
Stakeholder value
A management approach that aims to generate value for everyone affected by a company’s policies – including the employees and society in general. The stakeholder value approach acknowledges the concern that if management adopts a one-sided focus on building value for stockholders only (shareholder value), it may in fact undermine the real economic basis for success. For example, a short-term focus on the stock’s trading price might jeopardize employees’ long-term confidence in management. However, stockholder value and stakeholder value do not necessarily conflict with one another.
Standard & Poors
Standard & Poor's is one of the best-known and most important rating agencies.
Statement of financial position
The statement of financial position – still sometimes known as the balance sheet – is a complete breakdown of a company’s assets, equity and liabilities as of a given date, and serves as a measurement of the company’s performance. It distinguishes between the allocation of funds (assets) and the source of funds (equity and liabilities) and thereby provides an overview of the company’s financing structure. The statement of financial position forms part of a company’s annual financial statements along with other schedules such as the income statement and the cash flow statement.
Subscription
When a company is to be newly listed on the stock exchange, potential investors can subscribe for shares once the issue price range has been set. In this process, each potential investor is required to indicate the number of shares he/she is willing to buy and at what maximum price.
Syndicated credit facility
Credit line agreed with a group of banks. Generally used for ¬extensive financing requirements, such as when making an acquisition, to increase the available liquidity reserves or as security for the issuance of debt instruments. The credit facility can be utilised and repaid flexibly, ¬either in full or in portions, ¬during its term.
YTD
From the start of the year. An acronym for "year to date" used in detailed presentations of a fund's performance. YTD relates to the performance from the start of the current year so that the period of time being assessed changes.