PAYMENT DATE Date on which a declared stock dividend or a bond interest payment is scheduled to be made.
PHONE SWITCHING In mutual funds, the ability to transfer shares between funds in the same family by telephone request. There may be a charge associated with these transfers. Phone switching is also possible among different fund families if the funds are held in street name by a participating broker/dealer.
PIVOT Price level established as being significant by market’s failure to penetrate or as being significant when a sudden increase in volume accompanies the move through the price level.
POINT AND FIGURE CHART A price-only chart that takes into account only whole integer changes in price, i.e., a 2-point change. Point and figure charting disregards the element of time and is solely used to record changes in price.
PREFERRED STOCK A security that shows ownership in a corporation and gives the holder a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most preferred stock pays a fixed dividend, stated in a dollar amount or as a percentage of par value. This stock does not usually carry voting rights.
PREMIUM The price of an option contract, determined on the exchange, which the buyer of the option pays to the option writer for the rights to the option contract.
PRICES Price of a share of common stock on the date shown. Highs and lows are based on the highest and lowest intraday trading price.
PRICE/BOOK RATIO Compares a stock’s market value to the value of total assets less total liabilities (book). Determined by dividing current price by common stockholders equity per share (book value), adjusted for stock splits. Also called Market-to-Book.
PRICE/EARNINGS RATIO Shows the “multiple” of earnings at which a stock sells. Determined by dividing current price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio is determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher “multiple” means investors have higher expectations for future growth, and have bid up the stock’s price.
P/E RATIO EQUATION Assume Y Co sells for 30 per share and has earned 3 per share this year. 30 = 10 times 3 Y stock sells for 10 times earnings.
PRICE/SALES RATIO Determined by dividing stock’s current price by revenue per share (adjusted for stock splits). Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares outstanding.
PRIMARY MARKET The first buyer of a newly issued security buys that security in the primary market. All subsequent trading of those securities is done in the secondary market.
PROFIT MARGIN Indicator of profitability. Determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage.
PROGRAM TRADING Trades based on signals from computer programs, usually entered directly from the trader’s computer to the market’s computer system and executed automatically.
PROSPECTUS Formal written document to sell securities that describes the plan for a proposed business enterprise, or the facts concerning an existing one, that an investor needs to make an informed decision. Prospectuses are used by Mutual Funds to describe the fund objectives, risks and other essential information.
PROXY Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders meeting. Includes information on closely held shares. Shareholders can and often do give management their proxy, representing the right and responsibility to vote their shares as specified in the proxy statement.
PUT OPTION An option contract that gives the holder the right to sell (or “put”), and places upon the writer the obligation to purchase, a specified number of shares of the underlying stock at the given strike price on or before the expiration date of the contract.
QUICK RATIO Indicator of a company’s financial strength (or weakness). Calculated by taking current assets less inventories, divided by current liabilities. Also called Acid Test.
RANGE The difference between the high and low price during a given period.
RETURN The percentage gain or loss for a mutual fund in a specific time period. This number assumes that all distributions are reinvested.
REDEMPTION CHARGE The commission charged by a mutual fund when redeeming shares. For example, a 2 % redemption charge (also called a “back end load”) on the sale of shares valued at 1000 will result in payment of 980 (or 98 % of the value) to the investor. This charge may decrease or be eliminated as shares are held for longer time periods.
RELATIVE STRENGTH A stock’s price movement over the past year as compared to a market index (i.e. the S&P 500). Value below 1.0 means the stock shows relative weakness in price movement (underperformed the market); a value above 1.0 means the stock shows relative strength over the 1-year period. Equation for Relative Strength: [current stock price/year-ago stock price] [current S&P 500/year-ago S&P 500]
RETRACEMENT A price movement in the opposite direction of the previous trend.
RETURN ON ASSETS (ROA) Indicator of profitability. Determined by dividing net income for the past 12 months by total assets. Result is shown as a percentage.
RETURN ON EQUITY (ROE) Indicator of profitability. Determined by dividing net income for the past 12 months by common stockholders equity (adjusted for stock splits). Result is shown as a percentage.
REVERSE STOCK SPLIT A proportionate decrease in the number of shares, but not the value of shares of stock held by shareholders. Shareholders maintain the same percentage of equity as before the split. For example, a 1-for-3 split would result in stockholders owning 1 share for every 3 shares owned before the split. A firm generally institutes a reverse split to boost its stock’s market price and attract investors.
RIGHTS OFFERING Issuance of “rights” to current shareholders allowing them to purchase additional shares, usually at a discount to market price. Shareholders who do not exercise these rights are usually diluted by the offering. Rights are transferable, allowing the holder to sell them on the open market to others who may wish to exercise them.