Fundamentals Glossary

Associated Companies/Joint Ventures – These are companies where the investing company hold approximately 20% – 50% of the ordinary shares. The Profit and Loss Account will include a company’s share of the profits of an associated company or joint venture whilst the Balance sheet will include its share of the net assets.

Beta – A measure of the volatility of a given company relative to the overall market. A beta greater than 1 is more volatile than the market, less than 1 is less volatile.

Borrowings Analysis – This is a breakdown of when a company’s debt is due for repayment.

Capital Employed – is the value of the assets that contribute to a company's ability to generate revenue. This is comprised of fixed assets plus current assets minus current liabilities (excluding short term borrowings) minus other long-term creditors minus intangible assets.

Capital Expenditure per share - Net additions to fixed assets (after depreciation) divided by the number of shares in issue.

Cash at Bank – Cash held by a company that is immediately available.

Cash & Near Cash – Cash held by a company that is immediately available plus cash held on short-term (under 3 months) deposit.

Cash Increase/Decrease Per Share – The net change in a company’s cash balance over a given period divided by the number of shares in issue.

Cash on Short Term Deposit – Cash held by a company on a short-term (under 3 months) deposit

Current Investments – A company’s investments that are not held on a long-term basis.

Current Ratio – Current assets divided by current liabilities

Depreciation – A noncash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence. Most assets lose their value over time (in other words, they depreciate), and must be replaced once the end of their useful life is reached. There are several accounting methods that are used in order to write off an asset's depreciation cost over the period of its useful life. Because it is a non-cash expense, depreciation lowers the company's reported earnings while increasing free cash flow.

Earnings Per Share – Basic – This is based on the actual profits and shares in issue.

Earnings Per Share – Diluted – This is based on the profits and the number of shares in issue if the company were to issue ordinary shares arising from the full conversion of any relevant stocks (eg. Convertible Loan Stock).

Earnings Per Share – Adjusted –This is the EPS provided by a company that excludes items from its profit and loss account that it considers to be exceptional and therefore distorting. This would allow a better comparison from year to year of a company’s normal trading performance.

EBITDA –Earnings Before Interest, Taxes, Depreciation and Amortization. An approximate measure of a company's operating cash flow based on data from the company's income statement. Calculated by looking at earnings before the deduction of interest expenses, taxes, depreciation, and amortization.

EBITDA/EV - Earnings Before Interest Tax Depreciation and Amortisation divided by Enterprise Value.

Enterprise Value - This is a measure of a company's value and is often used as an alternative to market capitalisation. It is calculated as market capitalisation plus total borrowings minus cash and equivalents.

Forecasts – These are estimates of a company’s future performance in terms of sales, earnings and dividends.

Gearing – The ratio of a company's long-term funds with fixed interest to its total capital. A high gearing is generally considered very speculative.

Gross Borrowings – The total borrowings of a company.

Gross Cash Flow – The operating cash flow of a company plus cash flows from investments, the servicing of finance and tax.

Growth Metrics – Indicators of a company’s growth potential.

Interest Cover – The ability of a company to cover its finance charges. This is calculated by dividing the profit before interest payable by interest payable.

Invested Equity Capital – Equity shareholders’ funds plus provisions.

Major Shareholders – Shareholders in a company owning more than 3% of the ordinary shares.

Minority Interest – Where a subsidiary is not wholly owned, this represents the share of the assets or the share of profits of subsidiaries that belong to someone else.

Net Asset Value – The value of the shareholders interest in a company, calculated by subtracting liabilities from assets, deducting intangible assets and dividing by the number of shares in issue.

Net Borrowings – Total borrowings excluding cash and near cash.

Net Cash Per Share – Cash and near cash plus short term listed investments divided by the number of shares in issue.

Net Interest – Interest payable net of interest received.

Normalisation - This is the accounting method that takes out exceptional items from the profit & loss account. These exceptional items are considered one-off occurrences during the financial year that the company believes is outside its daily operations. Therefore to reflect the company’s underlying performance, the company will strip out these exceptional items and provide accounts that it believes is more reflective of the company’s financial performance

Operating Cash Flow Per Share – This is the cash generated from operating activities divided by the number of shares in issue.

Operating Profit/Loss – A company’s profit after deducting operating costs from gross profits. It is the profit before net interest, investment income and share of associated companies/joint ventures profits.

Payment Date – The date when a dividend becomes payable.

Profit after Tax - A company’s profit after tax has been deducted.

Profit and Loss Account – Normalised – This shows profits and key financial data excluding the effects of items that considered to be exceptional.

Profit and Loss Account – Unadjusted
– This shows profits and key financial data based on the figures as presented by the company.

Profit Before Tax - A company’s operating profit before tax is deducted.

Provisions – When a company uses a clause or stipulation in an agreement for a future potential liability,

Quick Ratio – Current assets (excluding stocks) divided by current liabilities.

Record Date – The date established by a company to determine who should receive a dividend.

Return on Equity – Equity shareholders’ earnings divided by the invested equity capital.

ROCE – (Return on capital employed). This is a measure of the return from invested and borrowed capital. The return is the pre-tax profit earned before net borrowing costs divided by net assets (excluding intangibles). Where detailed annual data is available the return is measured by dividing the profit before interest payable by net assets excluding intangibles but before deducting provisions and total borrowings.

Tangible Fixed Assets Analysis – A detailed breakdown of the movements in fixed assets, split between property and other fixed assets over the period.

Tax Rate – This is arrived at by dividing the total group tax (excluding associated companies/joint ventures) by the profit before tax (excluding associated companies/joint ventures).

Turnover – Also known as sales, the amount derived from the provision of goods and services falling within a company’s normal activities after the deduction of trade discounts, VAT, etc. For banks this is represented by the total operating income, for insurance companies it is represented by gross premiums and for investment trusts it is represented by investment income in the Revenue Account.

Value Metrics – Indicators of a company’s value.

Price to Tangible Book Value Ratio – A measure to compare a company’s market value to its book value calculated by dividing the price by the net asset value.

Price to Cash Flow Ratio – This provides a measure of how the market views the future financial health of a company calculated by dividing the price by the gross cash flow per share.

Price to Research & Development Ratio – A measure of the relationship between a company’s value and the amount spent on research and development.

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