Terms Flashcards
Define Capital
Is the total resources available to a company.
Eg Human Resources, financial, property etc.
Define Debt
A loan to be repaid with interest.
Can come in form of bank loans or bonds and have differences such as the order they have to be repaid (seniority) and lenders rights (security) and if it’s fixed or variable interest and which lenders protection (covenants).
Asset allocation
This is just a fancy phrase for your investment strategy. There are three general categories where you’re going to put your money: cash, bonds and stocks.
Cash is the least risky and would provide the least amount of return … Bonds are generally riskier than cash but less risky than stocks.”
Bonds
When you invest in a bond, you are essentially loaning money to a company or government. Provided that nothing bad happens, like a bankruptcy, you cash in the bond on the maturity date and collect some interest.
Stocks
When you buy stock in a company, you’re purchasing a tiny bit of ownership in the firm. Generally, the better the company performs, the more your share of stock is worth. If the company doesn’t do so well, your stock may be worth less.
Mutual fund
A pile of money that comes from a lot of investors and is then invested in assets likes stocks and bonds. Mutual funds can hold hundreds of stocks in an attempt to spread the risk. In most cases money managers make buy and sell decisions for mutual funds.
Expense ratio
Running a mutual fund costs money so investors pay an annual fee, which is the expense ratio. The percentage of your money that goes to the investment managers of the mutual fund you’re investing in.
Index funds
Type of mutual fund which costs are typically low.
Indexes are collections of stocks that represent a portion of the economy (E.g..technology)
By investing in an index fund you are betting on the success of the basket of companies that it contains.
Equity
Equity can be thought of as a degree of ownership of an asset after subtracting all debts associated with that asset.
Typically referred to as shareholders equity which is the amount that would be given to shareholders if all assets were liquidated and debts paid off.
Eg. You buy a car for £15,000 (asset) but have a £5000 loan on the car (liability) which means your equity would be £10000
Sedol
Sedol codes are 7-digit alphanumeric identifiers for securities that trade on the London Stock Exchange.
ISIN
12 digit alphanumeric code that uniquely identifies a specific securities issue.
Numbers are allocated by a country’s NNA
ISIN is a number assigned to a security that is universally recognisable.
