Balance sheet

A financial statement that summarises a company’s assets, liabilities, and shareholders’ equity at a particular point in time. Each segment gives investors an idea as to what the company owns and owes, as well as the amount invested by shareholders. It is called a balance sheet because of the accounting equation: assets = liabilities + shareholders’ equity.

Capital expenditures (CapEx)

Capital expenditures (CapEx) are funds companies use to acquire, upgrade, or maintain physical assets like buildings, technology, or equipment, with the goal of increasing operational scope or future economic benefits.

Cyclical stocks

Companies that sell discretionary consumer items, such as cars, or industries highly sensitive to changes in the economy, such as mining.

Discount/premium (investment trusts)

The amount by which the price-per-share of an investment company is either lower (at a discount) or higher (at a premium) than the net-asset value per share (cum income), expressed as a percentage of the net-asset value per share.

Diversification

A way of spreading risk by mixing different types of assets or asset classes in a portfolio on the assumption that these assets will behave differently in any given scenario. Assets with low correlation should provide the most diversification.

Dividend

A variable discretionary payment made by a company to its shareholders.

Financial year/fiscal year (FY)

A 12-month accounting period used for financial and tax reporting by businesses and individuals. The relevant dates vary between countries.

Inflation

The rate at which the prices of goods and services are rising in an economy. The consumer price index (CPI) and retail price index (RPI) are two common measures; the opposite of deflation.

Large-cap stocks

Well-established companies with a valuation (market capitalisation) at the larger end of the market scale.

Macroeconomics

Macroeconomics is the branch of economics that considers large-scale factors related to the economy, such as inflation, unemployment, or productivity.

NAV total return (investment trusts)

The theoretical total return on shareholders’ funds per share reflecting the change in NAV assuming that dividends paid to shareholders were reinvested at NAV at the time the shares were quoted ex-dividend. A way of measuring investment management performance of investment trusts which is not affected by movements in discounts/premiums.

Portfolio

A grouping of financial assets such as equities, bonds, commodities, properties, or cash. Also often called a ‘fund’.

Return on equity (ROE)

A company’s net income (income minus expenses and taxes) over a specified period, divided by the amount of money its shareholders have invested. It is used as a measurement of a company’s profitability compared to its peers. A higher ROE generally indicates that a management team is more efficient at generating a return from investment.

Russell 1000 Value Index

The Russell 1000 Index tracks the performance of the 1,000 largest publicly traded companies in the U.S., representing a significant portion of the overall market capitalization of U.S. equities.

S&P High Yield Dividend Aristocrats Index

The S&P High Yield Dividend Aristocrats index is designed to measure the performance of companies within the S&P Composite 1500 that have followed a managed-dividends policy of consistently increasing dividends every year for at least 20 years.

Share buybacks

Where a company buys back their own shares from the market, thereby reducing the number of shares in circulation, with a consequent increase in the value of each remaining share. It increases the stake that existing shareholders have in the company, including the amount due from any future dividend payments. It typically signals the company’s optimism about the future and a possible undervaluation of the company’s equity.

Share price total return (investment trusts)

The theoretical total return to the investor assuming that all dividends received were reinvested in the shares of the company at the time the shares were quoted ex-dividend. Transaction costs are not taken into account.

Tariffs

A tax or duty imposed by a government on goods imported from other countries.

Valuation metrics

Metrics used to gauge a company’s performance, financial health, and expectations for future earnings, e.g. P/E ratio and ROE.

Volatility

The rate and extent at which the price of a portfolio, security, or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. The higher the volatility, the higher the risk of the investment.