12 February 2012 14:00

EuroInvestor’s Finance Glossary

The following list maintains several key financial and investment terms.

 

Glossary_470x315

 

Cyclicality

The cyclicality term refers to how a company's earnings are expected to be impacted by general economic fluctuations, which thereby affects the stock price. Early-, middle-, and late cyclicality indicates the timeframe in the business cycle, when the stock is expected to outperform the general stock market. Some stocks are referred to as non-cyclical companies as they do not fit well in this categorization and. Non-cyclical stocks are usually labeled 'defensive stocks' meaning that they are generally limited affected by economic fluctuations.

 

Dividend Yield

The Relative return on the share from dividend payments. Calculated as

Formula1

 

Enterprise Value

The value of the company on a debt free basis. Calculated as Market capitalization x Net debt.

 

EPS

Earnings per share measures the total earnings of the company divided by the number of outstanding shares. The higher the EPS, the better value the share price is.

 

Free Float

Number of outstanding shares excluding strategic holdings and treasury shares. This measure is usually in percent of total number of shares (all share classes).

 

Market Capitalization

The market value of equity. The number of shares in issue multiplied by the share price, to give the overall value of the company. This figure is calculated bythe Total number of sharesxPrice per share(Weighted if more than one share class).

 

Net debt

Interest bearing debt - cash and cash equivalents.

Formula2 

 

P/B ratio

A measure of the current market price compared to its book value. The book value is calculated by subtracting the company's liabilities from its tangible asset value. The lower the share price in comparison to the book price, the better value the shares will be.

Price book ratio compares the equity market value with the book value. A high P/B indicates a high expected return on equity. It is calculated:

Formula3

 

P/E ratio

This measures the ratio of the share price to the earnings (or profit) of a company. It The P/E reflects the price for one unit of earnings. It is calculated as Share price / EPS.

 

PEG 

The Price/Earnings to Growth ratio is a variation of the P/E ratio that factors in the expected growth rate of a company. The P/E ratio will usually be higher for a company with a higher growth rate. By dividing that number by the growth rate, a better comparison for high growth companies is obtained. Accordingly, it is a very popular multiple when evaluating growth companies. As with the P/E ratio, the lower the number, the more undervalued the shares.

 

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