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Glossary of Important Financial Terms

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Term Definition
Initial Public Offering (IPO)

An offering of newly created shares to the general investing public. Part of the IPO may also be in the form of placement shares, whereby the new shares are allocated to financial institution or wealthy investors. An IPO is in contrast to the sale of vendor shares, which are shares sold by existing shareholders.

Insider-Trading

Insider-trading refers to the use of specific market-sensitive information that are not available to the general public, in order to profit from it. For example, company management or its bankers may have gained access to impending news of the acquisition of a company by another. Insider trading is said to occur if the “insider” uses this information to buy shares in the target company, before the news is made public.

Intl Financial Reporting Standards (IFRS

IFRS is the set of standards and framework adopted by the International Accounting Standards Board (IASB), for presentation of financial results and reports. It is used in many parts of the world, including the European Union, Hong Kong, Australia, Malaysia and Singapore. The Singapore FRS is closely modelled on the IFRS. The main competing standard to the IFRS is the US Generally Accepted Accounting Principles (GAAP).

Leverage

The use borrowings to fund business expansions, sometimes by pledging existing assets. Has the effect of boosting a company’s Return on Equity.

Leveraged Buy-Out (LBO)

Refers to the buy-out of a company existing shareholders by a private equity (PE) firm, via a high level of bank loans. The target company would then be saddled with the loans, which are to be repaid using surplus funds generated from operating cash flows. When a substantial portion of the debt has been repaid, the PE firm may exit the investment, for example via an Initial Public Offering (IPO).

Loan-to-Value (LTV)

Refers to the ratio of the loan outstanding to the appraised value of the underlying asset. For example, an individual borrowed $120,000 to borrow a house worth only $100,000 now. LTV is thus 120%. An LTV covenant is often used by banks to protect themselves against falling asset values (and thus the risk of default). If LTV exceeds a predetermined value, the borrower would have to top-up his loan to bring down the LTV.

Management Buy-Out (MBO)

MBO refers to the acquisition of ownership of a company by its management from its equity owners.

Minimum Sum (CPF)

The Minimum Sum is the amount that a CPF member must set aside in his or her CPF account at 55 years of age to meet retirement needs. Up to 50% of this sum can be in the form of a property.

Money Market Fund

A Money Market Fund (MMF) pools together funds from investors and invests in the safest and most liquid of assets, typically time (fixed) deposits. MMFs usually do not carry an initial sales charge, but have an annual management fee, which is factored into the unit price.

Most Recent Quarter (MRQ)

MRQ is used by stock analysts to measure a company's most recently available financial ratios (in particular those related to debt positions). See also entry on TTM (Trailing Twelfth Months).

Negative Assurance

This is usually an assurance issued by auditors or boards, which says to the effect that they are not aware of information which would adversely affect the accuracy of a set of financial statements. The implication is that a negative assurance does not guarantee that the said statements are correct.

Negative Equity

Refers to a situation in which the value of an asset is below the outstanding loans taken to pay for it. This mostly occurs in times of falling asset prices during an economic downturn. The implication of negative equity is that asset owners may find it more worthwhile for the asset to be foreclosed, leading to banks having to write-off the negative-equity as a loss.

Net Asset Value (NAV)

The value of a company assets, less its liabilities. It is the theoretical value of a firm if it is sold at book value and its liabilities paid off.

Net Tangible Asset (NTA)

NTA is Net Asset Value (NAV) subtracting intangible assets (such as patents and concessions) and is a more conservative way of measuring a company’s intrinsic value. In reality, actual value realizable from a company’s liquidation is usually lower than NTA or NAV (converse may be also be true)

Nil-Paid Rights

Rights which have not been exercised and for which no payment has yet been made. Investors who are entitled to nil-paid rights can generally sell them during a brief period after the declaration of the rights. Buyers of the rights will be able to subscribe to shares under the terms of the rights.

Payables

Sometimes known as accounts payables or trade payables. These are a type of short-term liability owed to suppliers and business partners. This is as opposed to loans which are owed to banks and other financial institutions.

Pip

One hundredth of a cent or similar monetary unit (as applied to foreign exchange)

Plant, Property and Equipment (PPE)

Facilities and machinery that a company utilises as factors of production. PPE is shown as non-current assets on the balance sheet. They are typically depreciated over time and may be replenished via capital investments

Price-Earnings Ratio (P/E)

The ratio of the price of a share to its latest profits per share. It is a measure of the priciness of a company's shares relative to its profits. The lower the P/E ratio, the better.

Priice/NAV Ratio

The ratio of share price to the net asset value per share of a company. It is an indication of the market's valuation of a company relative to the underlying assets backing each share. A low Price/NAV does not necessarily imply that a share is undervalued. It may be because the company is not generating a high enough return relative to its assets, or that a company is viewed as operating in a low growth or matured industry.

Prime

A term used to denote a bank’s most favoured (low risk) customers. Prime rate therefore refers to the lowest interest rate that a bank will be willing to lend at.

Receivables

Also known as accounts receivables or trade receivables. Receivables are a type of short-term assets, which are essential debt owed by debtors such suppliers and other business partners.

Reit

Stands for Real Estate Investment Trust. A Reit invests in a portfolio of properties and distributes as dividends the rental income to unit holders of the Reit. A Reit trades like a share on the stock exchange. In Singapore, Reits are required by law to pay at least 90% of their incomes to unit holders as dividends.

Return on Equity

A measure of a company’s profits relative to its shareholders' funds (also known as Shareholders' Equity). High returns on equity can be achieved by taking utilizing leverage.

Revalued Net Asset Value (RNAV)

This is the Net Asset Value, plus any unreognised revaluation gains on assets that are reported in the balance sheet at cost or a historical book value. Revaluation gains may occur when assets (particularly property and occasionally biological inventories) increase in value over time.

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