Finance Dictionary ( daily finance terms and concepts will be added and discussed)

Dividend Reinvestment Plan


Abbreviated DRIP or DRP. Plan offered by many corporations for the reinvestment of cash dividends by purchasing additional shares or fractional shares on the dividend payment date, occasionally at a discount from market price. Many DRIPs also allow the investment of additional cash from the shareholder, known as an Optional Cash Payment or Optional Cash Purchase (OCP). The DRIP is usually administered by the company without charges or only nominal fees to the participants, and many allow additional purchases of as little as $10.
 
Dividend Yield

The dividends per share paid to shareholders, expressed as a percentage of the share price. Total return on your stock investment is usually measured by adding the dividend yield percentage to the percentage return from price growth of the stock.
 
Do Not Reduce


Abbreviated DNR. Used on a Buy or Sell Order to tell the broker not to decrease the limit price on buy-limit and sell-stop orders on the record date of a cash dividend.
 
Dollar Cost Averaging


A technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price; thus purchasing more shares when prices are low, and fewer shares when prices are high. Over time, the average cost per share of the security will become smaller. This method attempts to lessen the risk of investing a large amount in a single investment at the wrong time. Used with Mutual Funds and Dividend Reinvestment Plans.
 
Dow Jones Averages


The most widely quoted and oldest measures of change in stock prices, tracking the prices of a group of stocks that represent Industrial, Transportation, and Utility companies.
 
Due Diligence

The careful investigation by the underwriters that is necessary to ensure that all material information pertinent to an issue has been disclosed to prospective investors.
 
Earnings Before Interest, Taxes, Depreciation, and Amortization


Although it is not defined by GAAP, EBITDA can be used to analyze a company’s profitability. Differs from a Cash Flow statement by excluding changes in working capital and payments for taxes and interest. Calculated by adding Net Income, income taxes, Interest, Depreciation, and Amortization.
 
Earnings per Share


Abbreviated EPS. The net income or profits (after taxes) divided by the number of shares of common stock outstanding. There are several kinds of EPS reported. Two of the most common are basic or diluted. Basic shares are fewer in number than diluted. For Basic EPS, net income is divided by the number of common shares outstanding. This produces a larger EPS number than when using a diluted number of shares. It is wise to consistently use either basic or diluted EPS in your stock analyses.
 
Earnings Yield

Earnings per share for the most recent 12 months divided by market price per share. Relates the generation of earnings to share price. It is the inverse of the Price-Earnings Ratio
 
EDGAR

Acronym for Electronic Data Gathering, Analysis, and Retrieval. The Securities and Exchange Commission’s electronic system used by all publicly-traded companies to transmit required filings to the SEC. The SEC provides a free EDGAR; other companies provide their own EDGAR services that include additional information and search capabilities.
 
Equity Financing


Raising money for working capital or for capital expenditures by selling common or preferred stock to individual or institutional investors. In return for the money paid, the individuals or institutions receive ownership interests in the corporation. See also: Debt Financing.
 
Exchange

A market where stocks are bought and sold. For example: New York Stock Exchange (NYSE), American Stock Exchange (AMEX), National Association of Securities Dealers Automated Quotations Stock Market (NASDAQ), Over the Counter (OTC).
 
Exchange Traded Fund


Abbreviated ETS. An open-ended Mutual Fund that can be continuously traded throughout the day. ETFs attempt to replicate the changes of an index of a specific financial market, so active management is unnecessary. See also: Index Fund.
 
Ex-Dividend Date

Also known as the Ex-Date. The first date on which a security is traded without entitling the buyer to receive distributions previously declared. This is the date after which the seller, and not the buyer, of a stock will be entitled to a recently announced dividend. It is usually several business days before the record date, and is indicated in newspaper listings with an “x.”
 
federal Open Market Committee

Abbreviated FOMC. A committee that makes decisions concerning the Fed’s operations to control the money supply.
 
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