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

Pre-tax Income
Also may be called Net Income Before Taxes, Income Before Profit, or Income Before Taxes. This is the profit made by the company before paying taxes. It is calculated by dividing the net income by one minus the tax rate: Net Income / (1 - tax rate as a decimal)
 
Pre-tax Profit on Sales
Also known as Profit Margin; Profitability. Calculated by dividing the Pre-tax Income by Net Sales: (Net Income / (1 - Tax Rate)) /Revenues.
This measures the effectiveness of management in controlling expenses and is a useful measure of overall operational efficiency when compared with prior periods or other companies in the same business. This “return on sales” varies widely between industries (e.g. 2% return for supermarkets is reasonable, but manufacturing industries should return 4-5%). A declining profit margin can be caused by declining sales, declining efficiency, aging plant and equipment, or inappropriate management decisions.
If quarterly pre-tax income is not available, you can estimate the tax rate from the yearly tax rate.
 
Previous Day’s Close
The previous trading day’s last reported trade. The Previous Day’s Close on the NASDAQ web site is updated at 3:30 A.M.
 
Price-Earnings Ratio
Abbreviated PE Ratio. Also known as the Stock’s Multiple. Calculated by dividing price by EPS.
PE represents the amount that investors are willing to pay for each dollar of earnings. The PE value will fluctuate. The higher the PE ratio, the riskier and more volatile the stock. Investors are willing to pay a higher PE for faster growth and potential return.
There are various EPS formulas for PE. A Trailing PE uses reported earnings from the last fiscal year. A Current PE uses earnings from the current quarter back four quarters. A Projected or Leading PE uses earnings forecasted up to a year ahead.
 
Price-Buy Zone Ratio
A ratio that indicates whether the current price meets the target buy zone set in your analysis. If the Price-Buy Zone Ratio is above 1, the stock is more costly than your target price.
 
Price Dividend Will Support
A company with a large dividend yield will have substantial price support. A large dividend yield is anything larger than ½ the bank interest rate.
 
Price-To-Book Ratio
Also known as Market-to-Book Ratio. Compares a stock’s market value to its book value, calculated by dividing the current price by Common Stockholders’ Equity Per Share (book value). A lower Price-To-Book Ratio might imply a stock is undervalued.
 
Price-To-Cash-Flow Ratio
Price per share divided by Cash Flow Per Share. A measure of the market’s expectations regarding a firm’s future financial health. Provides an indication of relative value, similar to the Price-Earnings Ratio.
 
Price-To-Sales Ratio
Calculated by dividing a stock’s current price by its revenues per share. This equation is another technique for finding a stock’s valuation relative to its own past performance, other companies, or the market itself.
 
Primary Market
The first opportunity that investors have to buy a newly-issued security occurs in the Primary Market. After the first purchases, subsequent trading is said to occur in the Secondary Market.
 
Profit-Sharing Plan
An employee benefit plan established and maintained by an employer whereby the employees receive a share of the profits of the business. The money may be paid directly to the employee, deferred until retirement, or a combination of both approaches.
 
Program Trading
Computerized trading used primarily by institutional investors, typically for large volume trades, where orders from the trader’s computer are entered directly into the market’s computer system and executed automatically.
 
Projected PE Ratio
Also known as Leading PE Ratio. This ratio uses 4 consecutive quarters of EPS, at least one quarter of which is forecasted. The market drives stock prices up or down in anticipation of company results. Using forecasted EPS with the current price gives a PE which is more balanced with the current market value of the stock.
 
Prospectus
A formal written statement that discloses the terms of a public offering of a Security or a Mutual Fund. The prospectus is required to divulge particular essential information to investors about the proposed offering.
 
Proxy
A formal document signed by a shareholder to authorize another shareholder, or commonly the company’s management, to vote the holder’s shares at the annual meeting. The Proxy Statement discloses important information about issues to be discussed at an annual meeting, as well as information about closely-held shares.
 
Put
(1) An option contract giving the owner the right to sell a specified amount of an underlying security at a specified price within a specified time. (2) The act of exercising a put option.
 
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