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

Passive Loss
A loss incurred through a rental property, limited partnership, or other enterprise in which the individual is not actively involved. Passive losses can be used to offset passive income only, not wage or portfolio income
 
Payable Date

Announced on the Declaration Date. The date on which the Dividend will be paid to its entitled stockholders.

The date a dividend will be paid to entitled shareholders. This date is set by the company on the declaration date.
 
Payback Period

The length of time it takes for the company’s accumulated earnings to equal the price of the stock, assuming that they grow at the forecasted rate
 
Payout


The percentage of the company’s profits (EPS) paid out in cash dividends to shareholders calculated by dividing the dividends per share the EPS, and multiplying your result by 100: Dividends per Share / EPS * 100.
The remaining EPS not paid in dividends are reinvested in the company. Young, fast-growing companies often have a low payout percentage because they can better use the funds to grow the company. An increasing payout ratio may show that the company is maturing and growing more slowly, so has less need for cash for expansion. If the payout ratio is unusually and overly large (60% or more) the company may be paying out too much dividend. There may be a risk that the dividend will be cut, with a resulting fall in the stock price. Remember that some kinds of companies -- such as utilities -- normally have a high payout ratio.
 
Pink Sheets

A daily publication compiled by the National Quotation Bureau and containing inter-dealer wholesale Quotations for over-the-counter stocks.
 
Portfolio Manager

Also known as Fund Manager. The entity responsible for investing a mutual fund’s assets, implementing its investment strategy and managing day-to-day portfolio trading.
 
Position

The amount of a security either owned (a Long position) or owed (a Short position) by an individual or by a dealer. Dealers take long positions in specific securities to maintain inventories and thereby facilitate trading.
 
Potential Dilution

Any outstanding options, warrants, or convertible debentures that are converted to common shares will dilute the value of those shares.
 
Potential Average Dividend Yield


Suggests the potential percentage dividend payments, compounded yearly over the next 5 years. Combined with price appreciation, Yield makes up the possible total return percentage.
 
Potential Total Return

Suggests the potential compounded return on your investment over 5 years, based on expected growth of EPS. It supposes that you bought the stock at the current price, earned the average dividend yield, and sold at the forecast high price to achieve the potential annual price appreciation.
 
Preferred Dividends


These dividends are paid at a specified rate to shareholders who have purchased preferred shares. Should the company be in financial difficulty, the preferred shareholders would receive their due before the Common Shareholders. Preferred dividends are used as part of the business model method of predicting EPS 5 years into the future.
 
Preferred Stock

A class of ownership in a corporation with a stated dividend that must be paid before dividends to common stock holders. Preferred shareholders have a claim, prior to common stockholders, on earnings and assets in the event of liquidation. Preferred stock does not usually have voting rights.
 
Premium

(1) The amount of cash that an option buyer pays to an option seller. (2) The difference between the higher price paid for a security and the security’s face amount at issue
 
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.
 
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