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

Average Percent Payout

The average of the percentage of a company’s profits paid out in dividends to shareholders, typically calculated over the last five years. A high percent payout can be a danger sign. Recent payout figures higher than 50%, and higher than the average payout, may forewarn of a dividend cut. A dividend cut would likely cause the stock price to fall. Generally, the higher the payout ratio, the lower the expected growth rate for the company’s EPS in the future.
Sometimes, although the dividend payout is more than earnings, the company has strong cash flow and can cover the dividend in the short term. However, a company paying out dividends in excess of earnings on a recurring basis is a risky investment.
 
Average Pre-tax Profit Margin

Pre-tax Income divided by Sales. This measures how well management converts sales dollars into profits after deducting all the operating expenses for making and selling its products. Compare the last two years’ pre-tax profit margins with the 5-year average to show the trend of growth.
 
Average Price-Earning Ratio

The average of the annual high and low Price-Earning Ratios for a particular time period, typically calculated over the last five years.
 
Back-End Load

A commission or sales fee that is charged upon the redemption of Mutual Fund shares or Variable Annuity contracts. It declines annually, and reaches zero over an extended holding period -- up to eight years -- as described in the prospectus. See also: Front-End Load; Contingent-Deferred Sales Load.
 
Balance Sheet

A company’s financial statement that reports its Assets, Liabilities, and Shareholders’ Equity on a given date. Liabilities always equal assets, hence the name “balance sheet.” It is issued annually and quarterly.
 
Balanced Fund

A Mutual Fund whose stated investment policy is to have at all times some portion of its investment assets in bonds and preferred stock, as well as in common stock. This is an attempt to provide both growth and income.
 
Balanced Investment Strategy


A method of portfolio allocation and management aimed at balancing risk and return; a balanced portfolio may combine stocks, bonds, packaged products, and cash equivalents.
 
Basic Earnings Per Share

There are two kinds of Earning per Share (EPS): basic and diluted. Basic shares are fewer in number than diluted. For Basic EPS, net income is divided by the number of common shares outstanding. This usually produces a larger EPS number than when using a diluted number of shares. Be consistent in the kind of EPS you use. See also: Diluted Earnings Per Share.
 
Basis

Also known as Cost Basis or Tax Basis. A security’s basis is the purchase price after commissions or other expenses, and is used to calculate capital gains or losses when the security is eventually sold.
 
Block Trade

A trade so large that the normal auction market cannot absorb it in a reasonable time at a reasonable price. In general, 10,000 shares of stock or $200,000 worth of bonds would be considered a block trade.
 
Block Trade
A trade so large that the normal auction market cannot absorb it in a reasonable time at a reasonable price. In general, 10,000 shares of stock or $200,000 worth of bonds would be considered a block trade.
 
Blue Chip Stock

Stock in a well-established, financially-sound and stable company that has demonstrated its ability to pay dividends in both good and bad times, and has as a reputation for quality management, products, and services.
 
Blue-Sky Laws

In the early 1900’s, a Kansas Supreme Court Justice wanted to protect investors from speculative ventures, i.e. those with no more basis than “so many feet of blue sky.” Today the term refers to state regulations regarding the securities industry.
 
Board of Directors

Individuals elected by stockholders to establish corporate management policies. A board of directors decides, among other issues, if and when dividends will be paid to stockholders.
 
Bond Fund

A mutual fund whose investment objective is to provide stable income with a minimal capital risk. It invests in income-producing instruments, which may include corporate, government or municipal bonds.
 
Bond Quote


One of a number of quotations listed in the financial press and most daily newspapers that provide representative bid prices from the previous day’s bond market. Quotes for corporate and government bonds are percentages of the bond’s face value (usually $1,000). Corporate bonds are quoted in increments of 1/8th, where a quote of 99 1/8 represents 99.125% of par ($1,000), or $991.25. Government bonds are quoted in 1/32nds. Municipal Bonds may be quoted on a dollar basis or on a yield-to-maturity basis.
 
Bond Quote

One of a number of quotations listed in the financial press and most daily newspapers that provide representative bid prices from the previous day’s bond market. Quotes for corporate and government bonds are percentages of the bond’s face value (usually $1,000). Corporate bonds are quoted in increments of 1/8th, where a quote of 99 1/8 represents 99.125% of par ($1,000), or $991.25. Government bonds are quoted in 1/32nds. Municipal Bonds may be quoted on a dollar basis or on a yield-to-maturity basis.
 
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