Key Investment Terms
New to investing? Here are a few key terms from under the radar report to help you on your investment way.
A stock that we believe is buy right now and could be a part of a diversified portfolio.
A stock that is more speculative because there is significant uncertainty about its future profitability. There is the chance you could make multiples on your investment, but also the chance that you could lose.
Sell the stock now.
Hold the stock right now or hold off buying the stock; we're waiting for more information to change our view.
The stock has gone up, it might go up further, either take your costs out and let your profits run, or if you need $$ sell the stock now.
TIP DATE/TIP PRICE:
The date and price when we first recommended subscribers buy the stock.
or Market Capitalisation, is the total market value of all a company's shares, which is calculated by multiplying the total number of shares by the current share price. It helps you know how big or small a company is. $30M is a very small company and we cover companies, initially at least, with a maximum market cap of $500M. CBA's market cap is about $140BN (at the time of writing). Market caps vary along side the changes in the share price and the number of shares on issue.
NET CASH/NET DEBT:
Is a snap shot of the company's financial situation at a point in time. It's calculated by subtracting its debt and financial liabilities from its cash.
Is a portion of the company's earnings that is paid to shareholders. Dividing this amount by the number of shares gives you the dividend per share (DPS).
Is the dividend, or DPS, expressed as a percentage of a current share price. It is normal for it to range from 1%-6%.
Here are some more terms that are used regularly in research
Net Profit After Tax after the significant or abnormal and extraordinary items. It is useful because it shows how much the company has made after subtracting all its expenses. From this amount, dividends are distributed.
Earnings before interest, tax, depreciation and amortization. It is used to determine a company's profitability before accounting for its finance arrangements (interest) and its non-cash expenses (depreciation and amortisation).
Is calculated by dividing a company's enterprise value by its EBITDA. Enterprise value is its market capitalisation plus its net debt (debt minus cash). It looks at a company as a potential corporate buyer would, taking into account the company's debt, which other multiples like the P/E ratio do not include.
The Price-earnings ratio measures a companies current share price relative to its per-share earnings. It tells investors how much they will pay per share for $1 of earnings. If a stock has a PE is 15, investors are willing to pay $15 for $1 of post tax earnings. All things being equal, the lower the PE, the better the value, and vice versa.
OPERATING CASH FLOW:
the amount of cash generated by a company's normal business operations before capital expenditure (capex) and debt repayment.
Capital Expenditures are funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment.
the amount charged in the accounts to represent the decline in the value of the company's physical assets.
the amount charged in the accounts to represent the decline in the value of intangible assets, like software and goodwill.
FREE CASH FLOW:
a measure of a company's financial performance and is calculated operating cash flow less capital expenditures. It is the money left over after normal required spending which a company may use to pursue opportunities that enhance shareholder value.