Financial Glossary

A

Annual report

The audited yearly account of a company's performance and financial position, including the financial statements, the notes to them and the directors' commentary.

Ask

The lowest price a seller is currently willing to accept. A buyer using a market order buys at the ask.

Asset allocation

The division of a portfolio between different types of asset, equities, fixed income, cash and others, according to objective and risk tolerance.

B

Balance sheet

A statement of what a company owns and owes at a single date. Assets equal liabilities plus equity.

Bear market

A prolonged period of falling prices and negative sentiment. There is no single official threshold.

Bid

The highest price a buyer is currently offering. A seller using a market order sells at the bid.

Bid-ask spread

The gap between the bid and the ask. It is a real cost: you generally buy at the higher figure and sell at the lower one.

Blue chip

An informal term for a large, established, well-known company. It carries no guarantee of safety or performance.

Bonus shares

Additional shares issued to existing shareholders instead of a cash dividend. You hold more shares, each representing a proportionally smaller claim.

Book closure

A period during which a company's register of members is closed to determine who is entitled to a dividend or other corporate action.

Broker

A firm licensed to execute securities transactions on behalf of clients. On PSX, a broker holds a Trading Right Entitlement Certificate.

Bull market

A prolonged period of rising prices and positive sentiment.

C

Capital gain

The profit made when a security is sold for more than it cost. A gain is realised only on sale.

Capital gains tax (CGT)

Tax on realised gains from the disposal of securities. Rates are set by the Federal Board of Revenue and collection on market transactions is administered by NCCPL.

Cash flow statement

A statement showing cash generated and used across operating, investing and financing activities. Often the most informative of the three statements.

CDC

The Central Depository Company, the depository that holds securities electronically and maintains the record of ownership.

CDC sub-account

An account in the Central Depository System, in your own name, where your shares are held.

Circuit breaker

A mechanism that halts or limits trading after a large price movement, intended to interrupt disorderly trading rather than to prevent prices falling.

Contract note

The confirmation issued after a trade, setting out the security, quantity, price, date and all charges applied.

Corporate action

An event initiated by a company that affects its shareholders: a dividend, bonus issue, rights issue, split or merger.

Current ratio

Current assets divided by current liabilities. A measure of whether short-term obligations are covered by short-term resources.

D

Debt to equity

Total debt measured against shareholders' equity. What counts as high varies substantially between sectors.

Depreciation

The accounting recognition of an asset's cost over its useful life. It reduces reported profit without cash leaving in that period.

Diversification

Spreading investments so that no single company or sector can dominate the outcome. It addresses company-specific risk, not market risk.

Dividend

A distribution of profits to shareholders, declared at the company's discretion. It is not guaranteed and may be reduced or omitted.

Dividend yield

The annual dividend expressed as a percentage of the share price. It rises as the price falls, so an unusually high yield can indicate distress.

E

Earnings per share (EPS)

Net profit divided by the number of shares in issue.

Equity

Ownership in a company. On a balance sheet, what remains for shareholders after every liability.

Ex-dividend date

The date from which a buyer of a share no longer receives the declared dividend. The price typically falls by roughly the dividend amount.

F

Face value

The nominal value assigned to a share, distinct from its market price.

Filer

A person appearing on the Federal Board of Revenue's active taxpayer list. Filer status affects the rate of tax withheld on transactions.

Free float

The portion of a company's shares available for public trading, excluding holdings that are not freely tradable.

Fundamental analysis

Assessing a security by examining the underlying business: its financial statements, position and prospects.

G

GEM Board

The Growth Enterprise Market, a PSX board for smaller and earlier-stage companies, with lighter listing requirements and restricted eligibility to trade.

Gross profit

Revenue less the direct cost of producing what was sold.

I

Index

A single number summarising the movement of a defined group of securities. A measuring instrument, not something purchased directly.

Interest cover

Operating profit divided by finance costs: how many times over a company can pay the interest on its debt from operating profit.

IPO

Initial public offering: the first sale of a company's shares to the public, after which they are listed and traded.

K

KSE-100

Pakistan's benchmark index, tracking one hundred selected companies. It is capitalisation-weighted, so larger companies influence it more.

KYC

Know Your Customer: the regulatory obligation on a broker to verify a client's identity, source of funds and contact details before opening an account.

L

Leverage

The use of borrowed money to invest. It magnifies gains and losses equally and introduces the risk of being forced to sell.

Limit order

An instruction to trade only at a specified price or better. It controls the price but does not guarantee execution.

Liquidity

How readily a security can be bought or sold without materially affecting its price.

Listing

Admission of a company's securities to trading on the exchange, subject to the exchange's requirements.

M

Margin

In trading, funds borrowed against a position. In accounting, profit expressed as a percentage of revenue.

Market capitalisation

The share price multiplied by the number of shares in issue, the market's valuation of the whole company.

Market order

An instruction to trade immediately at the best price available. It prioritises execution over price.

Moving average

The average closing price over a defined number of periods, used to smooth short-term movement. It necessarily lags the price.

N

NCCPL

The National Clearing Company of Pakistan: clearing and settlement infrastructure, which also administers capital gains tax collection on market transactions.

Nominee

The person recorded on an account to be contacted in the event of the account holder's death.

O

Operating profit

Profit from the core business, before finance costs and tax.

Order book

The record of outstanding buy and sell orders for a security, ranked by price and then by time of entry.

P

Portfolio

The collection of investments held by an investor.

Price to book (P/B)

Share price divided by net asset value per share. More meaningful for asset-heavy businesses.

Price to earnings (P/E)

Share price divided by earnings per share, what the market pays for each rupee of annual earnings. Informative only against history and comparable companies.

Primary market

Where securities are issued for the first time and the proceeds go to the issuer, as in an IPO.

PSX

The Pakistan Stock Exchange Limited, the national securities exchange, formed by integrating the Karachi, Lahore and Islamabad exchanges in 2016.

R

Rebalancing

Restoring a portfolio to its intended proportions after market movement has shifted them.

Receivables

Money owed to a company by its customers. Growing much faster than revenue, it is a warning sign.

Resistance

A price area where selling has previously halted an advance.

Rights issue

An offer to existing shareholders to buy new shares, usually at a discount, in proportion to their holding. Not taking it up dilutes your proportional ownership.

Risk tolerance

How much decline an investor can withstand without acting badly. Distinct from risk capacity, which is what their circumstances can absorb.

RSI

The Relative Strength Index: an indicator comparing recent gains to recent losses on a 0–100 scale. A high reading is not a prediction of a fall.

S

Secondary market

Where existing securities are traded between investors. The company receives no proceeds from these trades.

SECP

The Securities and Exchange Commission of Pakistan: the statutory regulator of the exchange, the depository, the clearing company and brokers.

Settlement

Completion of a trade through the exchange of cash and securities. Equity trades in Pakistan settle on a T+2 basis.

Share

One unit of ownership in a company.

Stop-loss

A predetermined exit level intended to limit a loss. It is a discipline tool and not a guarantee; gaps and price limits can both defeat it.

Support

A price area where buying has previously halted a decline.

T

T+2

The standard settlement cycle: a trade completes two business days after the trade date.

Technical analysis

Assessing a security by studying its price and volume history rather than the underlying business.

TREC

Trading Right Entitlement Certificate: the entitlement that allows a broker to trade on PSX. Almeer Securities is TREC Holder No. 353.

V

Volatility

The degree to which a price fluctuates. High volatility means larger movements in both directions.

Volume

The number of shares traded in a period. A price move on heavy volume reflects broader participation than the same move on light volume.

W

Withholding tax

Tax deducted at source on certain payments and transactions, at rates set by the Federal Board of Revenue.

Y

Yield

Income from an investment expressed as a percentage of its price.