Accrued Interest

Interest accumulated between the most recent payment and the date that the fixed income security is sold. Calculated by multiplying the coupon rate by the number of days since the last payment.

Alpha (a)

A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.


A series of fixed-amount payments paid at regular intervals over the period of the annuity. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years.

Ask price

The price a seller is willing to accept for the security; also called the offer price.


A resource that has economic value to its owner. Examples of an asset are cash, accounts receivable, inventory, real estate, and securities.

Asset Allocation Funds

The aim of an Asset Allocation Funds is to provide the best possible return by investing in both equity and fixed income markets depending upon the prevailing economic and financial markets conditions. The allocation between the instruments ranges from 0%-100% depending upon the fund manager’s assessment of a particular financial asset at a certain time.

Automatic reinvestment plan

A plan offered by a mutual fund in which the fund automatically reinvests all distributions to a shareholder account.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders. The balance sheet must follow the following formula: Assets=Liabilities+ Shareholders' Equity

Balanced Fund

The objective of these funds is to provide a balanced mixture of safety, income and capital appreciation. The strategy of balanced funds is to invest in a combination of fixed income and equities. These funds maintain the debt and equity at certain ratios which are adjusted periodically based on market conditions.

Beta ß

A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.

Bid Price

The price a buyer is willing to pay for a security.

Blue-Chip Stock

Stock of large, well-known companies with a history of growth and dividend paying and that offer quality management, products, and services.


A security that obligates the issuer to repay the principal amount upon maturity and to make specified interest payments over specified time intervals to the bond holder. A bond is a debt obligation; the bondholder is a lender to the issuer and there is no ownership position.

Book value

Book value is the accounting value of a company which is the total value of the assets owned by a company less liabilities.

Book value per share

The accounting value of a share of common stock. It is determined by dividing the net worth of the company by the number of shares outstanding.

Buy-and-Hold approach

A strategy in which the stock portion of your portfolio is fully invested in the stock market at all times.

Call date

The date at which some bonds are redeemable by the issuer prior to the maturity date.

Call Option

An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or any other instrument at a specified price within a specific time period.

Callable Bond

A bond that can be redeemed by the issuer prior to its maturity. Usually a premium is paid to the bond owner when the bond is called. Also known as a "redeemable bond".

Capital Gain

An increase in the value of a capital asset such as common stock. If the asset is sold, the gain is a "realized" capital gain. A capital gain may be short-term (one year or less) or long-term (more than one year.)


Legal tender or coins that can be used in exchange goods, debt, or services. Sometimes also including the value of assets that can be converted into cash immediately, as reported by a company. This usually includes bank accounts and marketable securities, such as government bonds and banker's acceptances.

Cash investment

Very short-term (usually 90 days' maturity or less) obligation such as money market fund or very short-term Certificates of Deposits that provides a return in the form of interest payments.

Cash value

In a life insurance policy, cash value is the build-up in the owner's cash savings. At any point in time, it represents the amount of money (before adjustments) that would be returned to the policy owner upon cancellation of a policy.

Certificate of Deposit (CD)

Savings certificate that entitles the holder to the receipt of interest. CDs are issued by commercial banks and savings and loans (or other thrift institutions).


A Closed-end Fund is a Mutual Fund that has a fixed pool of money which is collected from the investors when the Fund is set up [Initial Public Offering (IPO)]. Thereafter, the Fund Manager invests the money in accordance with the declared Investment Policy of the Fund and distributes returns to the investors, from time to time, in the shape of cash dividends or bonus certificates. Each share of the Fund is called a Certificate and its Fund Manager is also known as the Investment Advisor. If an investor wants to sell his Certificates, he can do so on the stock exchange the fund is listed on, through a stock broker, at the prevailing price, just like selling shares of a listed company.

Commercial paper

An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates. Commercial paper is not usually backed by any form of collateral, so only firms with high-quality debt ratings will easily find buyers without having to offer a substantial discount (higher cost) for the debt issue.


A service charge assessed by a broker or investment advisor in return for providing investment advice and/or handling the purchase or sale of a security. Most major, full-service brokerages derive most of their profits from charging commissions on client transactions. Commissions vary widely from brokerage to brokerage.

Commodity futures

An agreement to buy or sell a set amount of a commodity at a predetermined price and date. Buyers use these to avoid the risks associated with the price fluctuations of the product or raw material, while sellers try to lock in a price for their products. Like in all financial markets, others use such contracts to gamble on price movement.

Common stock

A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. Common stock usually entitles the owner to vote at shareholders' meetings and to receive dividends. Also known as "shares" or "equity".


The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.

Continuing operations

When used in the context of financial statements, figures from continuing operations exclude the financial impact of extraordinary items and gains or losses of discontinued operating segments.

Conversion premium

The amount, expressed as a dollar value or as a percentage, by which the price of a convertible security exceeds the current market value of the common stock into which it may be converted.

Convertible security

A corporate bond or a share of preferred stock that can be converted into shares of common stock of the issuing corporation.


A statistical measure of how two securities move in relation to each other. Correlations are used in advanced portfolio management. Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation co-efficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move by an equal amount in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random.

Cost of goods sold

The direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. It excludes indirect expenses such as distribution costs and sales force costs. COGS appears on the income statement and can be deducted from revenue to calculate a company's gross margin.


The rate of interest payable annually. Where the coupon is blank, it can indicate that the bond can be a "zero-coupon," a new issue, or that it is a variable-rate bond. The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually. This is also referred to as the "coupon rate" or "coupon percent rate".

Current assets

Short-term assets having a life of one year or less, or the normal operating cycle of the company. Made up of cash, marketable securities, accounts receivable, and other assets such as inventory that are likely to be converted into cash, sold, or exchanged in the normal course of business.A balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash.

Current liabilities

Debt or any other obligations coming due within a year. Made up of items such as accounts payable, short-term notes payable, accrued expense payable, etc. A company's debts or obligations that are due within one year. Current liabilities appear on the company's balance sheet and include short term debt, accounts payable, accrued liabilities and other debts.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations. Current Ratio = Current Assets Current Liabilities Also known as "liquidity ratio", "cash asset ratio" and "cash ratio". The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.

Current Yield

Annual income (interest or dividends) divided by the current price of the security. This measure looks at the current price of a bond instead of its face value and represents the return an investor would expect if he or she purchased the bond and held it for a year. This measure is not an accurate reflection of the actual return that an investor will receive in all cases because bond and stock prices are constantly changing due to market factors. Current Yield = Annual Cash Inflows Market Price

Cyclical industry

An industry, such as automobiles, whose performance is closely, tied to the condition of the general economy.

Debt-to-Equity Ratio

A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. Debt to Equity = Total Liabilities Shareholders Equity

Default Risk

The risk that a company will be unable to pay the contractual interest or principal on its debt obligations.

Defined-Benefit Plan

Pension plan that pays a specified amount to employees who retire after a set number of years of service. Plans do not pay taxes on investments; usually all contributions are made by the employer.

Defined-Contribution Plan

A type of retirement plan where the ultimate benefits that are paid out depend on the level of contributions made to the plan and the investment performance of those contributions.

Discount Bond

A bond that is valued at less than its face amount.

Discount Rate

The interest rate used in discounting future cash flows; also called the "capitalization rate."


The process of accumulating securities in different investments, types of industries, risk categories, and companies in order to reduce the potential harm of loss from any one investment. A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.


A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.

Dividend growth rate

Compound annual increase or decrease in dividends per share. An indication of past company strength and dividend payment policy.

Dividend payout ratio

Annual dividends per share divided by annual earnings per share.

Dividend reinvestment plan

When company applies shareholder dividends to the purchase of additional shares instead of sending cash. Usually little or no commission is paid.

Dividend Yield

A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as follows: Dividend Yield= Annual Dividends per Share Price per Share


A measure of bond maturity that accounts for the dates on which interest is paid and the amount of interest along with the redemption date. It is the time-weighted present value of all cash flows divided by the bond price. It is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. The bigger the duration number, the greater the interest-rate risk or reward for bond prices.

Earnings Multiplier

The estimated price-earnings ratio adjusted for the current level of interest rates.

Earnings per Share

The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. EPS= Net Income - Dividends on Preferred Stock Average Outstanding Shares In the EPS calculation, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period. Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number. Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component of the price-to-earnings valuation ratio.

Earnings per share Growth estimate

Consensus earnings per share growth estimate--the median (midpoint) of analysts' expected long-term (three to five years) growth rate in earnings per share

Earnings per share growth rate

Compound annual increase or decrease of total earnings per share. A measure of how successful the company has been in generating the bottom line, net profit.

Earnings surprise

The percentage by which announced earnings exceeded or fell short of the median analysts' estimate for the latest fiscal quarter. Positive earnings surprises tend to have a positive impact on stock price.

Earnings Yield

Earnings per share for the most recent 12 months divided by market price per share. Relates the generation of earnings to share price. It is the inverse of the price-earnings ratio. The earnings yield is used by many investment managers to determine optimal asset allocations.


A stock or any other security representing an ownership interest. Stocks are equity because they represent ownership in a company.

Equity Risk Premium

An extra return that the stock market must provide over the rate on Treasury bills to compensate for the market risk.

Excess Returns

Returns in excess of the risk-free rate or in excess of a market measure such as the benchmark of a fund.

Exchange privilege

A feature offered by a mutual fund in which a shareholder is able to move money between various funds at a very minimal processing charge and without a commission.

Exchange-traded Fund

A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold. Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does. By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order.

Expected Return

The average of a probability distribution of possible returns.

Face value

The stated principal amount of a debt instrument.

Family of Funds

A group of mutual funds under the same management company.

Financial Planner

An investment professional generalist who helps individuals delineate financial plans with specific objectives and helps coordinate various financial concerns.

Fixed-Income Security

An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. Unlike a variable-income security, where payments change based on some underlying measure such as short-term interest rates, the payments of a fixed-income security are known in advance.


The number of freely tradable shares in the hands of the public. Computed by subtracting shares held by insiders from total shares outstanding. The total number of shares publicly owned and available for trading.

Foreign Currency Effects

To the extent a foreign currency appreciates relative to the dollar, returns on foreign investments will increase in terms of dollars. The opposite would be true for declining foreign currencies.

Free Cash Flow

Net income plus all non-cash expenses, less dividends and capital expenditures. A measure of a firm's financial flexibility.

Front-End Load

A commission or sales charge applied at the time of the initial purchase for an investment, usually mutual funds and insurance policies. It is deducted from the investment amount and, as a result, it lowers the size of the investment.

Fundamental Analysis

The valuation of stocks based on fundamental factors, such as company earnings, growth prospects, and so forth, to determine a company's underlying worth and potential for growth.

Going public

Selling privately held shares to new investors for the first time.


An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company is purchased by another company. In an acquisition, the amount paid for the company over book value usually accounts for the target firm's intangible assets.

Government Bond

A debt obligation issued by the government.

Gross Domestic Product (GDP)

The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. GDP = C + G + I + NX where: "C" is equal to all private consumption, or consumer spending, in a nation's economy "G" is the sum of government spending "I" is the sum of all the country's businesses spending on capital "NX" is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports) GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country's standard of living.

Gross Profit Margin

Gross income divided by sales for the same time period. Gross income is computed by subtracting cost of goods sold from sales. When compared against industry norms and over time, it provides an indication of the competitive nature of the industry and the company's competitive position. Gross Profit Margin = Revenue –COGS Revenue

Growth stock

The shares of a company whose earnings are expected to grow at an above-average rate.

Holding Period Return/Yield

Income plus price appreciation during a specified time period divided by the cost of the investment. Holding period return/yield is calculated as the sum of all income and capital growth divided by the value at the beginning of the period being measured. Holding Period Return=Dividend+ (Ending-Initial Value) Initial Value

Income Statement

The financial statement of a firm that summarizes revenues and expenses over a specified time period; a statement of profit and loss.

Income Stock

Those stocks having a history of regular dividend payments that contribute the largest proportion of the stock's overall return.


A statistical measure of the changes in a portfolio representing a market. E.g. KSE-100 index of 100 companies listed on the Karachi stock exchange.

Index Fund

A type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor's 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover.

Inflation Risk

Uncertainty over the future real (after-inflation) value of your investment.

Initial Public Offering (IPO)

The process of bringing private companies to the public market for the first time.

Insider Ownership

The percentage of common stock held by all officers and directors as a group, plus beneficial owners who own more than 5% of company's stock as disclosed in the most recent proxy statement.

Insider Trading

Trading by management or others who have special access to unpublished information. If the information is used to illegally make a profit, there may be large fines and possible jail sentences.

Institutional Ownership

The percentage of common stock held by all reporting institutions (pension funds, mutual funds, etc.) as a group; or the number of reporting institutions holding shares.

Intangible Asset

An asset that is not physical in nature. Corporate intellectual property (items such as patents, trademarks, copyrights, business methodologies), goodwill and brand recognition are all common intangible assets in today's marketplace. An intangible asset can be classified as either indefinite or definite depending on the specifics of that asset. A company brand name is considered to be an indefinite asset, as it stays with the company as long as the company continues operations. However, if a company enters a legal agreement to operate under another company's patent, with no plans of extending the agreement, it would have a limited life and would be classified as a definite asset.

Investment Adviser

A person who manages assets, making portfolio composition and individual security selection decisions for a fee, usually a percentage of assets invested.

Junk Bond

Bond purchased for speculative purposes. Usually rated BB and lower, and has a higher default risk. A bond rated 'BB' or lower because of its high default risk. Also known as a "high-yield bond" or "speculative bond".

Lagging Indicator

Economic indicator that changes directions after business conditions have turned around.

Leading Indicator

Economic indicator that changes direction in advance of general business conditions.

Limit Order

An order placed with a brokerage to buy or sell a set number of shares at a specified price or better. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled.

Limited Partnership

An arrangement between a general partner and a limited partner. The general partner manages the project, and collects fees and a percentage of profits and income. Limited partners invest in the project but have limited liability; they are not involved in the day-to-day management of the project, and they receive a percentage of the profits and income. In general, they also receive tax benefits.


The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity.

Long-term Debt

Liabilities due in a year or more. Includes bonds payable, deferred taxes, minority interests, and future policy benefits.


The use of borrowed money to purchase securities (buying "on margin").

Market Capitalization

Number of common stock shares outstanding times share price. Provides a measure of firm size.

Market Order

An order placed with a broker to buy or sell a security at whatever the price may be when the order is executed.

Market Risk

The volatility of a stock price relative to the overall market as indicated by beta.

Market Timing

Attempting to leave the market entirely during downturns and reinvesting when it heads back up. Requires a crystal ball to be effective.


The length of time until the principal amount of a bond must be repaid.

Maturity Date

The date when the principal amount of a security becomes due and payable.

Modern Portfolio Theory (MPT)

A theory on how risk-averse investors can construct portfolios to optimize or maximize expected return based on a given level of market risk, emphasizing that risk is an inherent part of higher reward. Also called "portfolio theory" or "portfolio management theory." According to the theory, it's possible to construct an "efficient frontier" of optimal portfolios offering the maximum possible expected return for a given level of risk. This theory was pioneered by Harry Markowitz in his paper "Portfolio Selection," published in 1952 by the Journal of Finance. There are four basic steps involved in portfolio construction: -Security valuation -Asset allocation -Portfolio optimization -Performance measurement.

Money Market Mutual Fund

The aim of Money Market Funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as Treasury Bills, Certificates of Deposit, Commercial Paper and Inter-Bank Call Money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market.

Mutual fund

A mutual fund is a pool of money provided by various participants and then invested into equity, fixed income markets or any other form of investments with the objective to provide safety of capital and returns to investors. The pool is managed by on behalf of the investors by a team of specialized individuals, commonly known as fund managers or investment advisors. When you buy a mutual fund unit, you are pooling your money with a number of other investors, which in turn enables you (as part of a group) to pay a professional manager to select specific securities for you.

Net Asset Value (NAV)

The market value of a mutual fund's total assets, after deduction of liabilities, divided by the number of outstanding shares; the per share price of no-load mutual funds. NAV = Total Assets – Liabilities Number of Outstanding Units

Net Income

A company's total earnings (or profit). Net income is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses. This number is found on a company's income statement and is an important measure of how profitable the company is over a period of time. The measure is also used to calculate earnings per share.

Net Profit Margin

Net income divided by sales for the same period. When compared against industry norms and over time, it provides an indication of the competitive nature of the industry and the company's competitive position.

Odd Lot

A transaction involving fewer shares than in a "round" lot, which for most stocks is 100 shares.

Open-end fund

An open end Fund does not have a fixed pool of money and it continuously offers its units to the public. Investors can buy and sell units anytime they want at Net Asset Value (NAV) related prices. The Fund is set up as a Trust, with an independent Trustee, who has custody of the assets of the Trust. Each share of the Fund is called a Unit and its Fund Manager is known as the Asset Management Company (AMC). The Fund, itself, is called a Unit Trust.

Operating Profit

Sales less cost of goods sold, general selling and administrative expenses, depreciation, research and development, interest expense and other unusual operating expenses. Also known as "earnings before interest and tax" (EBIT). Operating Profit= Operating Revenue–Operating Expenses.

Operating Profit Margin

Operating profit divided by sales for the same period. When compared against industry norms and over time, it provides an indication of the competitive nature of the industry and the company's competitive position.

Over-the-counter market

A communications network through which trades of bonds, non-listed stocks, and other securities take place.

Par Value

The face value of a security.

Payout Ratio

Dividends per share divided by earnings per share. Provides an indication of how well earnings support the dividend payments. The lower the ratio, the more secure the dividend.

PEG ratio (P/E to EPS growth)

Stock's price-earnings ratio divided by earnings per share growth rate. Provides an indication of the price the market has put on earnings expectations relative to what the firm has actually produced.


Fund set up by a corporation, labor union, governmental entity, or other organization to pay the pension benefits of retired workers.

Portfolio Manager

One responsible for managing large pools of funds. Portfolio managers may be employed by insurance companies, mutual funds, bank trust departments, pension funds, and other institutional investors.

Preferred Stock

A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights.

Premium Bond

A bond that is valued at more than its face amount.

Present Value

The value today of a future payment, or stream of payments, discounted at some appropriate interest rate.

Price-earnings ratio (P/E)

Market price per share divided by the firm's earnings per share. A measure of how the market currently values the firm's earnings growth and risk prospects. High P/E stocks carry with them high expectations as to future growth potential, while low P/E stocks are perceived to have lower future potential or greater risk.

Price-earnings relative

Stock's price-earnings ratio divided by the price-earnings ratio for the market as measured by a broad market measure such as the S&P 500 index. A method for judging whether a price-earnings ratio is reasonable based on current market conditions and historical relationships.

Price-to-book Ratio

Market price per share divided by book value (tangible assets less all liabilities) per share. A measure of stock valuation relative to net assets. A high ratio might imply an overvalued situation; a low ratio might indicate an overlooked stock.

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.

Price-to-growth-flow ratio

Current price per share divided by the sum of research and development per share and earnings per share over the last 12 months.

Price-to-sales ratio

Current market price per share divided by the sales per share for the most recent 12 months. Used similarly to price-earnings ratios to identify "out-of-favor" stocks.


The amount owed; the face value of a debt; the amount invested.

Profit Margin

Net income divided by sales. A high margin may indicate that a company has a proprietary edge because it can deliver its products at a substantial profit. A high margin also validates the significance of the sales growth rate.

Prospectus/offering document

The prospectus, advertisement or other document (approved by SECP), which contains the investment and distribution policy and all other information in respect of the Unit Trust, as, required by the Rules and is circulated to invite offers by the public to invest in the Unit Trust.

Put Option

An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy shares.

Quick Ratio

An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. Quick Ration = Current Assets –Inventory Current Liabilities

Real estate investment trust REIT

Real Estate Investment Trust is a mutual fund that invests in properties (real estate) and derives income from such investments for its unit holders. The Fund pays out 90% of its income to investors as dividend. REITs are a very diverse investment vehicle that investment in a variety of real estate assets such as office buildings, residential, shopping malls, hospitals/ schools and industrial areas.

Real Rate of Return

The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external effects. This method expresses the nominal rate of return in real terms, which keeps the purchasing power of a given level of capital constant over time.

Redemption fees/back end load

Charges assessed upon redemption of mutual fund shares. Includes transaction costs.

Regulatory authority/ body

Securities and Exchange Commission of Pakistan (SECP).

Relative Strength

Price performance of a stock divided by the price performance of an appropriate index over the same time period. A measure of price trend that indicates how a stock is performing relative to other stocks. Zero percent indicates price performance equal to that of the index.

Required Rate of Return

The rate of return demanded to induce investors to invest in a security.

Retention ratio

The percent of earnings retained in the firm for investment purposes.


Consists of income plus capital gains relative to investment.

Return on Assets

Net income divided by total assets. Provides a measure of management's efficient use of assets.

Return on Equity (ROE)

Net income after all expenses and taxes divided by stockholder's equity (book value). An indication of how well the firm used reinvested earnings to generate additional earnings.

Return on Investment (ROI)

Total capital divided by earnings. A means of evaluating the efficiency of management and the development of product lines for the comparison of companies.


Also called net sales. Gross sales less returns, allowances, and freight out. Returns are goods returned for credit, allowances are deductions for goods lost or damaged in transit, and freight out is shipping expense passed on to the customer.

Revenue bond

A municipal bond supported by the revenue from a specific project, such as a toll road, bridge, or municipal coliseum.


Possibility that an investment's actual return will be different than expected; includes the possibility of losing some or all of the original investment. Measured by variability of historical returns or dispersion of historical returns around their average return.

Risk/return trade-off

The balance an investor must decide on between the desire for low risk and high returns, since low levels of uncertainty (low risk) are associated with low potential returns and high levels of uncertainty (high risk) are associated with high potential returns.


A measure that standardizes risk by taking the average standard deviation of all the world's equities and assigning it a standard deviation value of 100. All other standard deviations are expressed as a percentage of that figure.


A measurement of how closely a portfolio's performance correlates with the performance of a benchmark index, such as the S&P 500, and thus a measurement of what portion of its performance can be explained by the performance of the overall market or index.

Secondary Market

Secondary Market is a market in which secondhand financial instruments are traded. When first issued, financial instruments such as bonds, shares etc. are sold in the primary market but afterwards they are traded in the secondary market for example stock exchanges. Secondary markets provide investors with liquidity

Security Analyst

One who studies various industries and companies and provides research reports and valuation reports.

Shares Outstanding

Total number of shares held by shareholders. Provides an indication of the trading liquidity of the firm.

Short Sale 

A market transaction in which an investor sells borrowed securities in anticipation of a price decline and is required to return an equal number of shares at some point in the future. The payoff to selling short is the opposite of a long position. A short seller will make money if the stock goes down in price, while a long position makes money when the stock goes up. The profit that the investor receives is equal to the value of the sold borrowed shares less the cost of repurchasing the borrowed shares.


Short-Term Debt

Liabilities those are due in less than one year. Also includes that portion of long-term debt that will become due within the next year.

Sinking fund provision

A means of repaying funds advanced through a bond issue. The issuer makes periodic payments to the trustee, who retires part of the issue by purchasing the bonds in the open market.


The difference between the bid and asked price of a security.

Standard Deviation

A measure of the degree to which returns of an asset vary around the mean.

Stock Dividend

A dividend paid in additional shares of stock rather than in cash.

Stock Split

The division of a company's existing stock into more shares. In a 2-for-1 split, each stockholder would receive an additional share for each share formerly held.


An agent that charges a fee or commission for executing buy and sell orders submitted by an investor.

Stockholder's equity

The portion of the balance sheet that represents the capital received from investors in exchange for stock (paid-in capital), donated capital and retained earnings. Stockholders' equity represents the equity stake currently held on the books by a firm's equity investors. It is calculated either as a firm's total assets minus its total liabilities, or as share capital plus retained earnings minus treasury shares:

Stop-limit order

An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will be executed at a specified price (or better) after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at the limit price or better.

Stop-loss order

An order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor's loss on a security position.

Sustainable growth rate

Return on equity multiplied by one minus the average payout ratio. Used as a measure of a firm's ability to finance its long-term capital requirements internally. Sustainable growth rate=ROEx(1-dividend-payout ratio)

Technical Analysis

A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.

Term Life Insurance

A policy with a set duration limit on the coverage period. Once the policy is expired, it is up to the policy owner to decide whether to renew the term life insurance policy or to let the coverage end. This type of insurance policy contrasts with permanent life insurance, in which duration extends until the policy owner reaches 100 years of age (i.e. death).


or group of letters that designates a security for trading purposes.

Time horizon

The length of time an investment is held.

Total Assets

The sum of current assets; investments; property, plant & equipment; and tangible assets.

Total Capital

Long-term corporate financing of a firm. Equals the sum of long-term debt, preferred equity, and equity.

Total debt to total assets

Short-term and long-term debt divided by total assets of the firm. A measure of a company's financial risk that indicates how much of the assets of the firm have been financed by debt. Also referred to as total liabilities to total assets.

Total liabilities

Current liabilities and long-term debt.

Trading range

The spread of prices that a stock normally sells within.

Transaction costs

Costs incurred buying or selling securities. These include brokers' commissions and dealers' spreads (the difference between the price the dealer paid for a security and the price for which he can sell it).

Treasury bill

Short-term debt security issued by the federal government for periods of one year or less. T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest payments like conventional bonds, the appreciation of the bond provides the return to the holder.

Unit investment trust

A company that purchases securities (usually fixed income) and sells shares representing proportional interest in the portfolio of those securities. The trust is liquidated when the securities mature.

Universal life insurance

A form of whole life insurance in which premium payments and coverage is more flexible, allowing increases and decreases without additional sales charges.

Unseasoned issue

An issue that has not been formerly traded in the public markets.


The process of determining the current worth of an asset.

Value stock

Stock of companies whose price looks cheap relative to earnings, assets, dividends or cash flow


The possible different outcomes of an event. As an example, an investment with many different levels of return would have great variability.

Variable annuity

A life insurance company investment product that combines a savings plan with a small life insurance component to provide certain tax benefits. The savings portion can be invested in a choice of pooled vehicles, including stock funds.

Variable life insurance

A form of whole life insurance that allows the cash value portion to be invested in stock, bond or money market portfolios.


A derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue as a "sweetener" to entice investors.

Whole life insurance

Insurance that provides protection if the insured dies while also building up cash value. Premiums are high but level, and include the cost of term insurance plus a savings component.

Working capital

Net short-term company assets; it is calculated as current assets minus current liabilities.


The amount of interest paid on a bond divided by the price. A measure of the income generated by a bond. A yield is not a total return measure because it does not include capital gains or losses.

Yield Curve

A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 10-year T-Bills. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth. The shape of the yield curve is closely scrutinized because it helps to give an idea of future interest rate change and economic activity. There are three main types of yield curve shapes: normal, inverted and flat (or humped). A normal yield curve (pictured here) is one in which longer maturity bonds have a higher yield compared to shorter-term bonds due to the risks associated with time. An inverted yield curve is one in which the shorter-term yields are higher than the longer-term yields, which can be a sign of upcoming recession. A flat (or humped) yield curve is one in which the shorter- and longer-term yields are very close to each other, which is also a predictor of an economic transition. The slope of the yield curve is also seen as important: the greater the slope, the greater the gap between short- and long-term rates.

Yield to maturity

The yield on a security assuming that interest payments will be made and reinvested until the final maturity date, at which point the principal will be repaid by the issuer. The rate of return anticipated on a bond if it is held until the maturity date. YTM is considered a long-term bond yield expressed as an annual rate. The calculation of YTM takes into account the current market price, par value, coupon interest rate and time to maturity. It is also assumed that all coupons are reinvested at the same rate. Sometimes this is simply referred to as "yield" for short.

Zero-coupon bond

A debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value. Also known as an "accrual bond".