Ever wondered why we refer to the 'Touch', or what a beta is? Then this article is here to help. We've explained each and every one of the terms we use in the tables that accompany tips and articles analysing company results.
A typical table in a company results analysis article looks like this:
| ACME PLC (ACM) | ||||
|---|---|---|---|---|
| Ord price: | 63p | Market value: | £76m | |
| Touch: | 61-63p | 12 month high: | 87p | 48p |
| Dividend yield: | 4.5% | PE ratio: | 67 | |
| Net asset value: | 41p* | Net debt: | 37% | |
| Year to end-June | Turnover (£m) | Pretax profit (£m) | EPS (p) | Dividend (p) |
|---|---|---|---|---|
| 2010 | 57.9 | 3.70 | 2.53 | 1.65 |
| 2011 | 59.3 | -0.77 | -0.36 | 1.65 |
| Change | +2 | - | - | - |
Ex div: 3 Oct Payment: 26 Oct * Includes intangible assets of £11.4m or 9.4p a share | ||||
Here's what the various terms mean:
ORD PRICE: this is the mid point of the touch.
TOUCH: the bid and offer prices as shown on the stock exchange trading screen at the time of publication. The difference between the two tends to be proportionately wider for smaller companies.
MARKET VALUE: the ord price multiplied by the number of shares currently in issue.
12-MONTH HIGH/LOW: the highest and lowest price at which the shares have closed over the past twelve months.
DIVIDEND YIELD: the full year dividend divided by the ord price. For full-year results, this means the interim plus the final dividends - ie, the total amount declared over the company's financial year. For half-year results, it is this year's interim dividend plus last year's final dividend, giving a rolling yield.
PE RATIO: the ord price divided by a full year's earnings per share. As with the dividend yield, the full-year ratio represents a full year of earnings, but a half-year figure is calculated by adding EPS for the first half of the current year to EPS for the second half of the previous year.
NET ASSET VALUE: For most companies, this represents the equity on the balance sheet, less any minority interests. If intangible assets like goodwill and brand value account for more than 20 per cent of the net asset value, then we insert a note stating this, as shown above.
NET DEBT: The total of a company's borrowings, including finance leases, bank overdrafts and other forms of debt, less any cash and cash equivalents, expressed as a percentage of total assets. Note that some companies express net debt as a percentage of debt plus equity, which results in a lower percentage.
TURNOVER: Sales or revenue, not including the sales of joint ventures or associates.
PRETAX PROFIT: there are a hundred different yardsticks for profit, and companies have a habit of using whichever flatters their performance the most! We use only one, the statutory ('FRS3') figure that a company must report. This includes all exceptional gains and costs, as well as things like interest, the cost of stock options and goodwill amortisation. Many, many companies complain that this doesn't give a 'fair' portrayal of their performance. But we think it is better to be consistent and treat all companies the same way.
EARNINGS PER SHARE: this is basic earnings per share, not diluted, and we take the same measure of EPS as we do profit - ie, including everything, rather than with selected omissions.
NET DIVIDEND PER SHARE: For half-year results, this is the interim dividend. For full-year results, it is the total - ie, the interim plus the final.
EX-DIV: the first day on which it is no longer possible to buy the shares with the rights to the dividend. In the example above, if you bought the shares on 2 October, you would get the dividend. If you bought them on 3 Oct, you wouldn't.
PAYMENT: the date that dividends are credited to shareholders. Note that in the case of full-year results, the amounte per share remitted is not the same as the dividend figure that appears in the table, because that is a total (interim plus final) figure.
Tables in our Tips of the week articles feature some extra terms designed to give you a feel for some other factors that might influence your decision about whether to buy (or sell) shares in the relevant company. These include:
NMS: Normal market size - what size package the shares are normally dealt in on the stock exchange
MARKET MAKERS: the number of stock brokers who make a market in the company's shares. Generally, the more brokers, the tighter the spread (difference between bid and offer) will be. A small number of market makers might mean it is difficult to trade the shares, especially in large quantities. If it says 'Matched bargain trading', that means the shares are traded over the stock exchange's SETS electronic order book, without the use of market makers. Bigger, more liquid companies tend to be on SETS.
BETA: this is a measure of a shares's volatility compared to the All-share index over the past year. A beta of one indicates a share that moves in lock-step with the market. Less than one means it is less volatile than the market, more than one means it is more volatile. A minus sign in front of a beta figure indicates that the shares is inversely correlated - if the market goes down, it tends to go up.
For the vast majority of companies, profit and dividend form the main yardsticks of financial comparison. However, they are not the only ones, and for some types of compay, other yardsticks can tell you more about the company's performance and prospects. For instance, in the case of property companies:
NET ASSET VALUE (when it appears in the lower half of the table, instead of turnover): this is a key metric. It is an independent valuation of their property holdings divided by the number of shares in issue.
PREMIUM/DISCOUNT TO NAV: the difference between the share price and the net asset value, expressed as a percentage. The deeper the discount, the more undervalued the company may be (although there may of course be a good reason for this!)
INVESTMENT PROPERTIES: the value of property assets that a developer is keeping for rental income.
TRADING STOCK: the value of property assets that a developer has earmarked for sale
Insurance companies and underwriters on the Lloyd's of London insurance market also have some unique valuation metrics:
EMBEDDED VALUE: for life assurers especially, this is a key valuation metric. It is net asset value added to the present value of future policies already written, usually divided by the number of shares in issue to give a per-share figure. There is an element of subjectivity about this; different assurers may use different discount rates and inflation assumptions to arrive at the net present value of future policy income streams.
COMBINED RATIO: this is a measure of insurance company profitability. It compares premium income with claims payouts, administrative expenses and dividend costs. A ratio of above 100% indicates the company is loss-making at the underwriting level, below 100% indicates it's profitable. A ratio of 98 per cent, for instance, means a company has made 2p of profit for every £1 of premium income. Note, however, that insurance companies also make profits from their investments.
INVESTMENT INCOME: income generated on an insurance company's investment book. Steady premium income leaves insurers with large amounts of cash, which they invest in mostly very safe assets like gilts and investment-grade bonds in order to produce some income and prevent erosion by inflation.
NET PREMIUMS: the equivalent of revenue for an insurer is gross premiums, which is simply revenue from premiums. However, in order to reduce risks, insurers purchase reinsurance with other providers. Net premiums represents the gross premium income less the cost of reinsurance purchased.
