Glossary: Earnings - Futures

E

Earnings: The amount a company says it added to shareholders' funds after all the costs of delivering a product or service have been accounted for. See Earnings Per Share.

Earnings Per Share (EPS): Net income divided by the current number of shares outstanding. This is one of the principal elements used in determining at what value the shares should trade.

EBITDA: Horrible acronym standing for Earnings Before Interest, Tax, Depreciation and Amortisation.

Economic Value Added: Commonly shortened to EVA. This figure is the difference between the Return on Capital Employed by a company and the Cost of Capital Employed by a company. A simple, but flawed, analogy is to compare the annual cost of your mortgage with the annual increase in value of your house. If your house has risen in value by 10% and your mortgage is only costing 6%, then you are ahead. The same logic applies with a company. If it gets more out of its capital than it is paying for it then it is adding value.

Endowment: A life assurance and savings and investment policy, classically sold to back an interest-only mortgage. The key word here is "sold". No-one in their right minds would "buy" one of these overcharging and underperforming abominations these days. See With Profits Insurance and Surrender Value. Also, see Life Insurance.

Endowment Assurance: An assurance policy that pays a specified amount of money on an agreed date or the death of the person assured, whichever is the earlier.

Enterprise Value: The sum total of the market value of a company's debt and equity. It represents an open market valuation of the business or enterprise that supports it. In other words, how much a company is actually worth. It has no direction relation to book value. Commonly shortened to EV and divided by EBITDA to give a useful ratio.

Equalisation: Unit trusts hold a collection of shares and therefore receive a constant stream of dividend payments. This income in normally only paid out to investors twice a year. When a new investor buys into the fund part of his purchase is represented by accrued dividends. At his or her first distribution payment, part of the sum will represent the return of capital equal to the accrued dividends. This amount is regarded as capital, not income, and is called an equalisation payment. Easy.

Equities: A concept that comes from "equitable claims." Equities are essentially shares of stock. Because they represent a proportional share in the business, they are equitable claims on the business itself.

Ex-Dividend: A share sold without the right to receive the dividend payment which is marked as due to those shareholders who are on the share register at a pre-announced date. These shares have "xd" next to their price listings in the Financial Times.

Exceptional Items: These are features in the profit and loss statement that are not expected to occur regularly. They are typically profits or losses recorded by selling businesses, or charges incurred in closing activities down. They make interpreting of accounts, especially earnings per share, more difficult. It is one reason why companies also produce adjusted figures to show the underlying performance of the company.

Execution-only Stockbroker: Stockbrokers who offer fewer of the services championed by advisory stockbrokers, but charge cheaper transaction fees. Basically, you tell them to buy or sell a particular share and they get on and do it with no frills and no hassles. Often they hold your shares in a nominee account. Execution-only brokers are ideal for do-it-yourself investors. They are called discount brokers in the USA.

Exit Charge: A sales charge paid for redeeming a unit trust or other investment. See Front-End Loading.

F

Fair Value: The theoretical price at which a company is "fairly valued," meaning that it would not be reasonable to assume that the shares will rise. Fair value at any given point is derived from a number of qualitative and quantitative aspects of the business.

Final Salary Scheme: Most occupational pension schemes still calculate the pension as a percentage of final salary (maximum 40/60ths), also known as a defined benefit scheme, although are changing more and more to money purchase schemes.

Financial Services Authority (FSA): The top investment watchdog. Contact them on 0207 638 1240, but if you have a problem with a financial adviser or insurance company, contact the Personal Investment Authority. If you have a problem with a stockbroker, contact the Securities & Futures Authority.

Financial Services Industry: Hmm. Tick the box which you think most applies and then see Mis-Selling.
-- 1. A remarkably affluent group of companies, mostly out to service itself by using slick sales techniques and misleading literature to separate the general public from its savings.
-- 2. A body of companies relentlessly dedicated to providing value in financial services to its customers.

Fixed Asset: Something solid a company owns that hurts your shin if you fall over it; like a factory. See Intangible Asset.

Fixed Rate Mortgage: The interest rate on the mortgage is pegged at a set level for an agreed number of months or years. Pull out before the end of that period and you'll end up paying a redemption penalty.

Flotation: See New Issue.

Flow Ratio: Also known as the Foolish Flow Ratio or the Flowie. This tells you how well a company manages its assets and liabilities and is a useful indicator of financial health.

Flying Freehold: A term used to describe that part of a freehold property which is built above land which is not part of the property freehold, e.g. a bedroom built over a common access passageway.

Flying Trapeze: Circus act involving high levels of skill, courage and sequins.

Fool: One who exhibits a high degree of Foolishness.

Foolishness: The state of being wry, contrary, canny and capable of looking after your own investments. Fools believe in shares as the long-term path to wealth creation and believe in buying and holding good companies for the long haul based on their fundamental financial and business strengths. Also see Wisdom.

Foolish Four: The US Motley Fool's variation of the Beating the Footsie strategy.

Form 53: The end result of a mortgage. The form on which a mortgagee acknowledges that the mortgage has been paid off. It's yours!

Free Standing Additional Voluntary Contributions (FSAVCs): The sadder relatives of AVCs. These private pension 'add-ons' are often very poor value, have very high charges and are increasingly the subject of pension mis-selling proceedings.

Front-End Loading: A sales charge paid when a PPP, AVC, FSAVC, Endowment or other investment is purchased. It can amount to the whole of the first two years' contributions. Have a very good reason indeed to buy an investment product with heavy front-end loading charges. See Mis-Selling.

FRS3: The standard promulgated by the Accounting Standards Board which requires that all sources of profit/loss must be included in a company's statement of its headline profit and Earnings Per Share.

FT 30: For many years, the FT 30 was the index most often quoted in relation to the London Stock Exchange. It was originally conceived as being the UK equivalent to the Dow Jones Industrial Average, but is little quoted now. (Except on Beating the Footsie.)

FTSE All Share Index: An index containing the 900 largest companies on the London Stock Exchange. Like the FTSE 100 and FTSE 250, the index is named for the Financial Times (FT) and the London Stock Exchange (SE), who are its joint owners. The FTSE-ASI and the FTSE 100 are the indices generally tracked by Index Trackers.

FTSE 100: An index containing the 100 largest companies by market capitalisation on the London Stock Exchange. Came into being in 1984 and largely superceded the FT 30.

FTSE 250: An index containing the 250 largest companies by market capitalisation on the London Stock Exchange, created in 1992.

Full-Service Broker: The US name for an advisory stockbroker.

Fund Sector: The category, by geography or industry, in which the fund will invest.

Futures: A type of derivative that allows you to bid for the right to pay a future value on either an index option or a commodity. Futures are a great way to lose 100%, or possibly even more, of your investment, because if they expire worthless you get nothing. Futures have a fixed duration and normally only last for one year at the most.