Friday, February 3rd 2012 - 06:14:06 pm

TradeStocksAmerica.com Glossary of Terms

Glossary of Terms
(Some abbreviations are for communication on the Trading Room)

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Earnings - Revenues minus cost of sales, operating expenses, and taxes, over a given period of time. Earnings are the primary reason why corporations exist and have the most influence on the stock price.
Many young companies begin their life cycle from a new company with little or no profits into one which has matured with large profits. It is a good indication is that a company’s earnings are accelerating at a faster rate. Also called income.

Earnings surprise - An earnings report that different from the consensus forecast of analysts that follow a specific stock were expecting. Earnings surprises often cause a substantial movement in the stock's price either up or down, depending if it was a positive surprise or negative one. A positive surprise is when the earnings are higher than what was expected, usually resulting in higher spikes in the stock price immediately after earnings announcements, which usually occur aftermarket.

EBITDA – is an acronym representing Earnings Before Interest, Taxes, Depreciation and Amortization. An approximate measure of a company's operating cash flow based on data from the company's income statement. Calculated by looking at earnings before the deduction of interest expenses, taxes, depreciation, and amortization. Companies with high fixed assets, such as manufacturing companies, will have high depreciation expenses. Using EBIDTA is a good way of comparing companies across different industries. This measure is also of interest to a company's creditors, since EBIDTA is essentially the income that a company has free for interest payments. In general, EBIDTA is a useful measure only for large companies with significant assets, and/or for companies with a significant amount of debt financing. It is rarely a useful measure for evaluating a small company with no significant loans although it is becoming popular to apply towards smaller companies.

Electronic Communications Networks (ECN) is an electronic system that brings buyers and sellers together for the electronic execution of trades. It distributes information about the orders entered into the network and allows these orders to be executed. Electronic Communications Networks (ECNs) represent orders in NASDAQ stocks; they internally match buy and sell orders or represent the highest bid prices and lowest ask prices on the open market (inside spread). The benefits an investor gets from trading with an ECN include more efficient execution, after-hours trading, avoiding market makers (and their spreads), and anonymity (which is often important for large trades).

Efficient Market Theory - says that security prices correctly and almost immediately reflect all information and expectations. The hypothesis is that you cannot consistently outperform the stock market due to the random nature in which information arrives and the fact that prices react almost immediately to adjust to the latest information. Of course we do not agree with this hypothesis.

Elliot Wave Theory - is named after Ralph Elliot who developed his theory in the late 1930’s and was inspired by the Dow Theory. Elliot concluded that the movement of the stock market could be predicted by observing and identifying a repetitive pattern of waves. Elliot also believed that all human activities, not just the stock market, could be expressed in these waves.

EOD – end of day.

EPS - Earnings per Share. Total earnings divided by the number of shares outstanding. Companies often use a weighted average of shares outstanding over the reporting term. EPS can be calculated for the previous year ("trailing EPS"), for the current year ("current EPS"), or for the coming year ("forward EPS"). Note that last year's EPS would be actual, while current year and forward year EPS would be estimates.

Equities – A financial instrument that represents part of an ownership position, or equity in a corporation, and represents a share in the corporation's assets and profits. Instead, an equity holder's claim is of lower priority than creditor's claims (from borrowed money) and the equity holder will only enjoy distributions from earnings after these higher priority claims are satisfied.

Equity Financing - Financing by selling common stock or preferred stock to investors.

Equity Option - An option in which the underlying stock is the common stock of a corporation, giving the holder the right to buy or sell its stock, at a specified price, by a specific date. Also called stock option; also called stock option. See Index option.

ETF (Exchange Traded Fund) is traded like an individual stock, usually on the NYSE, that represents a basket of stocks that meet the criteria of a mutual fund that has specific objectives. This is a fast growing trend for ETF’s to be developed in place of traditional mutual funds. The advantage of ETF’s is that you can buy and sell throughout the day compared to buying and selling a mutual fund at end of day prices only. There is also the advantage of not having restrictions of buying and selling the ETF’s too frequently as do the investment companies managing traditional mutual funds. The last major advantage is that it is lower cost to trade ETF’s because of the spread size and the commissions costs are lower.

Exchange - Any organization, association or group which provides or maintains a marketplace where securities, options, futures, or commodities can be traded; or the marketplace itself.

Ex-Dividend Date - The first day of the ex-dividend period. If an investor does not own the stock before the ex-dividend date, he or she will be ineligible for the dividend payout. If you buy the stock that has dividends on the ex-ex dividend date, you will not get the dividend. The exchanges automatically reduce the price of the stock by the amount of the dividend. This is done because a dividend payout automatically reduces the value of the company since it is paid from the company’s cash reserves if it is a cash dividend. You can choose to have your dividend purchase more shares, which is considered a stock dividend. Also called reinvestment date.

Exchange ratio - The number of shares of the acquiring company that a shareholder will receive for one share of the acquired company.

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