A right given to shareholders that allows them to purchase shares of a new issue before it is offered to non-shareholders. This allows shareholders to retain the same percentage of ownership in a corporation.
See: New Issue; Right; Warrant
A preferred stock is a type of capital stock that pays dividends at a set rate (at the time of issuance). Dividend payments to preferred holders must be made before common stock dividends can be paid. Preferred stocks usually do not have voting rights.
See: Capital Stock; Common Stock; Cumulative Preferred Stock; Dividends; Non-Cumulative Preferred Stock; Voting Rights
A bond that is selling above its face value or redemption price.
See: Bond; Face Value; Redemption Price
Money received by option writers (sellers) from option buyers in payment for specific rights. A person who writes options to collect premiums hopes that the market price for underlying security remains stable. A put writer does not want the security to fall, and a call writer does not want it to rise.
See: Covered Call Option; Naked Option; Options; Option Writer; Uncovered Option
An attempt to take control of a company by offering its shareholders an amount over the current market value of their shares.
See: Takeover; Tender Offer
Pretax Earnings Or Profit
The amount of profit a corporation earns before paying its taxes. It is calculated by subtracting all costs and expenses (other than taxes) from total revenues.
See: Earned Before Taxes
The difference in a security's price at the close of a trading session as compared to its previous session's closing price. In the case of an average (or index), all of its components' price changes are taken into account.
See: Closing Price; Index
Price/Earnings Ratio (P/E)
The relationship between a stock's price and its earnings per share. It is calculated by dividing the stock's price per share by earnings per share for a twelve month period. For instance, a stock selling for $25 a share and earning $5 a share is said to be selling at a P/E ratio of 5.
The ratio, also known as the "multiple", gives an investor an approximation of how much they are paying for a corporation's earning power. Low P/E stocks are usually in mature industries. They may be blue chip or out of favor companies. In either case, their growth potential is limited. Companies with high P/E ratios (over 20) are usually up-and-comers that are fast growing. These companies are riskier investments.
See: Blue Chip; Earnings Per Share; Out Of Favor; Risk
The high and low price that a security traded at during a designated period. In annual reports, a corporation will show the price range for its fiscal year. In daily newspapers, the period is a rolling 52 weeks.
The best quality commercial paper as rated by agencies such as Moody's Investors Services and is investment grade. Moody's has three ratings for prime paper--P1 (highest quality), P2 (higher quality), and P3 (high quality).
See: Commercial Paper; Investment Grade; Moody's Investors Service; Risk
Interest rate charged by banks to their most creditworthy and largest corporate customers. The prime rate is used as a base rate for other types of loans such as personal, commercial and financing. These types of loans are normally of an interest rate a few points above the prime rate. Additionally, as the customer's creditworthiness declines, the interest rate will increase.
1: The face value or par value of a debt instrument that is separate from interest.
See: Debt Instrument; Face Value; Par
2: A person's capital, or the amount invested.
See: Principal Amount
3: An employee of a securities firm who has supervisory responsibilities.
See: Branch Office Manager
The face value of a bond, or other obligation, that is required to be paid to the holder at maturity.
See: Face Value; Maturity Date; Principal
A shareholder who owns a 10% or more voting stock in a registered company.
See: Affiliated Person; Registered Company; Voting Stock
Private Market Value (PMV)
The aggregate value of a corporation if it is broken into individual operations and each has its own stock price--also called "breakup value" or "takeover value". Analysts look for corporations with high PMV relative to its current market value to identify potential takeover targets and bargains. It differs from the corporation's liquidating value because it does not include going-concern value.
See: Fundamental Analysis; Going Concern Value; Takeover; Target Company
Private Purpose Bond
A municipal bond whose interest may (or may not) be federally tax-exempt--also called "private activity bonds". It is dependent on the percentage of the bond's benefits that goes to private activities. A private purpose bond for a sports arena would not be tax-exempt, while one for an airport would. A sports arena generally does not help the general public whereas an airport can help the entire community.
See: Municipal Bond; Tax Exempt Security
Process whereby a decedent's will is proffered to a court and an executor is appointed to handle the settlement of the will.
See: Administrator; Executor
An amount received from selling a security after commissions are deducted.
Producer Price Index
A measure of changes in wholesale prices. The index is calculated monthly by the US Bureau of Labor Statistics. Its components are broken down by industry sector, commodity and processing stage.
See: Consumer Price Index
The difference between a security's purchase price and selling price. If the selling price is higher than the purchase price, there is a profit. Conversely, if the selling price is lower than the purchase price, there is a loss.
Profit And Loss Statement (P & L)
A summary of a corporation's revenues, costs, and expenses within an accounting period--also called an "Income Statement".
See: Balance Sheet; Financial Statement; Income Statement
Profit Sharing Retirement Plan
A plan that is established so that a corporation's employee may share in the company's profits. When there are profits, the corporation makes an annual contribution for each of its employees. The funds within the plan are tax deferred until withdrawn by the employee upon retirement or leaving the firm. Profit sharing plans are considered institutional investors.
See: Institutional Investor; Tax Deferred
Selling securities that have appreciated in value since purchase, to realize the profit. In a rising market, profit taking temporarily pushes down prices.
See: Realized Profit (Loss)
Use of a computer-driven program by arbitrageurs and institutional traders for buying and selling baskets of 15 or more stocks. The program monitors various markets and securities and gives buy and sell signals when opportunities for profits arise or when market conditions warrant the accumulation or liquidation of a position.
See: Accumulation; Arbitrage; Institutional Broker; Institutional Investor; Liquidation
An unincorporated business owned by one person who is entitled to all the profits (or losses) generated from the business and is responsible for its taxes and other liabilities.
A printed document that summarizes a corporation's registration statement for a new issue of non-exempt securities that was filed with the SEC. It details material information about the corporation and the security being issued. A prospectus must be given to all buyers and potential buyers of the new issue.
A preliminary prospectus is given to investors when brokers obtain indications of interest. Although the document does not have all the information included in the offering circular, it does include the major facts. A preliminary prospectus is often called a "red herring" because its front-page notice is printed in red ink. The notice states that the preliminary prospectus is "subject to completion or amendment" and "shall not constitute an offer to sell...".
See: New Issue; Offering Circular; Securities And Exchange Commission
A written authorization by a shareholder allowing a representative to vote for or against business proposals and directors at annual meetings. The results of these votes are announced at the meeting.
See: Annual Meeting; Proxy Fight; Proxy Statement; Voting Stock
A strategy used by an acquiring company in its attempt to take control of a target company. The acquirer and target solicit the target's shareholders to obtain proxy votes. Whichever company obtains more votes, wins--that is, if the acquirer receives the majority of the proxy votes, it has effectively gained control of the target without paying a premium price for the firm.
See: Acquisition; Proxy; Takeover; Target Company
Information given to shareholders on company matters that need to be voted on. The statement is sent in conjunction with the proxy solicitations.
See: Annual Meeting; Proxy
Prudent Man Rule
An investment standard used by fiduciaries as a guide for identifying acceptable investment vehicles. Some US states allow the fiduciary to invest in securities that would be bought by a prudent man of discretion and intelligence, and who looks for a reasonable income and preservation of capital. Other states require that the fiduciary only invest in a list of securities designated by the state.
See: Fiduciary; Legal List
PSE (Pacific Stock Exchange)
Abbreviation used for the Pacific Stock Exchange.
See: Regional Stock Exchanges; Stock Exchange