Cash flow

The net balance of cash that moves in and out of a company. Positive cash flow shows more money is moving in than out, while negative cash flow means more money is moving out than into the company.

Dividend

A variable discretionary payment made by a company to its shareholders.

Earnings before interest, tax, depreciation, and amortization (EBITDA)

EBITDA is a metric used to measure a company’s profitability net of expenses and associated costs, taxes, or debts.

Equity

A security representing ownership, typically listed on a stock exchange. ‘Equities’ as an asset class means investments in shares, as opposed to, for instance, bond. To have ‘equity’ in a company means to hold shares in that company and therefore have part ownership.

Fiscal/Fiscal policy

Describes government policy relating to setting tax rates and spending levels. Fiscal policy is separate from monetary policy, which is typically set by a central bank. Fiscal austerity refers to raising taxes and/or cutting spending in an attempt to reduce government debt. Fiscal expansion (or ‘stimulus’) refers to an increase in government spending and/or a reduction in taxes.

Gearing

The effect of borrowing money for investment purposes (financial gearing). The amount a company can ‘gear’ is the amount it can borrow in order to invest.

Global financial crisis (GFC)

The global economic crisis from mid-2007 to early 2009 that began with losses related to mortgage-backed financial assets in the US and spread to affect financial markets and banks globally. Also known as the ‘Great Recession’.

Gross domestic product (GDP)

The value of all finished goods and services produced by a country within a specific time period (usually quarterly or annually). When GDP is increasing, people are spending more and businesses may be expanding. GDP is a broad measure of the size and health of a country’s economy and can be used to compare different economies.

Hedge

A trading strategy that involves taking an offsetting position to another investment that will lose value as the primary investment gains and vice versa. These positions are used to reduce or manage various risk factors and limit the probability of overall loss in a portfolio. Various techniques may be used, including derivatives.

Inflation

The rate at which the prices of goods and services are rising in an economy. The consumer price index (CPI) and retail price index (RPI) are two common measures; the opposite of deflation.

Interest rates

The amount charged for borrowing money, shown as a percentage of the amount owed. Base interest rates (the Bank Rate) are generally set by central banks, such as the Federal Reserve in the US or Bank of England in the UK, and influence the interest rates that lenders charge to access their own lending or saving.

Macroeconomics

Macroeconomics is the branch of economics that considers large-scale factors related to the economy, such as inflation, unemployment, or productivity.

Magnificent Seven (MAG 7)

The term ‘Magnificent Seven’ refers to the seven major technology stocks—Apple, Microsoft, Nvidia, Amazon, Tesla, Alphabet, and Meta—that have dominated markets in recent years.

Premium

When the market price of a security is thought to be more than its underlying value, it is said to be ‘trading at a premium,’ the opposite of discount.

Price-to-earnings (P/E) ratio

A popular ratio used to value a company’s shares compared to other stocks or a benchmark index. It is calculated by dividing the current share price by its earnings per share.

Portfolio

A grouping of financial assets such as equities, bonds, commodities, properties, or cash. Also often called a ‘fund’.

S&P 500

The S&P 500 is a stock market index weighted by market capitalization that is made up of 500 of the largest public companies in the United States.

Share buybacks

Where a company buys back their own shares from the market, thereby reducing the number of shares in circulation, with a consequent increase in the value of each remaining share. It increases the stake that existing shareholders have in the company, including the amount due from any future dividend payments. It typically signals the company’s optimism about the future and a possible undervaluation of the company’s equity.

Tariffs

A tax or duty imposed by a government on goods imported from other countries.

Valuation metrics

Metrics used to gauge a company’s performance, financial health, and expectations for future earnings, e.g. P/E ratio and ROE.

Yield

Calculated by dividing the current financial year’s dividends per share (this will include prospective dividends) by the current price per share, then multiplying by 100 to arrive at a percentage figure.