Capital expenditure
Money invested to acquire or upgrade fixed assets such as buildings, machinery, equipment or vehicles in order to maintain or improve operations and foster future growth.

Compound Annual Growth Rate (CAGR)
Measures an investment’s annual growth rate over time, including the effect of compounding (where any income is reinvested to generate additional returns). CAGR is typically used to measure and compare the past performance of investments or to project their expected future returns.

CPI
The Consumer Price Index measures the average change in prices paid by consumers over time for a basket of goods and services.

Cost of capital
Cost of capital is a calculation of the minimum return a company would need to justify a capital budgeting project, such as building a new factory.

Discount/premium (investment trusts)
The amount by which the price per share of an investment company is either lower (at a discount) or higher (at a premium) than the net asset value per share (cum income), expressed as a percentage of the net asset value per share.

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

Earnings per share (EPS)
EPS is the bottom-line measure of a company’s profitability, defined as net income (profit after tax) divided by the number of outstanding shares.

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.

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, and vice versa. GDP is a broad measure of the size and health of a country’s economy and can be used to compare different economies.

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.

Net asset value (NAV) total return (investment trusts)
The theoretical total return on shareholders’ funds per share reflecting the change in Net Asset Value (NAV) assuming that dividends paid to shareholders were reinvested at NAV at the time the shares were quoted ex-dividend. A way of measuring investment management performance of investment trusts which is not affected by movements in discounts/premiums.

Price-to-book (P/B) ratio
A financial ratio used to value a company’s shares. It is calculated by dividing a company’s market value (share price) by its book value (the value of all a company’s assets minus its liabilities). A P/B value below one indicates a firm is valued at less than the sum of its assets, either because it is undervalued, or because the market has doubts about its future profitability. P/B is generally used to compare similar companies within the same sector, as it can vary significantly between industries.

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.

Treasuries/US Treasury securities
Debt obligations issued by the US government. With government bonds, the investor is a creditor of the government. Treasury Bills and US Government Bonds are guaranteed by the full faith and credit of the United States government. They are generally considered to be free of credit risk and typically carry lower yields than other securities.

Return on equity (ROE)
A company’s net income (income minus expenses and taxes) over a specified period, divided by the amount of money its shareholders have invested. It is used as a measurement of a company’s profitability, compared to its peers. A higher ROE generally indicates that a management team is more efficient at generating a return from investment.