Glossary of Terms
All Ordinaries Index
Also referred to as the ‘All Ords’, the All Ordinaries Share Price Index is a measure of the overall performance of the Australian sharemarket at any point in time. It is made up of share prices of approximately 500 of the largest Australian companies on the ASX (the number of companies varies depending upon compliance with the criteria for inclusion). Stock exchanges in other countries have similar indices such as the Dow Jones Index or S&P500 (New York) and FTSE, London.
Account Based Pension
Previously referred to as allocated pensions, are a flexible and tax-effective way to provide income in your retirement.
Annuities
A stream of regular payments purchased from a life insurance company using superannuation money, or in some cases, other savings to provide an income. Payment amounts depend on the lump sum, expected future investment return, frequency of payments, expenses and the life expectancy of the individual purchaser or the term, if it is a fixed-term annuity.
Asset Classes
A broad category of assets, eg shares, cash, property and fixed interest.
Assets
The resources owned by a company, fund or person. Assets can be tangible, eg. cash, investments, property and equipment, or intangible, for example goodwill, patents.
Assisted Living
Is an independent living setting that offers choices in personal care and health related services often connected to a nursing home.
Australian Financial Services (AFS) Licence
Any person who wishes to carry on a financial services business (such as advising on financial products, dealing in financial products or operating a registered scheme) must hold an Australian Financial Services License. ASIC regulates the provision of licenses and the conduct of licensees.
Australian Securities and Investment Commission (ASIC)
ASIC is a government body responsible under the Corporations Law for regulating companies, the issue and sale of shares, trust units, company borrowings, investment advisers and dealers.
Australian Stock Exchange (ASX)
The main Australian market place for trading equities, derivatives, government bonds and other fixed interest securities.
Australian Taxation Office (ATO)
The Australian Taxation Office is the principal revenue collection agency for the Australian Government. The Australian Taxation Office is not a legal entity. The Tax Office is within the portfolio of the Treasurer of the Commonwealth of Australia.
The Tax Office is responsible for managing Australia’s revenue through collections systems which include income tax, Goods & Services Tax (GST), superannuation and excise. In addition to managing collection systems, the Tax Office also administers various benefits and refunds, including income tax & GST refunds, the superannuation guarantee, higher education loans and the baby bonus.
Bear Market
When share prices are falling, the market is said to be in a bear market phase. A bear is said to ‘claw’ the prices down.
Beneficiary
Is a person who is entitled to receive part or all of the estate of a deceased person or the benefit from a superannuation plan annuity or pension.
Bequest
Is a gift of personal property under the terms of a legal will.
Blue Chip Stocks
The shares of a leading company which is known for its excellent management and strong financial structure. The term has become a generic one for quality securities.
Bonus Dividend
An abnormal dividend declared out of profits. If paid in cash, it is regarded as an increment to the normal dividend and is unlikely to be repeated in future periods.
Bonus Shares/Issue
A bonus issue is a free issue of shares to shareholders as an additional reward for investing in the company. Generally, a bonus issue will cause the existing share price to fall as the value of the company’s assets is now spread over a larger number of shares.
Brokerage
A fee charged by a broker to execute a transaction for you, eg buy or sell shares. It is usually calculated as a percentage of the amount you invested with a minimum fee.
Bull Market
Describes a consistent strong buying of shares and rising share prices. The term originates from a bull which is said to ‘toss’ the prices up.
Capital Gains Tax
Capital gains tax is the tax payable on the profit from the sale of capital assets such as shares, property and managed funds.
CHESS
CHESS is the Clearing House Electronic Subregister System. It is the System established and operated by the Settlement and Transfer Corporation for the following purposes: (a) the clearing and settlement of transactions in CHESS-approved securities; (b) the transfer of securities; (c) the registration of transfers; and (d) the establishment and administration of CHESS subregisters.
Commutation
Commutation is the technical term used to describe withdrawing some or all of your money in a retirement income stream in the form of a lump sum.
Compliance Plan
A document lodged with ASIC by a managed investment scheme. It describes the measures that the responsible entity (the operator of the scheme) has put in place to ensure that the scheme operates within the law and the scheme’s constitution.
‘Complying’ Income Streams
’Complying’ income streams were retirement income stream products (that is, pensions or annuities) that met certain requirements relevant before 20 September 2007. Complying income stream products did disappear from the market after 20 September, 2007. However, existing holders of complying income streams will not be able to commute their benefits and transfer to a new pension.
Complying Pension
So called because it has to comply with certain requirements of the Superannuation Industry (Supervision) Act. It arises from the investment of a capital sum which generates a regular income or private pension, usually paid at a level fixed for the life of the person who made the investment (or a beneficiary).
Constitution
A managed investment scheme’s constitution sets out the rules which apply to the managed investment scheme.
Debt to Equity Ratio
Shows the relationship between funds provided by borrowing and funds provided by shareholders. The debt to equity ratio shows to what extent a company is financed by debt (also called the gearing or leverage ratio). Debt to Equity ratio = (total debt / shareholder equity) x 100
Derivative
A derivative is an instrument that derives its value from an underlying instrument (such as shares, share price indices, fixed interest securities, commodities, currencies etc). Warrants and exchange traded options are types of derivatives.
Direct Investment
Taking a stake in a company or joint venture which brings a say in how the operation is run, although it does not necessarily give a controlling interest.
Dividend
A distribution of profits to the shareholders of a company, usually paid in cash and normally expressed as cents per share. When a dividend is paid more than once a year, dividends other than the final dividend are called interim dividends. Typically, dividends are paid twice a year, one interim and one final dividend.
Dividend Cents Per Share
Dividend in cents per.
Dividend Imputation
A tax rule under which the tax paid at the company level is credited to individual shareholders. With imputation, if the company has paid company tax, the dividends you receive carry a tax credit which can be offset against your tax liability.
Dividend Yield
The dividend return on the investment calculated by dividing the dividend rate by the market price of the share and converted to a percentage.
Earnings Before Interest and Tax (EBIT)
A key measure of the financial performance of a company. It is similar to net profit, except that the effects of tax and interest are factored out, providing a better measure of a company’s underlying performance.
Earnings Per Share
Earnings per share is the net profit after tax divided by the number of shares on issue. It does not necessarily represent the amount distributed to shareholders.
Eligible termination payment (ETP)
The ETP system was abolished on 1 July 2007. Before 1 July 2007 ETP related to the system for taxing superannuation and other benefits.
Enforceable Undertaking
An enforceable undertaking is an undertaking given to us (and accepted by us) that is enforceable in a court. They are generally accepted by us as an alternative to civil or administrative action where there has been a contravention of the legislation we administer.
Estate
An estate is the net worth of a person at any point in time. It is the sum of a person’s assets – legal rights, interests and entitlements to property of any kind – less all liabilities at that time. The issue is of special legal significance on a question of bankruptcy and death of the person.
Estate planning
Is the process of disposing of an estate. Estate planning typically attempts to eliminate uncertainties over the administration of a probate and maximize the value of the estate by reducing taxes and other expenses. Guardians are often designated for minor children and beneficiaries in incapacity.
Ex Dividend
Securities are quoted “Ex-Dividend” four business days before a Company’s Record Date to determine shareholders entitled to the dividend. Shares sold “Ex-Dividend” entitle the seller to retain the dividend then current.
Executor
A Will appoints an Executor. Your Executor is the person who represents you after your death and does everything necessary to carry out the instructions you have set out in your Will. In carrying out your instructions the Executor is referred to as administering your Estate.
Financial Planning
The service provided by a financial planner. This is a long-term service provided for clients that considers all their financial affairs and develops a plan to achieve their financial objectives. The plan would be regularly reviewed to ensure goals remain on target with modifications being made as necessary.
Financial Product
A financial product includes any of the following: interests in a managed investment scheme, derivatives, general insurance, life insurance, superannuation, basic deposit products and retirement savings accounts. For some purposes shares and debentures are also classed as financial products.
Financial Services Guide (FSG)
You must be given an FSG by an Australian financial services (AFS) licence holder or its authorised representative before you receive a financial service. In time critical cases, the services may be provided immediately and the FSG must then be provided within 5 days. The FSG explains the nature of financial services being offered, the fees charged and how the person providing the service deals with customer complaints.
Franked Dividend
A franked dividend is paid by a company out of profits on which the company has already paid tax. The investor is entitled to an imputation credit, or reduction in the amount of income tax that must be paid, up to the amount of tax already paid by the company.
Fund Manager
A commercial organisation that manages investors’ money for a fee. When the fund is a managed investment scheme, the fund manager is usually the responsible entity.
Holder Identification Number(HIN)
The HIN is the identifying number which links your personal details to your individual investments. The HIN is used by your broker (or other CHESS participant) to group your holdings together. It is made up of the letter X followed by ten numbers e.g. X0001234567. The HIN provides you with additional security for your investments. This number is very important and should be recorded and kept secure as it will need to be quoted in all dealings and communications with your broker and the share registry.
Independent Living
Is a residential living setting for elderly or senior adults that may or may not provide hospitality or supportive services. Under this living arrangement, the senior adult leads an independent lifestyle that requires minimal or no extra assistance.
Investment Choice
Investment choice is when you choose how the money in your portfolio is invested. Fund managers have different investment strategies that carry different levels of risk, and therefore, potentially different levels of return.
Last Sale
The last price at which the stock recorded a sale in the market before close of trading.
Listed Company’s Shares
Listed company’s shares can be bought and sold on the Australian Securities Exchange (ASX). A requirement of listing is that the company agrees to abide by the ASX rules.
Managed Fund
A managed fund is made up of a pool of money which allows people with similar investment goals to individually invest an amount of money into the fund. Managed funds are also known as managed investments schemes, managed investments or unit trusts and are managed by professional fund managers.
Margin Call
If the listed prices of shares or units fall below a level that would cover a certain percentage of a lender’s loan to you, then the lender will ask you to contribute the difference.
Market Capitalisation
The market value of a company, calculated by multiplying the number of shares on issue by the market price of these shares at a given point in time.
Net Tangible Assets (NTA)
This refers to the net physical assets owned by a company at balance date. It is used to calculate the asset value per share, by indicating what would happen if all net assets were liquidated, debts repaid and then the remainder divided up amongst shareholders on a cents per share basis.
Non-Commutable
A non-commutable allocated pension (NCAP) is an allocated pension that can be purchased with preserved superannuation benefits. It provides a flexible and tax-effective way for people to access their superannuation benefits from preservation age (currently 55), without having to choose between full-time employment and full-time retirement. You cannot withdraw lump sums from this income stream.
Nursing Home (Long Term Care)
Provides 24-hour skilled care for the more acute patients. Patients generally rely on assistance for most or all daily living activities (such as bathing, dressing and toileting).
Option
An option is a contract between two parties giving the taker (buyer) the right, but not the obligation, to buy or sell an underlying asset at a particular price on or before a particular date. If the option is not exercised, the buyer/seller forfeits the money paid for the option (the option premium).
Ordinary Shares
The most commonly traded security in Australia. Holders of ordinary shares are part-owners of a company and may receive payments called dividends, if the company trades profitably. Ordinary shares have no preferential rights to either dividends out of profits or capital, on the winding up of a company.
Oversubscribed
When the value of share applications received in a company float is more than the number available to be issued.
Paid Up Capital
The amount paid by shareholders or recorded as paid on issued shares.
PE Ratio
Or Price to Earnings Ratio. The number of times the earnings per share is covered by the share price. It is commonly used to measure how attractive a share is to investors, and to compare shares in one company with another. The lower the ratio relative to the average of the sharemarket, the lower the (market’s) profit growth expectations. Calculated by: Market price of shares / Earnings per Share = P/E Ratio.
Pensions
Pensions are only available from superannuation funds and can only be purchased with superannuation money (that is money paid out from a superannuation fund or retirement savings account.
Personal Advice
Financial advice that takes into account your personal objectives, financial situation or needs.
Portfolio
Holding a portfolio is part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced. The assets in the portfolio could include stocks, bonds, options, warrants, real estate, futures contracts, production facilities, or any other item that is expected to retain its value.
In building up an investment portfolio a financial institution will typically conduct its own investment analysis, whilst a private individual may make use of the services of a financial advisor or a financial institution which offers portfolio management services.
Power of Attorney
There are currently 3 main types of Powers of Attorney: Financial – where you appoint an attorney or attorneys to make financial decisions on your behalf if you are absent (eg. Overseas), ill or physically or mentally incapacitated. Eg. Paying bills, lodging tax returns. Medical – where you appoint an attorney, with the option of one substitute attorney, to make medical decisions on your behalf (eg. An operation or a decision on life support). Guardianship – where you appoint an attorney to make decisions on your daily living requirements (eg. Whether you be admitted into a nursing home or not).
Principal
A principal holds a license and authorises an agent (representative) to act on its behalf. The agent may be an employee or someone external to the licence holder. Only agents external to the licence holder are called authorised representatives. Employees and authorised representatives are collectively called ‘representatives’.
Product Disclosure Statement (PDS)
The document that the issuer of a financial product must provide to potential investors of the product. It gives information about the issuer, benefits, risks and costs of the product and certain other information.
Property Trust
A type of collective investment (investors pool their money together and a professional manager operates the scheme) which invests in residential or commercial properties.
Prospectus
The document that must usually be issued by a company seeking to raise money from the public. It gives details of the financial and management status of the company.
Reasonable Benefit Limit (RBL)
The RBL system was abolished on 1 July 2007. Before 1 July 2007 RBLs related to the system for taxing superannuation and other benefits.
Redundancy
Redundancy is the temporary suspension or permanent termination of employment of an employee or (more commonly) a group of employees for business reasons, such as the decision that certain positions are no longer necessary or a business slow-down or interruption in work. However, in recent times the term can also refer to the permanent elimination of a position.
Responsible Entity
A licensed entity or body that operates a managed investment scheme.
Return
The amount you make on your investment. Often refers to the annual amount you receive, eg a dividend.
Return on Assets (ROA)
In analysing shares as investments, return on assets is calculated to show how much profit a company is making on the assets used in its business. Return on assets = (Earnings before interest & tax / Total assets) ×100.
Return on Equity (ROE)
In analysing shares as investments, return on equity is calculated to show the return the company has made for shareholders on their investment. Shareholders’ equity normally excludes intangible assets such as goodwill, and is calculated by deducting total liabilities and intangibles from total assets. Return on equity = (After-tax profits / Shareholders’ equity) ×100.
Reversionary Beneficiary
A reversionary beneficiary is someone to whom the retirement income stream will continue to be paid following the death of the original purchaser.
Rights Issue
When a company provides existing shareholders the opportunity to buy more shares in the company at a discounted rate and without the need to buy through a broker. Also known as a Share Purchase Plan.
SEATS
SEATS is the Stock Exchange’s Automated Trading System provided for the trading of securities on the ASX.
Securities
For financial markets these are the many types of financial instruments (that is documents) which are traded in financial markets (except futures contracts). For example, bonds, shares
Securities Exchange
(see Sharemarket)
Securityholder Reference Number
SRN stands for Securityholder Reference Number, which is allocated by an Issuer to identify a Holder on an Issuer Sponsored or Certificated Subregister.
Shares
A share is simply a part-ownership of a company. If, for example, a company has issued a million shares, and you own ten thousand shares in it, then you own one per cent of the company. As a part-owner of a company, you are investing in the management of the company. You should invest in companies you feel confident are well run.
Sharemarket
At its most basic, the stock market (or stock exchange) is a market which brings together people who want to buy shares in a company, and those who want to sell their shares. The laws of supply and demand determine the prices buyers and sellers settle on. The companies that use the service provided by the stock market, ie their shares can be bought and sold on the Stock Exchange, are referred to as listed companies.
Although providing a market for the buying and selling of shares in listed companies is the core activity of the Australian Securities Exchange, it also provides a market for a growing number of secondary products derived from shares (called ‘derivatives’) such as options and warrants. If you want information about these more complex products, we recommend you speak to your stockbroker.
Share Purchase Plan
Share purchase plans (SPPs) offer existing shareholders in a listed company the opportunity to purchase more shares in that company, without brokerage fees. As a further enticement to invest, the shares are also usually offered to existing shareholders at a discount to the current market price.
Share Trading
Buying and Selling of shares through the Australian Stock Exchange.
Speculative
The speculative deal involves taking a big risk, but deliberately so, in the hope of making an extraordinary gain.
Statement of Advice (SOA)
When you receive personal advice from an Australian financial services (AFS) licensee or its authorised representative then you will be given a Statement of Advice as well as a financial services guide. The Statement of Advice records the advice you have been given and explains the basis for the advice.
Stock Exchange
(see Sharemarket)
Takeover
When one company acquires shares in another company in order to get a controlling interest in that company.
Tax Return
Individuals and taxpaying entities with taxable income might need to lodge different returns with the Australian Taxation Office (ATO) in respect of various forms of taxation.
Term Allocated Pension (TAP)
A TAP pays your super back to you periodically for a set period. The amount you receive depends on how much money you have available, the life expectancy used and the term you set for the payments.
Trust Account
The account where an adviser, solicitor or other professional holds a client’s money on behalf of them. The trust account is usually used to park a client’s money until they decide how they want to invest their money.
Unit
When you invest in a managed investment scheme, you hold units in the scheme. The units may fluctuate in value depending on the market performance of the underlying assets of the scheme.
Warrant
A certificate giving you the right to buy shares at a stipulated price within a specified time.
Will
A Will is a document that contains your instructions on how you want your property to be distributed after your death.