Financial Terms
Earnings per share of common stock

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Definition of Earnings per share of common stock

Earnings Per Share Of Common Stock Image 1

Earnings per share of common stock

How much profit a company made on each share of common stock this year.



Related Terms:

PPF (periodic perpetuity factor)

a generalization formula invented by Abrams that is the present value of regular but noncontiguous cash flows that have constant growth to perpetuity.


Accounting earnings

earnings of a firm as reported on its income statement.


Acquisition of stock

A merger or consolidation in which an acquirer purchases the acquiree's stock.


Adjustable rate preferred stock (ARPS)

Publicly traded issues that may be collateralized by mortgages and MBSs.


American shares

Securities certificates issued in the U.S. by a transfer agent acting on behalf of the foreign
issuer. The certificates represent claims to foreign equities.



American Stock Exchange (AMEX)

The second-largest stock exchange in the United States. It trades
mostly in small-to medium-sized companies.


Annual fund operating expenses

For investment companies, the management fee and "other expenses,"
including the expenses for maintaining shareholder records, providing shareholders with financial statements,
and providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are included.


Earnings Per Share Of Common Stock Image 2

Annual percentage rate (APR)

The periodic rate times the number of periods in a year. For example, a 5%
quarterly return has an APR of 20%.


Annual percentage yield (APY)

The effective, or true, annual rate of return. The APY is the rate actually
earned or paid in one year, taking into account the affect of compounding. The APY is calculated by taking
one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate
has an APY of 12.68% (1.01^12).


Annualized holding period return

The annual rate of return that when compounded t times, would have
given the same t-period holding return as actually occurred from period 1 to period t.


Auction rate preferred stock (ARPS)

Floating rate preferred stock, the dividend on which is adjusted every
seven weeks through a Dutch auction.


Authorized shares

Number of shares authorized for issuance by a firm's corporate charter.


Average collection period, or days' receivables

The ratio of accounts receivables to sales, or the total
amount of credit extended per dollar of daily sales (average AR/sales * 365).


BARRA's performance analysis (PERFAN)

A method developed by BARRA, a consulting firm in
Berkeley, Calif. It is commonly used by institutional investors applying performance attribution analysis to
evaluate their money managers' performances.


Beta equation (Stocks)

The beta of a stock is determined as follows:
[(n) (sum of (xy)) ]-[(sum of x) (sum of y)]
[(n) (sum of (xx)) ]-[(sum of x) (sum of x)]
where: n = # of observations (24-60 months)
x = rate of return for the S&P 500 Index
y = rate of return for the stock


Book value per share

The ratio of stockholder equity to the average number of common shares. Book value
per share should not be thought of as an indicator of economic worth, since it reflects accounting valuation
(and not necessarily market valuation).


Earnings Per Share Of Common Stock Image 3

Capital market imperfections view

The view that issuing debt is generally valuable but that the firm's
optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net
corporate/personal tax, agency cost, bankruptcy cost, and pecking order), which result from considerations of
asymmetric information, asymmetric taxes, and transaction costs.


Cash flow from operations

A firm's net cash inflow resulting directly from its regular operations
(disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing
securities), calculated as the sum of net income plus non-cash expenses that were deducted in calculating net
income.



Cash flow per common share

Cash flow from operations minus preferred stock dividends, divided by the
number of common shares outstanding.


Commercial paper

Short-term unsecured promissory notes issued by a corporation. The maturity of
commercial paper is typically less than 270 days; the most common maturity range is 30 to 50 days or less.


Committee, AIMR Performance Presentation Standards Implementation Committee

The Association for Investment Management and Research (AIMR)'s performance Presentation Standards Implementation
Committee is charged with the responsibility to interpret, revise and update the AIMR performance
Presentation Standards (AIMR-PPS(TM)) for portfolio performance presentations.


Common market

An agreement between two or more countries that permits the free movement of capital
and labor as well as goods and services.


Common stock

These are securities that represent equity ownership in a company. common shares let an
investor vote on such matters as the election of directors. They also give the holder a share in a company's
profits via dividend payments or the capital appreciation of the security.


Common stock/other equity

Value of outstanding common shares at par, plus accumulated retained
earnings. Also called shareholders' equity.


Common stock equivalent

A convertible security that is traded like an equity issue because the optioned
common stock is trading high.


Common stock market

The market for trading equities, not including preferred stock.


Common stock ratios

Ratios that are designed to measure the relative claims of stockholders to earnings
(cash flow per share), and equity (book value per share) of a firm.


Common-base-year analysis

The representing of accounting information over multiple years as percentages
of amounts in an initial year.
common-size analysis The representing of balance sheet items as percentages of assets and of income
statement items as percentages of sales.



Compounding period

The length of the time period (for example, a quarter in the case of quarterly
compounding) that elapses before interest compounds.


Conflict between bondholders and stockholders

These two groups may have interests in a corporation that
conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective
covenants work to resolve these conflicts.


Convertible exchangeable preferred stock

Convertible preferred stock that may be exchanged, at the
issuer's option, into convertible bonds that have the same conversion features as the convertible preferred
stock.


Convertible preferred stock

Preferred stock that can be converted into common stock at the option of the holder.


Credit period

The length of time for which the customer is granted credit.


Cumulative preferred stock

Preferred stock whose dividends accrue, should the issuer not make timely
dividend payments. Related: non-cumulative preferred stock.


Direct paper

Commercial paper sold directly by the issuer to investors.


Direct stock-purchase programs

The purchase by investors of securities directly from the issuer.


Discount period

The period during which a customer can deduct the discount from the net amount of the bill
when making payment.


Discounted payback period rule

An investment decision rule in which the cash flows are discounted at an
interest rate and the payback rule is applied on these discounted cash flows.


Dividends per share

Amount of cash paid to shareholders expressed as dollars per share.


Dividend yield (Stocks)

Indicated yield represents annual dividends divided by current stock price.


Dividends per share

Dividends paid for the past 12 months divided by the number of common shares
outstanding, as reported by a company. The number of shares often is determined by a weighted average of
shares outstanding over the reporting term.


Earnings

Net income for the company during the period.


Earnings before interest and taxes (EBIT)

A financial measure defined as revenues less cost of goods sold
and selling, general, and administrative expenses. In other words, operating and non-operating profit before
the deduction of interest and income taxes.


Earnings per share (EPS)

EPS, as it is called, is a company's profit divided by its number of outstanding
shares. If a company earned $2 million in one year had 2 million shares of stock outstanding, its EPS would
be $1 per share. The company often uses a weighted average of shares outstanding over the reporting term.


Earnings retention ratio

Plowback rate.


Earnings surprises

Positive or negative differences from the consensus forecast of earnings by institutions
such as First Call or IBES. Negative earnings surprises generally have a greater adverse affect on stock prices
than the reciprocal positive earnings surprise on stock prices.


Earnings yield

The ratio of earnings per share after allowing for tax and interest payments on fixed interest
debt, to the current share price. The inverse of the price/earnings ratio. It's the Total Twelve Months earnings
divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is
shown in percentage.


Economic earnings

The real flow of cash that a firm could pay out forever in the absence of any change in
the firm's productive capacity.


Employee stock fund

A firm-sponsored program that enables employees to purchase shares of the firm's
common stock on a preferential basis.


Employee stock ownership plan (ESOP)

A company contributes to a trust fund that buys stock on behalf of
employees.


Euro-commercial paper

Short-term notes with maturities up to 360 days that are issued by companies in
international money markets.


Evaluation period

The time interval over which a money manager's performance is evaluated.


Exchange of stock

Acquisition of another company by purchase of its stock in exchange for cash or shares.


Expected value of perfect information

The expected value if the future uncertain outcomes could be known
minus the expected value with no additional information.


FHA prepayment experience

The percentage of loans in a pool of mortgages outstanding at the origination
anniversary, based on annual statistical historic survival rates for FHA-insured mortgages.


Fully diluted earnings per shares

earnings per share expressed as if all outstanding convertible securities
and warrants have been exercised.


Funds From Operations (FFO)

Used by real estate and other investment trusts to define the cash flow from
trust operations. It is earnings with depreciation and amortization added back. A similar term increasingly
used is Funds Available for Distribution (FAD), which is FFO less capital investments in trust property and
the amortization of mortgages.


Growing perpetuity

A constant stream of cash flows without end that is expected to rise indefinitely.


Growth stock

common stock of a company that has an opportunity to invest money and earn more than the
opportunity cost of capital.


Holding period

Length of time that an individual holds a security.


Holding period return

The rate of return over a given period.


Income statement (statement of operations)

A statement showing the revenues, expenses, and income (the
difference between revenues and expenses) of a corporation over some period of time.


Income stock

common stock with a high dividend yield and few profitable investment opportunities.


Issued share capital

Total amount of shares that are in issue. Related: outstanding shares.


Letter stock

Privately placed common stock, so-called because the SEC requires a letter from the purchaser
stating that the stock is not intended for resale.


Listed stocks

stocks that are traded on an exchange.


Low price-earnings ratio effect

The tendency of portfolios of stocks with a low price-earnings ratio to
outperform portfolios consisting of stocks with a high price-earnings ratio.


Listed stocks

stocks that are traded on an exchange.


Management/closely held shares

percentage of shares held by persons closely related to a company, as
defined by the Securities and exchange commission. Part of these percentages often is included in
Institutional Holdings -- making the combined total of these percentages over 100. There is overlap as
institutions sometimes acquire enough stock to be considered by the SEC to be closely allied to the company.


Margin account (Stocks)

A leverageable account in which stocks can be purchased for a combination of
cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock
drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin
rules are federally regulated, but margin requirements and interest may vary among broker/dealers.


Multiperiod immunization

A portfolio strategy in which a portfolio is created that will be capable of
satisfying more than one predetermined future liability regardless if interest rates change.


Net operating losses

Losses that a firm can take advantage of to reduce taxes.


Net operating margin

The ratio of net operating income to net sales.


Net period

The period of time between the end of the discount period and the date payment is due.


Neutral period

In the Euromarket, a period over which Eurodollars are sold is said to be neutral if it does not
start or end on either a Friday or the day before a holiday.


New York Stock Exchange (NYSE)

Also known as the Big Board or The Exhange. More than 2,00 common
and preferred stocks are traded. The exchange is the older in the United States, founded in 1792, and the
largest. It is lcoated on Wall Street in New York City


Non-cumulative preferred stock

Preferred stock whose holders must forgo dividend payments when the
company misses a dividend payment.
Related: Cumulative preferred stock


Open-market operation

Purchase or sale of government securities by the monetary authorities to increase or
decrease the domestic money supply.


Open-market purchase operation

A systematic program of repurchasing shares of stock in market
transactions at current market prices, in competition with other prospective investors.


Operating cash flow

earnings before depreciation minus taxes. It measures the cash generated from
operations, not counting capital spending or working capital requirements.


Operating cycle

The average time intervening between the acquisition of materials or services and the final
cash realization from those acquisitions.


Operating exposure

Degree to which exchange rate changes, in combination with price changes, will alter a
company's future operating cash flows.


Operating profit margin

The ratio of operating margin to net sales.


Operating lease

Short-term, cancelable lease. A type of lease in which the period of contract is less than the
life of the equipment and the lessor pays all maintenance and servicing costs.


Operating leverage

Fixed operating costs, so-called because they accentuate variations in profits.


Operating risk

The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is
created by operating leverage. Also called business risk.


Operationally efficient market

Also called an internally efficient market, one in which investors can obtain
transactions services that reflect the true costs associated with furnishing those services.


Outstanding share capital

Issued share capital less the par value of shares that are held in the company's treasury.


Outstanding shares

shares that are currently owned by investors.


Overperform

When a security is expected to appreciate at a rate faster than the overall market.


Paper

Money market instruments, commercial paper and other.


Paper gain (loss)

Unrealized capital gain (loss) on securities held in portfolio, based on a comparison of
current market price to original cost.


Perfect capital market

A market in which there are never any arbitrage opportunities.


Perfect competition

An idealized market environment in which every market participant is too small to affect
the market price by acting on its own.


Perfect hedge

A financial result in which the profit and loss from the underlying asset and the hedge position
are equal.


Perfect market view (of capital structure)

Analysis of a firm's capital structure decision, which shows the
irrelevance of capital structure in a perfect capital market.


Perfect market view (of dividend policy)

Analysis of a decision on dividend policy, in a perfect capital
market environment, that shows the irrelevance of dividend policy in a perfect capital market.


Perfectly competitive financial markets

Markets in which no trader has the power to change the price of
goods or services. perfect capital markets are characterized by the following conditions: 1) trading is costless,
and access to the financial markets is free, 2) information about borrowing and lending opportunities is freely
available, 3) there are many traders, and no single trader can have a significant impact on market prices.


Perfected first lien

A first lien that is duly recorded with the cognizant governmental body so that the lender
will be able to act on it should the borrower default.



 

 

 

 

 

 

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