Glossary of Financial Terms, Acronyms and Buzzwords for Investment Clubs in Zambia

 

Term	Definition
80/20 Rule:	Also known as the ‘Pareto principle’ or ‘law of the vital few’. It states that  80% of outcomes can be attributed to 20% of the causes for a given event. It helps  to identify problems and determine which operating factors are most important and should receive the most attention based on an efficient use of resources.
Angel Investing:	An angel investor is an individual who makes direct investments of personal funds into a venture, typically early-stage businesses. Because the capital is being invested at a risky time in a business venture, the angel must be capable of taking a loss of the entire investment, and, as such, most angel investors are high-net-worth individuals.
Annual General Meeting (AGM:) -	It is a mandatory meeting held annually by law by all  public companies and to which all shareholders are invited to attend, to discuss the affairs and performance of their companies.
AIMS: Alternative Investment Market Segment –	Enables smaller companies to raise capital and have their shares traded in the NSE without the expenses of a main-market listing.
Assets:	Economic resources that represent value of ownership that can be converted into cash (although cash itself is also considered an asset).
Bank:	An institution where one can place and borrow money and take care of financial affairs.
Bear Market:	A market in which bears would prosper- in which the prices of securities are falling;
Blue Chip:	Term for the most highly regarded shares. Originally an American term, derived from the colour of the highest value poker chip.
Bonus:	These are shares given to existing shareholders at a specified ratio and paid from the company’s normal revenue reserve.
Bull Market:	One in which bulls would prosper-in which prices are rising or are  expected to rise; An investor who has bought a security in the hope of selling it at a higher price.
Capital Gains:	Profit that results from the difference between what you paid for an investment and what received when you sold that investment..
Capital:	Money and wealth; the means to acquire goods and services, especially in a non-barter system.
CMA: Capital Market Authority:	A government agency that facilitates regulates and oversees the activities of the capital markets in Kenya.
CDS: Central Depository System	This is the register for listing, and storing details of securities (equities and bonds), for the purposes of trading in the financial market.
	Champion: An individual in the Investment club who identifies with the vision of the group very closely and hence is willing to sacrifice, lead and work for it with a passion undeterred by the actual costs (especially in time) to their self.
Credit:	A privilege of delayed payment extended to a buyer or borrower on the seller’s or lender’s belief that what is given will be repaid.\
Corporate Bonds:	A debt security issued by a company and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company’s physical assets may be used as collateral for bonds. Many corporates favour the floating rate bond. Zero coupon bonds are favoured by Commercial Banks.
Cash Position:	The amount of cash available to a company at a given point in time.
Call Deposit:	The account runs for a minimum period (i.e. Seven days) after which the contract period is open ended. A pre-agreed notice may be required before the deposit plus interest can be withdrawn. Interest is paid when the deposit is ‘called’ or withdrawn.
Capital Gain/Loss:	Since Treasury bonds trade at the NSE, investors may sell/buy them when prices become favorable. A capital gain is realized when the selling price at secondary market is higher than the buying price at primary market. The reverse is true for capital loss.
Clawback :	A clawback obligation represents the general partner’s promise that, over the life of the fund, the managers will not receive a greater share of the fund’s distributions than they bargained for. Generally, this means that the general partner may not keep distributions re p resenting more than a specified percentage (e.g., 20%) of the fund’s cumulative profits, if any. When triggered, the clawback will require that the general partner return to the fund’s limited partners an amount equal to what is determined to be “excess” distributions.
Corporate Charter	: The document prepared when a corporation is formed. The Charter sets forth the objectives and goals of the corporation, as well as a complete statement of what the corporation can and cannot do while pursuing these goals.
Corporate Resolution:	A document stating that the corporation’s board of directors has authorized a particular individual to act on behalf of the corporation.
Corporation:	A legal, taxable entity chartered by a state or the federal government. Ownership of a corporation is held by the stockholders.
Coupon Rate:	The amount of interest paid per year as a percentage of the face value or principal.
Depreciation :	An expense recorded to reduce the value of a long-term tangible asset. Since it is a non-cash expense, it increases free cash flow while decreasing the amount of a company’s reported earnings.
Dilution:	A reduction in the percentage ownership of a given shareholder in a company caused by the issuance of new shares.
Director:	Person elected by shareholders to serve on the board of directors. The directors appoint the president, vice president and all other operating officers, and decide when dividends should be paid (among other matters).
Diversification:	The process of spreading investments among various types of securities and various companies in different fields.
Drag-Along Rights:	A majority shareholders’ right, obligating shareholders whose shares are bound into the shareholders’ agreement to sell their shares into an offer the majority wishes to execute.
Due Diligence:	A process undertaken by potential investors — individuals or institutions — to analyze and assess the desirability, value, and potential of an investment opportunity.
Dividend:	Payments made by a company to its shareholders, usually made periodically i.e. quarterly or annually. The amount of these payments depends on the underlying  earnings of the business.
Disclosure Document:	A booklet outlining the risk factors associated with an investment.
Diversification:	The process of spreading investments among various types of securities and various companies in different fields.
Drag-Along Rights:	A majority shareholders’ right, obligating shareholders whose shares are bound into the shareholders’ agreement to sell their shares into an offer the majority wishes to execute.
Due Diligence:	A process undertaken by potential investors — individuals or institutions — to analyze and assess the desirability, value, and potential of an investment opportunity.
Equity:	Ownership, especially in terms of net monetary value, of a business. A stock or any other security representing an ownership interest.
EBITDA:	Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of cash flow calculated as: = Revenue - Expenses (excluding tax, interest, depreciation, and amortization). EBITDA looks at the cash flow of a company. By not including interest, taxes, depreciation, and amortization, we can clearly see the amount of money a company brings in. This is especially useful when one company is considering a takeover of another because the EBITDA would cover any loan payments needed to finance the takeover.
Elevator Pitch:	An extremely concise presentation of an entrepreneur’s idea, business model, company solution, marketing strategy, and competition delivered to potential investors. Should not last more than a few minutes, or the duration of an elevator ride.
Equity:	Ownership in the capital of a Company. In corporations, it is called “stock”; in limited partnerships or LLCs, it is called “interests” or “units.”
Exit Strategy:	A fund’s intended method for liquidating its holdings while achieving the maximum possible return. These strategies depend on the exit climates, including market conditions and industry trends. Exit strategies can include selling or distributing the portfolio company’s shares after an initial public offering (IPO), a sale of the portfolio company, or a recapitalization.
Fixed Deposit	: They run like the Call Deposit accounts but for a longer period i.e. a minimum period of one month to a maximum of one year.
Flipping:	The act of buying shares in an IPO and selling them immediately for a profit. Brokerage firms underwriting new stock issues tend to discourage flipping and will often try to allocate shares to investors who intend to hold on to the shares for some time. However, the temptation to flip a new issue once it has risen in price sharply is too irresistible for many investors who have been allocated shares in a hot issue.
Free cash flow	: The cash flow of a company available to service the capital structure of the firm. Typically measured as operating cash flow less capital expenditures and tax obligations.
Finance:	To provide or obtain funding for a transaction or undertaking. GEMS: Growth Enterprise Market Segment- a new market listing for small and medium enterprises on the NSE
Holding Company:	A corporation that owns the securities of another, in most cases with voting control.
Institutional Investors:	Organizations that professionally invest, including insurance companies, depository institutions, pension funds, investment companies, mutual funds, and endowment funds.
IRR: Internal Rate of Return.	A typical measure of how VC Funds measure performance. IRR is technically a discount rate: the rate at which the present value of a series of investments is equal to the present value of the returns on those investments.
Inflation:	An increase in the general level of prices or in the cost of living. Inflation is  a rise in the general level of prices of goods and services in an economy over a period of time.
Interest:	The price paid for obtaining, or price received for providing, money or goods in a credit transaction, calculated as a fraction of the amount or value of what was borrowed.
Investment committee:	The committee of an investment club that decides which investment opportunities will or will not be invested in.
Investment:	A placement of capital in expectation of deriving income or profit from its use.
Issuer:	The company or government selling the security.
Liabilities:	An amount of money in a company that is owed to someone and has to be paid in the future, such as tax, debt, interest, and mortgage payments.
Liquidity:	Availability of cash over short term: ability to service short-term debt.
Market capitalization:	A measure of the value of a company, calculated by multiplying the number of either the outstanding shares or the floating shares by the current price per share. Market capitalization, or cap, is one of the criteria investors use to choose a varied portfolio of stocks, which are often categorized as small, mid and large-cap.
MIMS:	Main Investments Market Segment the main market listing on the NSE
Maturity:	Date when payment is due.
Money market:	A market for trading short-term debt instruments, such as treasury bills and commercial paper
Net Income:	The net earnings of a corporation after deducting all costs of selling, depreciation, interest expense, and taxes.
Net Present Value:	An approach used in capital budgeting where the present value of cash inflow is subtracted from the present value of cash outflows. NPV compares the value of a dollar today versus the value of that same dollar in the future after taking inflation and return into account.
Partnership:	A nontaxable entity in which each partner shares in the profits, losses, and liabilities of the partnership. Each partner is responsible for the taxes on its share of
Par:	The nominal value of a security
Par Value:	The stated value or amount of money a holder will get back once a bond matures; a bond can be sold at par, at premium, or discount.
Par Price:	This is when the offer price equals the face value. In this case, the quoted yield equals the coupon rate.
Portfolio:	The group of investments and other assets held by an investor or Investment club.
Primary Market:	This refers to the purchase of shares in an Initial Public Offering  (IPO), whereby a company offers its shares to members of the public for the first time and those wishing to acquire securities apply to that company or institution.
Principal:	The money originally invested or loaned, on which basis interest and returns are calculated.
	Private Company: A company that is not publicly traded.
Private Equity:	Capital invested in companies that are not listed on the stock exchange. This sort of capital is called risk capital or venture capital.
Privatization:	Conversion of a state run company to public limited company status often accompanied by a sale of its share to the public.
Prospectus:	A prospectus is a document, notice, circular or advertisement inviting the public to purchase any shares or securities of a company.
Public Company:	A company that has securities that have been sold in a registered offering and that are traded on a stock exchange. Must be a Reporting Company under SEC rules. Often used incorrectly to describe companies that are only Reporting Companies and that have not conducted a registered offering under Securities Act.
REITS:	Real Estate Investment Trusts, a company formed and registered as a trust, to pool resources for investing in real estate sector.
Return on Investment (ROI):	The profit or loss resulting from an investment transaction, usually expressed as an annual percentage return. ROI is a return ratio that compares the net benefits of a project versus its total costs.
Rights Issue (Offering):	An issue of rights to a company’s existing shareholders that entitles them to buy additional shares directly from the company in proportion to their existing holdings, within a fixed time period. The price of the share is usually at a discount to the current market price. Rights are often transferable, allowing the holder to sell them on the open market.
Risk:	The potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome).
Rule of 72:	A way of finding out how long it will take for your investment to double. Divide an investment’s annual return into 72, and you will have the number of years necessary to double your investment. For instance, if an investment’s annual return is 10%. Ten percent divided into 72 is 7.2, so your investment will double in 7.2 years.
Secondary market:	The financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold.
Shareholder:	Same as a stockholder and is the co-owner of a business. Depending on the value of the business at the point of investment, the shareholder invests money in the business in return for an X percentage of the shares and thereby X percentage of the profit made during their co-ownership.
Stock Exchange:	A form of exchange that provides services for stock brokers and traders to trade stocks, bonds and other securities. It can also be known as a securities exchange.
Stockbroker:	A person who buys and sells shares (stock/security) on a stock exchange on behalf of clients. May also provide investment advice and/or company information, depending on the level of service offered or chosen by the client.
Treasury Bonds:	Issued by the government promising to pay a certain amount (the face value) on a certain date as well as periodic interest payments.
Volatility:	A quantification of the degree of uncertainty about the future price of a commodity, share, or other financial product.
Yield:	Amount in cash that returns to the owners of a security.
Offshore Investment:	Investments that are housed in a country other than the investor’s country of residence. Most investors consider this in order to capitalize on advantages offered outside of an investor’s home country. Popular offshore centers are Switzerland, Isle of Man, Cayman Island, Bermuda, Mauritius and Belize.
Venture Capital Financing:	An investment in a startup business that is perceived to have excellent growth prospects but does not have access to capital markets. Type of financing sought by early-stage companies seeking to grow rapidly.