ACID TEST RATIO:
An accounting ratio which determines whether a company can meet its
short-term obligations. It consists of current assets as shown on the
balance sheet less stocks expressed as a ratio of current liabilities.
If this is positive, the company can meet its current liabilities out of
liquid assets held.
Exists when one company takes either a substantial or majority
shareholding position in another.
A share which trades substantial volumes is said to be active.
These are indicators expressed in the form of an index which track the
general movement of the whole market and various sectors such as gold,
industrials etc. The formula, developed by the Actuarial Society of
South Africa, gives a weighting to shares in the index according to
their market capitalisation. Not Overalls form part of the overall
index, but only a representative selection.
AFTER TAX PROFIT
The net profit of a company after income tax has been deducted.
The index reflecting the movement in the gold sector as described in the
actuaries index above.
ANNUAL GENERAL MEETING
A statutory meeting which each company must hold once a year where the
shareholders approve the accounts, adopt the annual report, approve the
proposed dividend, confirm the appointment of auditors and re-elect
Each company must produce an annual report on activities which include
financial statements for its AGM.
This depicts the amount of loss the department of finance acknowledges
that a company has sustained. It may be carried forward against future
profits and thus reduce the company's forward tax liability.
These represent the entities that a company keeps. For example plant and
machinery, buildings, land etc., which are described as fixed assets.
Also on the balance sheet are 'current assets' which are entities such
as cash on hand, stock in trade and debtors.
Usually another company in which the main company has a substantial
interest but less than 50%, as this would convert it into a subsidiary
company over which it exercises control.
This is the profits available for distribution to shareholders after the
deduction of company tax, preference dividends and any other provisions.
Outside shareholders' interests would also have to be deducted. This
represents the shareholders who are also owners of an associated
Required by law for every company whether listed on the JSE or not. It
is the outside accountant's examination of the corporate records and his
subsequent report as to whether it has complied with all the provisions
of the Companies Act and the Income Tax Act and any other relevant
legislation. Sometimes, where the directors and the auditors disagree,
the auditors may issue a 'qualified' audit report which is a warning to
This is the amount of share capital authorised to be issued to
shareholders. Most companies have a higher authorised capital than
issued capital, which allows them to issue more shares without having to
go to the trouble of increasing the authorised capital.
Usually appears in company balance sheets as a provision for bad debts.
Companies advancing credit (such as banks and retailers) know that a
certain percentage will not be recoverable and, based on historical
data, is usually written off from profits before it even occurs.
Subsequent real bad debts are written off against this provision.
BALANCE OF PAYMENTS
This is like an individual's cash flow but applied to countries. The
inflow to a country is its revenue from exports, foreign investment and
income from the country's overseas investments. The outflow is repayment
of national debt, import payments and payment of dividends or interest
to foreign investors. The balance of these two figures creates either a
surplus or deficit on the current account.
Is one of the legal accounting documents that must be presented by a
company annually. Most companies produce two Ñ at their half year end
and at their year end. This represents all the assets that companies
keep such as land, buildings, plant and machinery and current assets. It
also shows the company's liabilities such as long-term loans, creditors
etc. The two sides must balance. More modern terms than assets and
liabilities are sources of capital and employment of capital.
This is an investment which is spread across various sectors of the
market to limit the exposure to any one sector to thus protect against
loss. For example a portfolio of gold only in 1997 would have sustained
heavy losses but a portfolio spread across gold, stores, industrial
holdings, property and say hotels and leisure would 'balance' itself
with the profits of the other sectors compensating for the gold losses.
The reverse may occur in future years if gold returns to a bull market.
A statistical graph which shows the highs and lows of shares each day by
means of a vertical bar.
Metals other than gold and silver such as aluminium copper, lead, nickel
and zinc. These are traded on the London Metal Exchange as well as other
A bear is a person who believes that shares or commodities are going to
decline. A bear market is when shares are generally all moving
downwards. For example, the 1997 gold share market.
Also known as selling short. This is where an investor believes that a
share is going to drop so he sells shares he does not yet own. He is
required to deliver these at the end of the account period and is forced
to purchase them at whatever the trading price is.
The price a buyer is prepared to pay for a share.
A top quality company with major market capitalisation which has a good
track record of increasing profits over the years. Blue chips on the JSE
include Anglo American Corporation, Liberty Life, Barlow etc.
BOARD OF DIRECTORS
These are the executive managers of a company appointed by the
shareholders each year. In practice, the ordinary investor has little
say in these matters as most companies are controlled by the directors
or companies who nominate these directors.
This is the value of the company's assets as reflected in the balance
sheet and is normally the original purchase price less accumulated
depreciation. In inflationary times, this usually is way lower than the
replacement or market value of the assets.
This is a technical analysis term which occurs when the share price of a
company has been moving sideways and suddenly breaks away either upwards
A stock broker who buys and sells shares on the exchange on behalf of a
client for a commission which is now negotiable.
A statement from your broker confirming the purchase or sale of shares.
The fixed fee and/or commissions charged to the client by the broker.
The opposite of a Bear. One who believes a share or the market will
rise. Thus a bull market is a rising market.
This is the right an investor may buy which gives him the option to buy
bonds or shares at a fixed price at a future date. If the price rises
within the period he may exercise his option and take the profit. If the
price declines he does not have to deliver, but he sacrifices his option
This is the original money provided by the shareholders plus added
undistributed profits plus any long-term loans.
The companion to a country's current account and reflects the inflow and
outflow of funds to purchase or sell capital assets.
The difference between the increased price of a share compared to the
purchase price, less brokerage. Capital Gains Tax was introduced in
South Africa on 1 October 2001. Before the introduction of CGT, if you
trade in and out of too many shares too frequently the SA Revenue
Service could deem you a 'dealer' and impose income tax on your profits.
Conversely, you can set off losses. Like property purchases and sales
this was a very 'grey' area and no clear definition of what 'too
frequently' means was available. Now all trades and purchases and sales
of property must be delared and will be subjected to Capital Gains Tax.
This occurs when a company issues 'bonus shares' out of undistributed
reserves. The shareholders get them free and thus own more shares, but
the price corrects downwards accordingly. It is often done to protect
against take-overs where the company wants to protect it's cash flow.
Is one made by a company to warn investors that negotiations are in
progress which could affect the share price and therefore investors
should beware. This is usually a takeover or merger negotiation. In
extreme cases the company may suspend its shares on the JSE while the
negotiations are in progress.
The last price of the day at which a share is traded.
Is a legal person in its own right, separate to the members. It can sue
and be sued. The word Limited means that the shareholders' liabilities
are limited to the amount they subscribe for, and should the company
liquidate, the creditors have no recourse against the shareholders'
The legal act regulating the formation, dissolution and management of
Where a parent company owns more than 50% of other companies, these
subsidiaries' accounts must be consolidated with the group income
statement and balance sheet.
A synonym for shares often used by brokers as an alternative term.
The period between the declaration of a dividend and the last day to
register. The new shareholder will be entitled to the dividend. Sold
after this date the shares become 'ex div' and the dividend will accrue
to the previous shareholder who has sold his shares.
CUMULATIVE PREFERENCE SHARES
These are preference shares where unpaid dividends (due to insufficient
profits) accumulate to future years.
Often in the press abbreviated to DM, it is the amount the share has
moved up or down on the day. It is usually expressed in cents with a +
or - sign to indicate which way.
Is another financial instrument through which a company borrows money
from the public at a fixed rate of interest. Debenture holders do not
participate in profits, but their right to interest has to be satisfied
before shareholders' dividends.
The relationship between the amount of capital supplied by the
shareholders and the amount provided from borrowing, expressed as a
Is a tax liability for the future arising from capital allowances or
revaluation of assets. It is a long-term liability and forms part of the
company's capital employed.
When a share is removed from the JSE's listing of shares.
DEVELOPMENT CAPITAL MARKET
A junior market on the JSE to encourage the listing of smaller
businesses which would not qualify for the 'Main Board' i.e. the rest of
the market sectors of the JSE.
Shares do not pay interest but a dividend, usually expressed in cents
per share. This is the amount of earnings which the directors believe
they are prudent to return to investors. Most companies retain the
greater portion of their earnings, thus enhancing the underlying value
of the shares.
The number of times the dividend is covered by the earnings. For an
example earnings of 10 cents per share and a dividend of 2 cents gives a
cover of five times.
Usually abbreviated to DY. The historic dividend in cents per share
divided by the current share price and expressed as a percentage.
EARNINGS PER SHARE
Abbreviated to eps, it is the after tax profits less extraordinary items
attributable to the ordinary shareholders divided by the average number
of shares in issue during a specific financial year.
EARNINGS YIELD (EY)
It is the percentage earnings per share bears to the current share
The opposite of cum dividend.
When a share is quoted on the market on any day after the last day to
register for rights issues.
FINANCIAL YEAR END
A company may decide when this is but in terms of the Companies Act must
produce audited accounts within three months of that date.
Immovable assets such as land, buildings, plant and machinery.
The science of share analysis which looks at the fundamental situation
of a company. It looks at capitalisation, debt equity retios, current
assets and liabilities and the situation in the market in which the
company trades. From this information an attempt is made to predict
whether the share price will rise or fall.
A government stock issued on the capital market. It is called a GILT as
it is backed by government. These are bought at amounts of R1 000 000 at
a fixed coupon or interest rate.
These enable the small investor to play the gilt market. He can buy gilt
options and bet against interest rates rising or falling and make good
profits if he guesses correctly.
This is an amount in excess of the tangible assets which a buyer pays
for the company. Goodwill would include such intangibles as staff,
customer base, brand names etc. Most shares on the JSE trade at well
above net asset value per share. This difference is really the value the
market is placing on the company's goodwill.
Earnings after all exceptional items and their tax effects are stripped
HISTORICAL DIVIDEND YIELD
This is the previous year's dividend expressed as a percentage of the
current market price.
These are the large scale investors such as Banks, Insurance companies
and unit trust companies.
A dividend paid out half way through a company's year, based on the
expectation of final profit. These are usually conservative so if a
company really expects to pay out 100 cents per share for the year they
would probably pitch the interim at say 40 cents to guard against any
adverse conditions during the second six months.
This must be produced by companies within three months of the end of the
half year. It resembles the annual report but is usually unaudited.
These appear under their own sector of the JSE listings. The do not
trade or manufacture but use their capital to invest in other shares,
very much like a unit trust except they are 'closed end' trusts in that
the number of shares in issue is limited. A unit trust is 'open ended'
and as many new units as are generated by fund inflows may be issued.
This is the portion of shares issued to shareholders. Most companies
have an authorised capital which is greater than the issued one. The
balance of the unissued shares may be issued later as bonus or rights
The Johannesburg Stock Exchange situated at 17 Diagonal Street; it is
the only Stock Exchange in South Africa.
A person who trades in and out of shares very actively in the hope of
making quick profits.
DAY TO REGISTER
After a declaration of a dividend a last day to register is nominated.
The person who is the registered owner of the shares on that day gets
the dividend. If a holder sells the day before, the new owner gets the
dividend, (see also cum div and ex div).
Those shares listed on the JSE which may be bought and sold by brokers
as distinct from PTY companies which are bought and sold by private
Debentures issued by companies and traded on the JSE. They receive
interest, not dividends, and such interest must be paid out whether the
company is profitable or not.
The value the market places on a company. The number of shares issued x
the ruling price on any day.
MARKETABLE SECURITIES TAX
This is a tax paid whenever shares are bought but not when they are
sold. It has currently been reduced to 0.25% of the value.
A statistical analysis tool. It is a graph which oscillates and gives
buy and sell signals accordingly.
A statistical analysis tool that gives buy and sell signals. A time span
is chosen, say 40 days. The average is the last forty days' prices
divided by 40. On day 41 a day is dropped and day 41 added and
re-divided and so on. The longer the period chosen, the smoother the
curve and the fewer buy and sell signals are generated.
This is the net worth of the company and represents the assets less the
liabilities. It is usually expressed in cents per share. Comparing it to
the quoted share price shows you whether the share is trading
This is when a company is listed on the JSE for the first time. The
price is arbitrarily fixed usually at a discount to the expected market
price. On the first day of trading a popular share may often double in
price (see also Stags).
These are issued by companies launching a Rights Issue. (see Rights
issues). They represent the current shareholders' rights to buy extra
new shares based on a ratio to their current holding, usually at a
discount. They are traded on the JSE up to the last day for registration
and the shareholder has the option to follow his rights or give them up
and sell them for cash. He thus reduces the original cost of his shares
but dilutes his equity stake in the company.
If you look in the JSE handbook at any company's major shareholders you
will often see Standard Bank Nominees or First National Nominees listed.
This means that the real shareholders, who don't wish to be known
publicly, are in effect 'hiding' behind a nominee company. This makes it
possible for one company looking at taking over another, to accumulate a
substantial number of shares in the victim company without being
identified. In London this only works to a limited degree as once you
acquire 10% of any listed company you have to declare your interest
These are reserves which may not be distributed to shareholders. For
example, retained earnings may be used at a later stage to make a bonus
issue of shares in order to bring the issued share capital more into
line with the actual worth of the company. Non distributable reserves
occur when a company re-values its fixed assets such as land or plant
and machinery or buildings. If, for example, a company has a building on
its books which cost Rl million and is now depreciated to say R0.8
million but has a market value of say R3 million. The company may do an
accounting entry of increasing the building to R3 million and posting
the opposite entry to Capital (or non distributable) reserves of R2.2
This is the price at which a shareholder is willing to sell his shares.
Another statistical tool described in the course to obtain buy and sell
This is an instrument, which, at a cost, gives the buyer the right to
either sell or purchase a security or gilt at a specified price up to a
specified date. A call option is one where the buyer has the right to
buy the share at current market price. Thus he believes the share will
rise and he can buy and sell on the same day and take his profit. A put
option is where he believes the share will fall, so he has the right to
sell the share at current market price. One can also buy a double option
which hedges you both ways. If the circumstances you predict do not
materialise, then you discard your option and lose your option money. It
is a means of controlling a very large amount of capital with minimal
The most common form of share which carries the greatest risk. Your
dividends are subject to profits unlike Preference Shareholders or
debenture holders. In the event of liquidation you are last in the queue
to be paid out. However, in the event of rising growth, you are the main
participant. This is the most common share type quoted on the JSE.
Another technical indicator described in detail in the course.
This is the situation where you have bought a share at 100 cents and it
is now quoted at 200 cents. You have an unrealised paper profit of 100%.
But tomorrow the share may decline and wipe out some of that profit.
Only when you sell the share and turn it into cash can you really say
you have made a profit, or, conversely, a loss.
A term used to describe cheap shares, usually priced below 100 cents.
POINT AND FIGURE CHARTS
A method of charting which eliminates the time scale, also described in
The name given to the spread of shares held by an investor.
A class of shares which attracts a fixed % dividend which is paid out of
profits before declaring the ordinary dividend accruable to the ordinary
Often abbreviated in the financial press to p:e ratio. This is the
correlation between the earnings and the share price. If the share is
120 cents and the historical earnings are 10c, then the p:e is 12. The
number of years' earnings you are required to pay for the share.
A document a new listing company is required to produce for potential
investors detailing the company's history, business plans and
In terms of the companies act all companies must have a registered
office, which is a physical address where the minutes of meetings are
open to inspection and other specified documents.
This is the portion of earnings (usually the majority) which is not paid
out in dividends.
This is where a company wishes to raise more capital to finance
development or a take-over. All existing shareholders are offered say 1
new share for every five held. If the share is quoted at say 100 cents
the rights would normally be pitches at say 85 cents. You have the right
to subscribe to the additional shares or to sell you rights for the 15
cents a share. This reduces your investment cost but also dilutes you
percentage holding in the company. See also Nil Paid Letters.
These are bonds issued by quasi-government organisations such as SATS or
ESCOM. They are the same as gilts but not directly government backed.
When a share becomes too expensive for the average investor, companies
may split the shares and issue new shares on say a 4 to 1 basis at no
cost. This means that you now own five times the number of shares but
the market obviously adjusts the price accordingly. For example, First
national Bank had a five times share split in 1994. The shares traded at
a high of R85.50 in 1993. Without this split, their shares today would
be trading around R183.50 which means that to buy 100 the small investor
has to lay out nearly R19,000. Recently the share was R36.50 which means
you could buy 100 for R4000.
When shares are sold the seller has to sign a transfer form which means
that the transfer secretaries may now transfer the shares to the new
owner. In older days this was done at the head office by the Company
Secretaries Department, but today most quoted companies use professional
transfer registrars, usually banking groups.
All major decisions affecting a company must be passed at a General
meeting as a special resolution. This would cover activities such as a
merger with another company, or a takover, or a voluntary liquidation.
Investors who buy new shares when they hit the market with a view to an
almost immediate sale and profit. When southern Life listed around the
late 1980s, the shares were over-subscribed and there were such massive
volumes within a few days of sellers at a profit, that The Receiver
stated publicly that he was going to track down all the STAGS and charge
them income tax.
STOCK BROKERS FIDELITY POLICY
A JSE instrument which protects the public from stock brokers who may be
dishonest and also protects stock brokers who in good faith dealt in
forged or stolen securities.
When a company is in the midst of negotiating a takeover or merger it
may ask the JSE to suspend it's listing to avoid undue speculation on
the shares. Companies such as CRULIFE and AVINS are still listed under
Insurance but are marked SUSP. These were the old Crusader Life and AA
LIFE, both of which went into liquidation.
This is where one company takes over the majority of shares in another.
If the take-over offer is in excess of the market price the company is
obliged to make the same offer to the minority shareholders.
A system of using the statistics provided by price and volume of shares
to analyse buying and selling opportunities.
A company seeking a new listing will usually go to an underwriter who
agrees to take up any shares not bought by the public. This ensures that
the company will raise all the capital it requires.
This is represented by current assets less current liabilities on a
company's balance sheet.
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