Investing Glossary
Finance jargon made simple - a collection of investing terms you might come across, and what they mean in plain English.
Annual General Meeting (AGM)
The annual general meeting (or AGM) is the yearly meeting where a company’s directors will present the annual report to shareholders.
If you’re a shareholder of any listed company, you’ll receive an invitation to attend the AGM each year.
So, why attend the meeting if you can just get all the info in the annual report?
For a passive investor it might not be necessary, but if you’re actively managing your investments and want to ensure you’re putting your money with the best companies possible, then the AGM is a great resource.
It’s an opportunity to hear the directors speak about current performance and future direction of the company, as well as answer questions from investors and media. Joining an AGM can give you a good sense of the company’s leadership capability.
Another important function of the AGM is to provide an opportunity for investors to vote on current issues. If you’re a shareholder of a company, you have voting rights!
If the company receives a takeover bid (or makes one), or they want to review director remuneration, or make another big decision, it’ll often go to a shareholder vote. This is your opportunity to have your say in the company’s future direction and should be something you consider participating in, whether you’re an active or passive investor.
Asset
An asset is any resource a company owns that has an economic value. This could be tangible assets like equipment, infrastructure, or cash. Or it could be intangible assets like a trademark or goodwill (the company’s reputation can be a source of value).
Besides tangible and intangible, you’ll also hear assets described as liquid or illiquid.
A liquid asset is something that the company can quickly sell to receive the value it holds. The best example is cash, which is the most liquid asset, but could also include things like accounts receivable or short-term bonds.
An illiquid asset is something that takes time to realise the value from. A good example is a building or large equipment. These are large assets that can’t be sold quickly and may have costs associated with selling.
Understanding the different types of assets is helpful when it comes to interpreting a company’s financial statements and overall ‘health’.
Annual Report
An annual report is a comprehensive financial report that listed companies must release to investors once per year. It normally includes detailed financial information (like a balance sheet and cash flow statement) as well as a summary of the big events of the year.
It also commonly includes highlights, insights on the upcoming priorities and opportunities, and management commentary. This means it’s a ‘must-have’ resource if you’re interested in investing in the company.
The annual report is a treasure trove of information and the best investors will spend hours looking over these reports for red flags and pots of gold before even thinking about investing in a company.
You may also see a full-year results presentation, which is a condensed version of the report. For US-listed companies, you’ll see a 10-K, which is just a different name for the annual report.
Annual reports can always be found on the company’s investor website or on the ASX website.
Amortisation
Companies often have intangible assets that need to be accounted for in the financial statements. These could be things like patents, trademarks, copyrights, or franchise agreements – anything non-physical that adds value to a company.
These assets typically have a long life so they can be difficult to account for, but one common method is amortisation.
Amortisation allows a company to write down the value of their intangible assets over the life of that asset. This effectively smooths returns over time because the value slowly diminishes on the balance sheet.
Without amortisation, the value of the asset could go from millions to zero on its expiry and make the company returns appear more volatile than they really are.
For example, say a company has a 10-year trademark worth $10 million.
With amortisation, the company would reduce the value of the trademark on their balance sheet by $1 million each year for the next 10 years, representing the reduction in the asset’s worth over time as it gets closer to expiry. Without amortisation, the trademark would sit on the balance sheet as a $10 million asset for 10 years, then suddenly disappear.
Balance Sheet
A balance sheet is essentially a measure of a company’s net worth and debt levels.
It lists all of the assets, liabilities, and company equity. It’s an important table for investors to be familiar with because it gives you valuable information on the financial ‘health’ of the company.
The balance sheet will tell you if a company has large amounts of debt. It’ll also tell you whether they hold cash reserves, and how much. And it’ll give you an idea of the book value of a company – the total amount of assets.
The book value can be useful to know, both as part of a valuation measure and as the amount of assets the company has that could be liquidated if the company went bankrupt.
Understanding the balance sheet will help you to understand the financial risk that a company carries and how much of the company is ‘owned’ (equity) versus ‘loaned’ (debt). Ideally we’re looking for companies with a good amount of equity relative to debt.
Blue Chip
A ‘blue chip’ share or company is a mature, well-established and well-known company listed on the public market.
A good Australian example would be Commonwealth Bank of Australia (ASX: CBA) or BHP Group Ltd (ASX: BHP).
Blue chips have typically been listed for a long time and, to over-generalise a little, they’re often companies that have slower growth rates but pay big, reliable dividends.
This is because of their stage of maturity – they tend to have exhausted the big growth opportunities and are more focused on slowly and steadily growing returns while paying dividends to shareholders.
Investors are often drawn to blue chips for their perceived safety and income returns, however they can be volatile like any other investment.
Bonds
Bonds are a form of debt issued by companies or governments to raise capital for big investments or running costs.
Bonds work a bit differently to shares in that they don’t give you any ownership or voting rights in the company.
It’s very similar to taking out a loan from a bank, except in the case of bonds, you as the investor are the one giving the loan to the company.
There are a few important terms to know when you’re looking at bonds.
The ‘face value’ is the price of the bond, and the ‘coupon rate’ is the interest rate that they’ll pay you. The ‘maturity date’ is the date when the company must pay back the face value of the bond.
Let’s look at an example.
Say a company ‘issues’ (or creates) a bond with a $100 face value, a 3% coupon rate, and a 3-year maturity.
You buy the bond for $100, and for the next 3 years the company will pay you a $3 ‘coupon’ each year (3%). At the maturity date, the company returns the $100 to you. So, over the life of the bond, you’ve received a 3% annual return.
Note that the coupon might actually be paid monthly or quarterly, but returns will be the same (i.e. they might pay you $1.50 or 1.5% every 6 months for an equivalent 3% annual return).
Now, that’s how a bond works in theory if you buy it when it’s issued and hold until expiry, but in practice they’re commonly traded between investors on the open market at any time during the term of the bond. That means that, like a share, the price of a bond can fluctuate.
In general though, bonds are much less volatile than shares and investors like them for the consistent income they generate – they’re treated as a ‘defensive’ asset. Bonds are generally considered to be an important part of a balanced investment portfolio for the diversification and income they provide.
Capital Gains
Capital gains are exactly what you get into investing for! This is the increase in the value of your shares.
If you have 10 shares worth $10 each, and the share price increases to $15, then the value of your holding goes from $100 ($10 x 10) to $150 ($15 x10). This means you’ve made a capital gain of $50.
When a capital gain is realised (i.e. you sell the shares and receive your increased sum of cash) you become liable for capital gains tax. While it has a special name, it’s really just part of your income tax – the capital gain essentially increases your taxable income for the year.
This means that the rate of capital gains tax will depend on your personal income and tax bracket.
‘Capital gain’ is an important term to understand as you’ll see it on your tax return and will need to know how to calculate it (although a good broker will generally do this for you).
Cash Flow
The cash flow of a company is the total movement of cash and cash equivalents in and out of the company. It’s summarised in the cash flow statement of annual reports.
While it might not be immediately obvious, cash flow is different to profit.
For example, revenue is not the same as cash received. Goods or services may have been sold on credit or long payment terms so a company can recognise revenue when it hasn’t received the cash.
Similarly, if you looked at liabilities on the balance sheet, that’s not the same as the cash outflows. Liabilities are the total amounts owing while the cash outflows are the payments made in-year.
A company with a positive cash flow is accumulating cash – they brought in more cash than they spent. This is useful as this excess cash could be paid as dividends to shareholders, kept aside as a safety reserve, or used to make investments.
A negative cash flow on the other hand means a company is running through its cash reserves and may get to a point where it has to raise money or take on more debt.
Understanding cash flow is important when making investment decisions as it helps you to assess the company’s financial ‘health’. If it has negative cash flow and a low cash balance, it’s likely the company will be coming to investors soon to ask for more money. If it has strong positive cash flow, then you know the company has funds to invest in further growth or paying dividends.
Cash Rate
The cash rate is the ‘base’ interest rate set by the Reserve Bank of Australia (RBA). It’s the interest rate that banks pay to borrow funds from other banks on the overnight money market.
The reason we care about the cash rate as investors (or savers, or mortgage holders) is because the RBA cash rate influences all other interest rates. In general, the higher the cash rate is, the higher interest rates will be for mortgages, loans, and savings accounts.
This impacts the share market because it affects inflation, borrowing capacity, and company profitability.
For example, when interest rates are high, companies will tend to borrow and invest less, and consumers cut back spending. When interest rates are low, companies are incentivised to borrow more and invest in growth.
Compound Annual Growth Rate
The compound annual growth rate, or CAGR, is the percentage growth rate of a company (or any asset) over time.
It’s calculated as (Current Price / Past Price) ^ (1/t) – 1, where t is the number of years you’re looking at.
For example, if a share price today is $160 and 3 years ago it was $110, the CAGR would be (160/110) ^ (⅓) – 1 = 13.3%.
CAGR is a very useful measure to compare the returns of different investments and your portfolio over time. It can also be used to assess the performance of a company. For example, you could look at the CAGR of a company’s revenue or profit to see how they’re growing over time.
Depreciation
Companies typically have a range of physical assets like equipment and infrastructure (e.g. machinery and buildings). These assets last a long time, but they have a limited life and are worth a little less each year.
Depreciation is how companies account for this value reduction of tangible assets over time.
For example, let’s say a company has an amazing robot worth $10 million with an expected life of 10 years. Each year the company has the robot, it’s worth a little less as it gets closer to the date where it’ll need to be replaced.
Using depreciation, the company can write down the cost of their cool robot over the 10-year life. So, the year that they purchase it, the robot sits on the balance sheet as a $10 million dollar asset. The following year, it’s worth $9 million, then $8 million and so on.
Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | … | 10 |
Value | $10m | $9m | $8m | $7m | $6m | $5m | $4m | … | $0 |
Depreciation effectively smooths company performance over time. Without depreciation, the balance sheet would look ‘lumpy’ by recording large irregular costs when net assets are purchased.
Depreciation is basically spreading the cost of the purchase over the useful life of the asset.
Discounted Cash Flow (DCF)
A discounted cash flow, or DCF, is a common valuation tool used by investors and fund managers.
The goal of a DCF is to come up with a value for a company based on the estimated future cash flows.
An important concept of a DCF is the time value of money – money is worth more to you today than it is in 5 years.
Logically, this makes sense. If I offered to give you $100 today, or $100 in 5 years, of course you’d take the money today! In order to get you to accept the delayed date, I’d have to offer you more – maybe $130 or $150 – everyone’s number will be different. But this demonstrates how $100 today is worth more to you (or you put a greater value on it) than $100 in 5 years.
This video explains in detail how to do a DCF, but here’s the basic idea.
You take a company’s free cash flow per share, and you estimate what the annual cash flow will be for the next 5 or 10 years. You might decide that a 3% annual growth rate sounds reasonable.
You then need to decide on a discount rate, which is the amount that future cash flows will be discounted by. For example, at a 6% discount rate, $100 one year from now would be worth 6% less than it’s worth today. In year 2 it’ll be worth about 12% less (it’s not exactly 12% for complicated maths reasons, best to watch the video).
To get a valuation, you then simply take the sum of the discounted cash flows in each year.
Knowing how to do a DCF (or at least having an understanding of what it is) is a great tool for an investor to carry with them.
Dividend
A dividend is a portion of a company’s profit that they decide to pay as a cash distribution to investors.
When a company makes a profit, they have a few choices they could make. They could:
- Invest that money in new equipment, people, or processes to try to increase earnings
- Put the money aside for a rainy day or future investments
- Pay it out as cash to investors; or,
- Any combination of the above
Let’s look at an example. Imagine a company earns $1m in profit. There’s a new machine they want that they think will increase earnings, so they invest $200k of their profits into the machine. They’re also a bit concerned about volatility over the next year, so they decide to put $100k aside as a reserve.
That leaves them with $700k to play with. Many companies will choose to pay this remaining amount to investors. If there were 700,000 shares, each share you hold would entitle you to $1. If you hold 10 shares, you’d get $10 of cash.
Dividends are the best way to draw income from your portfolio because they allow you to receive cash from your investments without selling down shares.
Now, dividends can also sometimes be paid with something called a franking credit. To learn more about franking credits, check out our calculator.
One other thing to note is that you don’t have to receive the dividends as cash. You can also opt into a dividend reinvestment plan that would give you an equivalent number of shares, rather than receiving cash.
Dividend Discount Model (DDM)
A dividend discount model, or DDM, is a simple and popular valuation tool that you can use to estimate the ‘fair value’ of a company.
The DDM looks at the annual dividend per share, then applies an assumed growth rate and a risk rate to determine what the value of all future dividends will be.
This model works best on companies that reliably pay out most of their earnings as a dividend. Like any valuation tool, it’s pretty crude and should only ever be used as a guide – not an exact true value.
In fact, it’s best to use a DDM to estimate a fair value range, rather than a single number.
For detailed instructions on how to do a DDM you can watch this video, but here’s a quick example.
Let’s say a company pays a dividend of $2 per share. We’re going to assume that this dividend will continue growing at 2% per year forever. We now just need a discount rate – this is basically a number that says how confident we are that the future dividends will be paid, and it stems from the idea that money is more valuable to us today than it is tomorrow (because it’s less certain tomorrow).
There are all sorts of ways you can work out a discount rate but a typical figure would be somewhere between about 6% and 11% – the key thing to know is the higher the risk rate, the lower the valuation.
The formula we use is:
Estimated Share Price = Annual Dividend / (Risk Rate – Growth Rate)
So, if we used a risk rate of 6%, it would be $2 / (6% – 2%) = $2 / 4% = $50.
If we used a risk rate of 11%, it would be $2 / (11% – 2%) = $2 / 9% = $22.22.
So, we could say the fair value would sit somewhere between $22.22 and $50 per share. You could get to a smaller range by using risk rates closer together, or by using multiple risk rates and taking the average value.
The important thing to understand as an investor is how a DDM works and how it can be used, along with other methods, to estimate a company’s fair value.
Dividend Reinvestment Plan
A dividend reinvestment plan (DRP or DRIP) is a scheme you can opt into to receive your dividends as additional shares instead of cash.
For example, imagine the below scenario:
- Company share price is $10
- Dividend is $1 per share
- You hold 10 shares
As a shareholder with 10 shares you’d be entitled to $10 as a dividend ($1 per share). Or, you could opt into the DRP and receive 1 additional share of the company (which is worth $10).
Why would you want to do that?
Well, some investors aren’t worried about cash distributions. If you’re young and focused more on capital growth rather than income, you might prefer additional shares over cash because it can contribute to capital growth over time.
This is more efficient than taking the cash and buying more shares as DRPs normally don’t charge any commission. Just note: you can’t receive fractional shares, so if your dividend amount is less than the share price your money will be held onto until the next dividend is paid and a full share can be allocated.
Equity
Equity represents an ownership stake in a company. You’ll hear it used in a few contexts in investing.
First, you might hear someone call share investing ‘equity investing’. This is really the same thing, as holding shares in a company means you have some equity, or ownership, in that company.
Second, you’ll see equity appear on the balance sheet. It’s used along with assets and liabilities to show you how indebted the company is and how much they own.
Equity = assets – liabilities
For example, if a company has $10 million in assets and $3 million in liabilities (which includes things like debts and accounts payable) then the company would have $7 million of equity. The more debt a company has, the less equity it has.
You’ll also see return on equity as a common investment metric. This is basically the profit divided by the equity – in other words, what percentage return is the company generating compared to the total equity (or ownership) in the company?
Ex-Dividend Date
The ex-dividend date is the cut-off date for receiving a dividend. In other words, if you don’t own shares before the ex-dividend date, you’re not getting a dividend.
Before is the key word there – the purchase can’t be on the ex-dividend date.
This is to stop you buying a share right before a dividend is paid, collecting the dividend, then selling it straight after (not that that would be a good strategy anyway).
The ex-dividend date differs but is normally a couple of weeks before the payment date.
It’s common for a share price to drop by about the amount of the dividend on the ex-dividend date. This is for the simple reason that any investors beyond that point aren’t entitled to the upcoming dividend, so they’re not willing to pay as much.
Exchange-Traded Fund
An exchange-traded fund, better known as an ETF, is a listed fund that you can buy or sell like regular shares.
Think of it as a basket of companies you can purchase in one transaction – instead of buying Woolworths Group Ltd (ASX: WOW) shares, you can buy a unit of an ETF that gives you exposure to dozens or even hundreds of companies.
The benefit of ETFs is that they give you instant diversification and spread the risk of your investments. Rather than trying to pick a ‘winner’ from a list of 100 companies, an ETF lets you take the average return of all 100 companies.
The downside is that, because it’s a fund managed by a third party, you pay an annual management fee. The fees are generally low though, with plenty offering fees below 0.5% per year ($5 on a $1,000 investment).
ETFs are often considered one of the best ways to get started with investing because of their ease of use, low cost, and instant diversification. If you want to learn more about ETFs, Rask offers a free online course you can sign up for today!
Franking Credit
A franking credit is a tax credit that is passed to investors when a company pays a dividend. The purpose of a franking credit is to avoid double taxation.
An example might help to explain how it works.
Let’s say a company makes a $100 profit. The corporate tax rate in Australia is 30%, so the company pays $30 in tax and has $70 left over. They decide to pay this $70 as a dividend to their shareholders.
This income has effectively already been taxed and the company has paid it, so when the dividend is distributed the attached ‘franking credit’ ensures that the investor won’t also pay tax on the dividend.
A franking credit is considered as part of the income component of the tax return. If you earn above the tax-free threshold, then the franking credit reduces your taxable income. If you earn below the threshold then the franking credit would be paid to you in your tax return.
Franking credits aren’t paid in most countries, so if the company you’re invested in pays their tax in another country (or earn a lot of their money overseas) then you won’t get franking credits. See this post for a more in-depth explanation of how franking credits work.
Gross Margin
Gross margin is one measure of profitability of a company’s main product or service. It’s calculated by dividing the gross profit by the revenue to get a percentage.
The higher the gross margin, the better.
If you haven’t read our gross profit explainer below, I’d recommend taking a look as it’s important to recognise that gross profit (and gross margin) are not the same as net profit. A business with high gross margins can still be making a loss if their overhead costs are high.
Gross Profit
Gross profit is a crude measure that looks at the profitability of the product or service being sold.
It’s calculated by taking revenue and subtracting the cost of the goods sold. For example, if a business making dried fruit sold $100k of product, and the cost of the raw fruit, packaging, and labels was $60k, then the business would generate a gross profit of $40k.
Gross profit is not the same as net profit because it doesn’t consider things like overhead costs, interest costs, and tax.
I call it a ‘crude’ measure because it only tells part of the story – a company making a gross profit can still be making a loss once all costs are considered.
Income Statement
The income statement is one of the main components of annual reports, and it’s a requirement for all companies to publish one each year.
The income statement shows the profitability of the company over the last 12 months and usually includes comparisons to prior years as well. This is where you’ll find the revenue and main costs listed.
As you move from top to bottom of the income statement, look out for key figures like revenue, gross profit and margin, operating profit (also called earnings before interest and tax or EBIT), operating margin, and the net income / net profit.
These are all important figures to know when making an investment decision, so if you want to start investing in individual companies, it’s important to know how to read the income statement.
Initial Public Offering (IPO)
An initial public offering, also called an IPO, is when a company lists its shares publicly on an exchange for the first time.
When a private company wants to go public and raise capital, they’ll issue shares to the public in the IPO. The company nominates the number of shares it wants to issue and the share price, and when the exchange accepts the application it can list and the shares can be publicly traded.
Generally, the investors buying shares in IPOs are institutional investors – managed funds, superannuation providers, high-net-worth individuals etc.
But, as a member of the general public you’re also able to apply to purchase shares in the IPO. The ASX (or your local exchange)’s website will list any upcoming IPOs and have a link to the company websites, where you’ll normally find a link to apply online. The catch is, you’ll really only be offered shares if the big fish haven’t already taken up the whole allocation.
For most people, you’ll end up having to wait until after the shares have been listed to buy them.
That’s not the worst thing in the world though, as newly listed companies can have highly volatile share prices and many IPOs won’t perform well over the first few years.
Market Capitalisation
Market capitalisation, often called market cap, is a measure of a company’s total size.
It’s calculated by multiplying the share price by the number of shares that have been issued. Market cap is often used to compare sizes of companies – the ASX 200 for example is the 200 largest listed companies on the ASX by market cap.
However, it’s important to note that market cap isn’t a measure of profitability. It’s tied to the share price, not to earnings, so it’s more a measure of valuation.
That means Company A might make more revenue and profit than Company B, but Company B can still have a larger market cap if it has a higher valuation. Valuation can be tied to not only earnings but also sentiment, momentum, and growth prospects.
Managed Fund
A managed fund is a fund that pools together money from a group of investors to buy assets like shares, bonds, or property.
There are countless Australian managed funds run by large companies like Vanguard or Blackrock, plus a whole range of smaller funds.
Unlike an exchange-traded fund (ETF), a managed fund is not listed on the ASX or another exchange, so it can’t be traded through your normal brokerage account.
Instead, to buy or sell units in a managed fund you go directly through the fund manager. For the benefit of having a fund manager looking after your investments, you do pay an annual management fee which varies significantly between funds.
The other key difference between a managed fund and an ETF is that managed funds often have a minimum investment amount.
Net Interest Margin
The net interest margin (NIM) is an important term to know if you’re looking to invest in banks. It measures the difference between the interest rate a bank pays to savers and what it receives from mortgage payers or other loan repayments as a percentage.
The reason this number matters so much for banks is that most of the big banks make 80%+ of their revenue from lending, so the larger the NIM, the larger the profit on that lending.
Assessing a bank’s NIM and comparing it to its peers will give you a good sense of a bank’s profitability.
Net Profit
Also called ‘net income’, net profit is a measure of a company’s overall profitability once all costs have been included.
You may hear investors talk about the ‘bottom line’. They’re referring to net profit which is normally the last line on an income statement. If a company is improving its bottom line, it’s increasing profit.
Unlike gross profit, the net profit takes into account overhead costs, depreciation, interest, and taxes. It’s the most comprehensive measure of a company’s earnings.
Net profit is also what sometimes gets paid out to shareholders as a dividend, which can be all or a portion of the net profit.
Operating Margin
The operating margin is the operating profit divided by the revenue.
In other words, it’s the percentage of the revenue kept by the company before subtracting interest and tax expenses.
If you haven’t seen our explainer below on operating profit this will give you a better idea of what the operating margin represents.
Operating Profit
The operating profit sits between gross profit and net profit on an income statement.
This can be confusing, but think of it this way:
- Revenue – this is the top line. Subtract the cost of making the goods that were sold and you get;
- Gross profit – subtract the overhead costs (admin, wages, research and development, depreciation) and you get;
- Operating profit – now subtract interest income/expenses and tax and you get;
- Net profit – the final profit tally.
The best way to remember what operating profit is would be to remember it by its other name, EBIT.
EBIT stands for earnings before interest and tax, and neatly sums up what the operating profit is. It’s the profit before you’ve subtracted interest and tax!
PE Ratio
The price/earnings ratio, or PE ratio, is a simple and common method for assessing the valuation of a company.
The PE ratio takes the market cap and divides it by the net profit. It could also be calculated by dividing the share price by the earnings per share.
For example, if a company has a market cap of $100m and an annual net profit of $10m, then the PE ratio would be 10.
Similarly, if the share price was $10 and the earnings per share was $1, the PE ratio would be 10.
You could use a measure like the PE ratio to decide whether a company is valued fairly. You can compare it to the historical PE, or to the PE ratios of other companies in the same sector, to assess if it’s cheaper or more expensive than average.
While the PE ratio is a popular measure, you can’t base an investment decision on one metric – it’s just a starting point.
Revenue
Revenue is another word for earnings. It refers to how much money a company has earned over a given time period (usually a year).
You might also hear revenue referred to as the ‘top line’. That’s because it’s usually the very first line on an income statement. It’s basically the starting point for calculating profits. You start with revenue, then deduct all expenses until you get to net profit.
So, when a company talks about increasing ‘top line growth’, they’re talking about increasing revenue.
Share Price
The share price is the price you pay to buy one unit, or share, of a company.
When investors talk about shares or stock of a company increasing or decreasing, they’re talking about the share price moving up and down.
One important thing to know is that the share price is not the same as the company size or value.
In other words, a company with a $10 share price is not necessarily bigger than a company with a share price of $1.
Market cap is the proper measure of size, as it considers both the share price and the number of shares outstanding. A company with a low share price might simply have more shares outstanding than a company with a high share price.
So, there can be a perception that companies with a low share price are ‘bad’, or companies with a high share price are ‘good’, but remember – the share price by itself says nothing about a company’s valuation or worth.
Ticker Code
A ‘ticker code’ is the shorthand code used by exchanges like the ASX (Australia’s main exchange) and NYSE (the major exchange in the US) to identify companies.
These ticker codes can look different depending on the exchange the company is listed on. The ASX generally uses ticker codes with three or four letters or numbers – for example, the code for Woolworths Group Ltd is WOW. You’ll often see it written as ASX: WOW to identify which exchange the company is listed on.
The NYSE also uses letters and numbers but will have ‘NYSE’ in front of it as the identifier. If you’re looking for information on Walmart Inc, you could search for its ticker code WMT, or NYSE: WMT.
It’s important to know the ticker code of any company or ETF you’re interested in buying, as your brokerage account will ask you to enter a ticker code. Some of them look very similar so make sure you get the right one!
Yield
Yield can refer to a few different things in investing. Normally it’s used to mean either the amount received from a dividend or the amount received from a bond distribution.
A dividend yield is the dividend paid divided by the share price. In other words, it’s the percentage of the share price received as a dividend.
For example, if a company with a $100 share price pays a $2 dividend, the dividend yield would be 2%.
You might see this reported as either a forward dividend yield or a trailing dividend yield. The forward dividend yield is the predicted dividends over the next 12 months divided by the current share price.
The trailing dividend yield is the actual dividends over the last 12 months divided by the current share price.
The same applies to bond distribution yields – they can be forward or trailing, and just refer to a bond distribution relative to the bond’s face value, rather than a dividend and share price.
