This text is an extract taken from a book called Investing in Stocks & Shares written by Dr. John White. It states some definitions of economic words in a language that everybody should understand as it is mainly aimed at families. It should help them know what would be the best investment for their personal situation.
The words defined are the following:
Shares: a share is a right to receive a proportion of profits in the form of dividends the company will give to the investors once or twice a year. It also gives the shareholders part of the company’s assets and a vote at the company’s Annual General Meeting according to the size of the investor’s holding.
Assets: the assets are every good the company owns (i.e. cash-in-hand, buildings, machines, the stock of raw-materials..) less its liabilities (i.e borrowings and payments to creditors)
Nominal share value: it is the value of the share when it was first issued by the company, it orininally represented the asset value of the company. But an equity (other name for share or stock) can increase its value reflecting the potencial earnings of a company.
There are also non-voting shares (with them, the holder has no vote in the company’s strategy but enjoys the rest of benefits) which were created to maintain the control of the company in the founding family. Nowadays those shares are unpopular.
The Dividend and its Cover: the dividend is the proportion of benefits paid to the stockholders. Normally just part of profits are distributed as dividend, the vaste majority of them are retained to fund internal growth of the company or to be used as dividend when there has not been any profit.The cover of the dividend is the number of times the company could have paid its net dividends.
P/E Ratio: when the company’s profits are divided by the number of shares, we get the earnings per share. The P/E (price to earnings) ratio measures the number of years of earnings per share at the current share price that would be needed to pay for the share. After those years, the dividend will be pure profit.
The Yield: it is the return from shares expressed as a net percentage. It is usually lower than the local interest rate.

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