Definition of Shares
Shares
Certificates or book entries representing ownership in a corporation or similar entity
Related Terms:
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.
Number of shares authorized for issuance by a firm's corporate charter.
Earnings per share expressed as if all outstanding convertible securities
and warrants have been exercised.
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.
shares that are currently owned by investors.
shares of stock given to managers on the basis of performance as measured by earnings
per share and similar criteria. A control device used by shareholders to tie management to the self-interest of
shareholders.
Preferred shares give investors a fixed dividend from the company's earnings. And more
importantly: preferred shareholders get paid before common shareholders. See: preferred stock.
The number of shares of stock that the company is legally authorized to sell.
The number of shares that the company has sold to the public.
The number of shares that are in the hands of the public. The difference between issued shares and outstanding shares is the shares held as treasury stock.
shares that have been issued by the company.
shares that have been issued by the company and are held by investors.
Are equity instruments that take no security against assets, have no fixed terms of repayment and pay no fixed dividends.
Are equity instruments that take no security against assets, have flexible terms of repayment and pay fixed or floating dividends.
Certificates issued by a U.S. depositary bank, representing foreign
shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may
represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR's
are "sponsored," the corporation provides financial information and other assistance to the bank and may
subsidize the administration of the ADRs. "Unsponsored" ADRs do not receive such assistance. ADRs carry
the same currency, political and economic risks as the underlying foreign share; the prices of the two, adjusted for the SDR/ordinary ratio, are kept essentially identical by arbitrage. American depositary shares(ADSs) are
a similar form of certification.
Antidilutive effect
Result of a transaction that increases earnings per common share (e.g. by decreasing the
number of shares outstanding).
Appraisal rights
A right of shareholders in a merger to demand the payment of a fair price for their shares, as
determined independently.
Ask
This is the quoted ask, or the lowest price an investor will accept to sell a stock. Practically speaking, this
is the quoted offer at which an investor can buy shares of stock; also called the offer price.
Back office
Brokerage house clerical operations that support, but do not include, the trading of stocks and
other securities. Includes all written confirmation and settlement of trades, record keeping and regulatory
compliance.
Back-end loan fund
A mutual fund that charges investors a fee to sell (redeem) shares, often ranging from
4% to 6%. Some back-end load funds impose a full commission if the shares are redeemed within a
designated time, such as one year. The commission decreases the longer the investor holds the shares. The
formal name for the back-end load is the contingent deferred sales charge, or CDSC.
Best-efforts sale
A method of securities distribution/ underwriting in which the securities firm agrees to sell
as much of the offering as possible and return any unsold shares to the issuer. As opposed to a guaranteed or
fixed price sale, where the underwriter agrees to sell a specific number of shares (with the securities firm
holding any unsold shares in its own account if necessary).
Bid price
This is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically
speaking, this is the available price at which an investor can sell shares of stock. Related: Ask , offer.
Block trade
A large trading order, defined on the New York Stock Exchange as an order that consists of
10,000 shares of a given stock or a total market value of $200,000 or more.
Block voting
A group of shareholders banding together to vote their shares in a single block.
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).
Buy on margin
A transaction in which an investor borrows to buy additional shares, using the shares
themselves as collateral.
Buyout
Purchase of a controlling interest (or percent of shares) of a company's stock. A leveraged buy-out is
done with borrowed money.
Call option
An option contract that gives its holder the right (but not the obligation) to purchase a specified
number of shares of the underlying stock at the given strike price, on or before the expiration date of the
contract.
Call premium
Premium in price above the par value of a bond or share of preferred stock that must be paid to
holders to redeem the bond or share of preferred stock before its scheduled maturity date.
Cash flow per common share
Cash flow from operations minus preferred stock dividends, divided by the
number of common shares outstanding.
Closed-end fund
An investment company that sells shares like any other corporation and usually does not
redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or
below its net asset value. Related: Open-end fund.
Commission
The fee paid to a broker to execute a trade, based on number of shares, bonds, options, and/or
their dollar value. In 1975, deregulation led to the creation of discount brokers, who charge lower
commissions than full service brokers. Full service brokers offer advice and usually have a full staff of
analysts who follow specific industries. Discount brokers simply execute a client's order -- and usually do not
offer an opinion on a stock. Also known as a round-turn.
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.
Convertible price
The contractually specified price per share at which a convertible security can be
converted into shares of common stock.
Conversion ratio
The number of shares of common stock that the security holder will receive from
exercising the call option of a convertible security.
Covered call
A short call option position in which the writer owns the number of shares of the underlying
stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the
stock does not have to be bought at the market price, if the holder of that option decides to exercise it.
Cross holdings
One corporation holds shares in another firm.
Cumulative voting
A system of voting for directors of a corporation in which shareholder's total number of
votes is equal to his number of shares held times the number of candidates.
Dedicated capital
Total par value (number of shares issued, multiplied by the par value of each share). Also
called dedicated value.
Deferred equity
A common term for convertible bonds because of their equity component and the
expectation that the bond will ultimately be converted into shares of common stock.
Detachable warrant
A warrant entitles the holder to buy a given number of shares of stock at a stipulated
price. A detachable warrant is one that may be sold separately from the package it may have originally been
issued with (usually a bond).
Distributions
Payments from fund or corporate cash flow. May include dividends from earnings, capital
gains from sale of portfolio holdings and return of capital. Fund distributions can be made by check or by
investing in additional shares. Funds are required to distribute capital gains (if any) to shareholders at least
once per year. Some Corporations offer Dividend Reinvestment Plans (DRP).
Dividend reinvestment plan (DRP)
Automatic reinvestment of shareholder dividends in more shares of a
company's stock, often without commissions. Some plans provide for the purchase of additional shares at a
discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the Long
term using dollar cost averaging. The DRP is usually administered by the company without charges to the
holder.
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.
Dow Jones industrial average
This is the best known U.S.index of stocks. It contains 30 stocks that trade on
the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest
U.S.companies are performing. There are thousands of investment indexes around the world for stocks,
bonds, currencies and commodities.
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 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.
Employee stock fund
A firm-sponsored program that enables employees to purchase shares of the firm's
common stock on a preferential basis.
Equity options
Securities that give the holder the right to buy or sell a specified number of shares of stock, at
a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock.
Equityholders
Those holding shares of the firm's equity.
Exchange
The marketplace in which shares, options and futures on stocks, bonds, commodities and indices
are traded. Principal US stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange
(AMEX) and the National Association of Securities Dealers (NASDAQ)
Exchange of stock
Acquisition of another company by purchase of its stock in exchange for cash or shares.
Exchange offer
An offer by the firm to give one security, such as a bond or preferred stock, in exchange for
another security, such as shares of common stock.
Ex-dividend
This literally means "without dividend." The buyer of shares when they are quoted ex-dividend
is not entitled to receive a declared dividend.
Ex-rights
In connection with a rights offering, shares of stock that are trading without the rights attached.
Firm commitment underwriting
An undewriting in which an investment banking firm commits to buy the
entire issue and assumes all financial responsibility for any unsold shares.
Fixed-price tender offer
A one-time offer to purchase a stated number of shares at a stated fixed price,
usually a premium to the current market price.
Float
The number of shares that are actively tradable in the market, excluding shares that are held by officers
and major stakeholders that have agreements not to sell until someone else is offered the stock.
Futures contract
Agreement to buy or sell a set number of shares of a specific stock in a designated future
month at a price agreed upon by the buyer and seller. The contracts themselves are often traded on the futures
market. A futures contract differs from an option because an option is the right to buy or sell, whereas a
futures contract is the promise to actually make a transaction. A future is part of a class of securities called
derivatives, so named because such securities derive their value from the worth of an underlying investment.
Going-private transactions
Publicly owned stock in a firm is replaced with complete equity ownership by a
private group. The shares are delisted from stock exchanges and can no longer be purchased in the open
markets.
Greenshoe option
Option that allows the underwriter for a new issue to buy and resell additional shares.
Homemade dividend
Sale of some shares of stock to get cash that would be similar to receiving a cash dividend.
Homemade leverage
Idea that as long as individuals borrow (or lend) on the same terms as the firm, they can
duplicate the affects of corporate leverage on their own. Thus, if levered firms are priced too high, rational
investors will simply borrow on personal accounts to buy shares in unlevered firms.
Insiders
These are directors and senior officers of a corporation -- in effect those who have access to inside
information about a company. An insider also is someone who owns more than 10% of the voting shares of a
company.
International Depository Receipt (IDR)
A receipt issued by a bank as evidence of ownership of one or more
shares of the underlying stock of a foreign corporation that the bank holds in trust. The advantage of the IDR
structure is that the corporation does not have to comply with all the regulatory issuing requirements of the
foreign country where the stock is to be traded. The U.S. version of the IDR is the American Depository
Receipt (ADR).
Investment trust
A closed-end fund regulated by the Investment Company Act of 1940. These funds have a
fixed number of shares which are traded on the secondary markets similarly to corporate stocks. The market
price may exceed the net asset value per share, in which case it is considered at a "premium." When the
market price falls below the NAV/share, it is at a "discount." Many closed-end funds are of a specialized
nature, with the portfolio representing a particular industry, country, etc. These funds are usually listed on US
and foreign exchanges.
Issued share capital
Total amount of shares that are in issue. Related: outstanding shares.
Last split
After a stock split, the number of shares distributed for each share held and the date of the
distribution.
Legal capital
Value at which a company's shares are recorded in its books.
Limit order
An order to buy a stock at or below a specified price or to sell a stock at or above a specified
price. For instance, you could tell a broker "Buy me 100 shares of XYZ Corp at $8 or less" or to "sell 100
shares of XYZ at $10 or better." The customer specifies a price and the order can be executed only if the
market reaches or betters that price. A conditional trading order designed to avoid the danger of adverse
unexpected price changes.
Load fund
A mutual fund with shares sold at a price including a large sales charge -- typically 4% to 8% of
the net amount indicated. Some "no-load" funds have distribution fees permitted by article 12b-1 of the
Investment Company Act; these are typically 0. 25%. A "true no-load" fund has neither a sales charge nor
Freddie Mac program, the aggregation that the fund purchaser receives some investment advice or other
service worthy of the charge.
Long position
An options position where a person has executed one or more option trades where the net
result is that they are an "owner" or holder of options (i. e. the number of contracts bought exceeds the
number of contracts sold).
Occurs when an individual owns securities. An owner of 1,000 shares of stock is said to be "Long the stock."
Related: Short position
Market capitalization
The total dollar value of all outstanding shares. Computed as shares times current
market price. It is a measure of corporate size.
Market overhang
The theory that in certain situations, institutions wish to sell their shares but postpone the
share sales because large orders under current market conditions would drive down the share price and that
the consequent threat of securities sales will tend to retard the rate of share price appreciation. Support for this
theory is largely anecdotal.
Market value
1) The price at which a security is trading and could presumably be purchased or sold.
2) The value investors believe a firm is worth; calculated by multiplying the number of shares outstanding by the
current market price of a firm's shares.
Mortgage pass-through security
Also called a passthrough, a security created when one or more mortgage
holders form a collection (pool) of mortgages sells shares or participation certificates in the pool. The cash
flow from the collateral pool is "passed through" to the security holder as monthly payments of principal,
interest, and prepayments. This is the predominant type of MBS traded in the secondary market.
Mutual fund
Mutual funds are pools of money that are managed by an investment company. They offer
investors a variety of goals, depending on the fund and its investment charter. Some funds, for example, seek
to generate income on a regular basis. Others seek to preserve an investor's money. Still others seek to invest
in companies that are growing at a rapid pace. Funds can impose a sales charge, or load, on investors when
they buy or sell shares. Many funds these days are no load and impose no sales charge. Mutual funds are
investment companies regulated by the Investment Company Act of 1940.
Related: open-end fund, closed-end fund.
No load mutual fund
An open-end investment company, shares of which are sold without a sales charge.
There can be other distribution charges, however, such as Article 12B-1 fees. A true "no load" fund will have
neither a sales charge nor a distribution fee.
Odd lot
A trading order for less than 100 shares of stock. Compare round lot.
Open-end fund
Also called a mutual fund, an investment company that stands ready to sell new shares to the
public and to redeem its outstanding shares on demand at a price equal to an appropriate share of the value of
its portfolio, which is computed daily at the close of the market.
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.
Outstanding share capital
Issued share capital less the par value of shares that are held in the company's treasury.
Oversubscribed issue
Investors are not able to buy all of the shares or bonds they want, so underwriters must
allocate the shares or bonds among investors. This occurs when a new issue is underpriced or in great demand
because of growth prospects.
Oversubscription privilege
In a rights issue, arrangement by which shareholders are given the right to apply
for any shares that are not taken up.
Phone switching
In mutual funds, the ability to transfer shares between funds in the same family by
telephone request. There may be a charge associated with these transfers. Phone switching is also possible
among different fund families if the funds are held in street name by a participating broker/dealer.
Poison pill
Anit-takeover device that gives a prospective acquiree's shareholders the right to buy shares of the
firm or shares of anyone who acquires the firm at a deep discount to their fair market value. Named after the
cyanide pill that secret agents are instructed to swallow if capture is imminent.
Preferred equity redemption stock (PERC)
Preferred stock that converts automatically into equity at a
stated date. A limit is placed on the value of the shares the investor receives.
Preferred stock
A security that shows ownership in a corporation and gives the holder a claim, prior to the
claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most
preferred stock pays a fixed dividend that is paid prior to the common stock dividend, stated in a dollar
amount or as a percentage of par value. This stock does not usually carry voting rights. The stock shares
characteristics of both common stock and debt.
Price/earnings ratio (PE ratio)
Shows the "multiple" of earnings at which a stock sells. Determined by dividing current
stock price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio is
determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher
"multiple" means investors have higher expectations for future growth, and have bid up the stock's price.
Price/sales ratio (PS Ratio)
Determined by dividing current stock price by revenue per share (adjusted for stock splits).
Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares
outstanding.
Primary offering
A firm selling some of its own newly issued shares to investors.
Proxy
Document intended to provide shareholders with information necessary to vote in an informed manner
on matters to be brought up at a stockholders' meeting. Includes information on closely held shares.
Shareholders can and often do give management their proxy, representing the right and responsibility to vote
their shares as specified in the proxy statement.
Proxy contest
A battle for the control of a firm in which the dissident group seeks, from the firm's other
shareholders, the right to vote those shareholder's shares in favor of the dissident group's slate of directors.
Also called proxy fight.
Put option
This security gives investors the right to sell (or put) fixed number of shares at a fixed price within
a given time frame. An investor, for example, might wish to have the right to sell shares of a stock at a certain
price by a certain time in order to protect, or hedge, an existing investment.
Record date
1) Date by which a shareholder must officially own shares in order to be entitled to a dividend.
For example, a firm might declare a dividend on Nov 1, payable Dec 1 to holders of record Nov 15. Once a
trade is executed an investor becomes the "owner of record" on settlement, which currently takes 5 business
days for securities, and one business day for mutual funds. Stocks trade ex-dividend the fourth day before the
record date, since the seller will still be the owner of record and is thus entitled to the dividend.
2) The date that determines who is entitled to payment of principal and interest due to be paid on a security. The record
date for most MBSs is the last day of the month, however the last day on which they may be presented for the
transfer is the last business day of the month. The record date for CMOs and asset-backed securities vary with each issue.
Redemption charge
The commission charged by a mutual fund when redeeming shares. For example, a 2%
redemption charge (also called a "back end load") on the sale of shares valued at $1000 will result in payment of $980 (or 98% of the value) to the investor. This charge may decrease or be eliminated as shares are held for
longer time periods.
REIT (real estate investment trust)
Real estate investment trust, which is similar to a closed-end mutual
fund. REITs invest in real estate or loans secured by real estate and issue shares in such investments.
Reverse stock split
A proportionate decrease in the number of shares, but not the value of shares of stock
held by shareholders. Shareholders maintain the same percentage of equity as before the split. For example, a
1-for-3 split would result in stockholders owning 1 share for every 3 shares owned before the split. After the
reverse split, the firm's stock price is, in this example, worth three times the pre-reverse split price. A firm
generally institutes a reverse split to boost its stock's market price and attract investors.
Rights offering
Issuance of "rights" to current shareholders allowing them to purchase additional shares,
usually at a discount to market price. Shareholders who do not exercise these rights are usually diluted by the
offering. Rights are often transferable, allowing the holder to sell them on the open market to others who may
wish to exercise them. Rights offerings are particularly common to closed end funds, which cannot otherwise
issue additional common stock.
Rights-on
shares trading with rights attached to them.
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