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Date: Tuesday 13th 2008f May 2008 09:02:45 AM

Glossary
 

P
 

Paid In Capital:  Capital paid to a corporation from investors. In exchange, investors will receive certain percentage of the company's common stock. 

Our take: In an IPO, a firm is trying to raise capital by giving out stocks in exchange of investment fund.

 

Panic Buying: High volume buying that is brought about by high price increases.

Our take: Panic buying may signal temporary top of the common stock. Some suggest that the price of the stock from then on will decline. 
 

Panic Selling: High volume selling that is brought about by quick sharp price decreases..

Our take: Panic selling may signal temporary bottom of the common stock. This is because those that want to sell, already sold after this point.
 

Paper Profit (Paper Loss): Unrealized capital gain or loss of an investment.
Our take: When a common stock rises from the price we bought it, we made a profit. But that profit is a paper profit if we haven't sold the stock and realize the gain.
 
Paper Trade: Mimicked buying and selling of a stock without using the real money.
Our take: This is important for novice investors who want to use an investing method without risking their own money. 
 
Parent Company: A company that own a significant stake of several other smaller companies.
Our take: For example General Electric owns NBC network and several other businesses.
 
Partnership: A business entity where two or more individuals manage and run the business.
Our take: Partnership is just one of the several business types that operate in the United States. Other commonly used business organization are: sole proprietorship, corporation and limited liability corporation (LLC)
 
Passive Income: Income that is earned where the investors are not actively involved in the investment.
Our take: Three main category of income are: active income, passive income and portfolio income. Passive income is income earned from rental property or other partnership in which an investor is not actively involved.
 
Passive Investing: Investing without paying attention to the short-term fluctuation of a security
Our take: It is also known as Buy And Hold Investing.
 
Passive Loss: Similar to passive income, this is the loss incurred where investors are not actively involved in the investment.
Our take: Example include the loss of income through rental property or other enterprises where the individuals are not actively involved.
 
Passive Management: An investment strategy that mimicked the market indices.
Our take: Passive management normally incurs less management fee as less buying and selling occurs.
 
Patent: A government license that grants the holder an exclusive right to produce, market and sell a new invention for a specific time period.
Our take: Patent are most prevalent in pharmaceutical and biotechnology companies.
 
Payback period: The time required for an investment to pay itself off.
Our take: For example, if an investment costs investor $ 10,000 and it returns $ 2500 annually, then the payback period for this investment will be = 4 years.
 
Payout Ratio: The ratio of dividends paid versus earnings reported in the period.
Our take: For example, a payout ratio of 25% means that for every $ 1 earned, the company will distribute 25 cents in dividend to the shareholders.
 
Penny Stock: Common stock that trades lower than $ 5 for a considerable amount of time.
Our take: 90% of penny stock never rises from their current slumps and stay that way. Investors who are betting to make money from penny stock should be wary and invest carefully.
 
Perfect Competition: A market where the demand and supply curve is completely elastic.
Our take: Meaning that for every price difference, there will be a change in quantity demanded and/or quantity supplied.
 
Perpetual Bond: Bond that pays fixed interest rate forever and has no maturity date. 
Our take: Since it has no maturity, perpetual bond behaves more like stock that pays a certain dividend rate. The price of the bond depends on the current interest rate and investors' attitude towards risk.
 
Personal Finance: Planning the finance life of an individual. It ranges from analyzing their financial condition to predicting short and long-term needs for cash.
Our take: Examples of personal finance is mortgage, long-term investments, life insurance and so on.
 
Personal Income: An individual's total income from wages, tips,  investments and other things. 
Our take: This is basically your gross total income.
 
Petro Dollars: Money that companies receive from selling oil and be paid in dollars.
Our take: This is normally what middle east countries and OPEC members get. They export oil to western countries and the US. In return, they will pocket the dollar currency and deposit them in the western banks.
 
Petty Cash: Cash that is used for minor purchase and other charges.
Our take: For retail stores, petty cash is the cash required to give change to customers' purchase.
 
Physical Asset: Assets that are tangible and physically available for sale or use.
Our take: Examples include: heavy machinery, building, furniture, computers and so on.
 
Pledged Asset: Asset that becomes collateral for lenders.
Our take: When borrowers can't pay his loan, the lender has the right of possession to the pledged asset.
 
Poison Pill: Corporate policy that is enforced to discourage hostile takeovers.
Our take: An example includes a clause that can release a huge number of shares to the market once an acquirer makes a bid.
 
Political Risk: A financial risk that might occur when government change its policies.
Our take: Political risk is prevalent in third world countries where the law is not fully enforced and changes in rule can hurt a business' prospectives.
 
Pooling of Interests: An accounting method where two balance sheets of a merged companies are combined into one.
Our take: This occurs when one company acquired another and absorbed its balance sheet.
 
Portfolio Income: Income from investments including capital gain, dividend etc.
Our take: Portfolio income can be taxed at ordinary rate or long-term capital gain rate.
 
Portfolio Manager: Individual that is chosen to make decisions on what to invest for its mutual fund assets.
Our take: When investing in mutual fund, investors should look at the portfolio manager to identify his style of investing and how much return investors might expect.
 
Portfolio Turnover: A measure on how long an entire portfolio being bought and sold.
Our take: A portfolio turnover of 12 month indicates that the entire portfolio will be completely different every 12 month period.
 
Precious Metals: valuable metals with physical assets such as gold, platinum, copper and so on.
Our take: In the period of rising inflation, precious metals normally raise in value.
 
Prepaid Expense: Payments that had been paid before it is due.
Our take: Prepaid Expense is located on the balance sheet. Example includes: insurance or rent payments.
 
Prepayment: The payment of debt before its maturity.
Our take: When companies have enough cash flow to repay debt, it will do prepayment right away. There is no sense of delaying debt payment when you can pay it off earlier.
 
Present Value: The amount of what future sum of money is worth today, given certain discount rate.
Our take: For example, if you require a 3% discount rate on your money, $ 100 today will be worth $ 103 next year.
 
Preservation of Capital: An investment strategy where the primary goal is to prevent the loss of capital.
Our take: Sometimes, investors will use diversification technique to achieve preservation of capital.
 
Price Fixing: The process of establishing a price for a product or service, rather than being determined by the supply and demand force.
Our take: This procedure is an illegal practice in the US.
 
Price Skimming: A product being priced higher initially. As demand grows, the price will be lowered to attract other price sensitive customers.
Our take: High price can often be interpreted as a sign of high quality.
 
Price Target: The projected price level of a security based on its fair value.
Our take: A price target of $ 75 for stock C means that an analyst expect C to reach its fair value of $ 75.
 
Price Earning (P/E) Ratio: It is the ratio of price of a stock divided by its earning per share.
Our take: In general, a high P/E indicates that the stock is more expensive and investors' expectation are high.
 
Price to Book (P/B) Ratio: It is the ratio of the company's stock price with its book value per share.
Our take: A low P/B ratio may signify that the stock is undervalued and investors are not expecting much return from the company's underlying assets.
 
Price to Cash Flow (P/CF) Ratio: It is calculated by dividing the stock price with its cash flow per share figure.
Our take: This ratio is useful to indicate how much cash per share a company generates for a given stock price.
 
Price to Sales (P/S) Ratio: It is the ratio of a company's stock price divided by its sales per share.
Our take: P/S ratio vary widely among different industries. It is more useful to compare this ratio with companies within the same industry.
 
Price Earnings to Growth (PEG) Ratio: Calculated by taking P/E ratio and divide it with expected growth rate.
Our take: Generally, when PEG falls below one, the stock in question can be considered undervalued.
 
Pricing Power: An economic term to describe the price elasticity of a product.
Our take: If a product has a pricing power, demand tends to be inelastic. When the product price is raised, quantity demanded does not fall off as much. This is due to the lack of availability of a substitute.
 
Prime Rate: The interest rate that banks charge to their most credit-worthy customers.
Our take: Prime rate is normally lower than the rate that individuals will get. The primary reason is that because these customers have a low probability of default.
 
Principal: The amount of money that is borrowed as a loan. It can also mean the face value of a bond.
Our take: We have to make sure that we use this word within the context of it.
 
Private Company: Company that is not publicly traded in the stock exchange.
Our take: Since it is private, it does not have the obligation to reveal its financial report to the investing public.
 
Private Placement: Raising capital to small number of investors, as opposed to the general public.
Our take: As a result, the company does not have to publicly disclose it to the SEC.
 
Productivity: The amount of output produced per unit cost.
Our take: For example the productivity of a garment worker can be measured by how many garments a worker can finish in one day.
 
Profit: The amount of money left after subtracting sales with all expenses and taxes.
Our take: Making profit is the goal of any business.
 
Profit & Loss Statement: A financial statement that summarizes revenue and all expenses.
Our take: The goal for this is to figure out the profit generated over a period of time.
 
Profit Margin: The percentage of net profit with respect to sales.
Our take: A profit margin of 10% indicates that for every dollar of revenue, the company keeps 10 cents as a profit.
 
Profit Taking: The action of selling a stock that has appreciated in value rapidly.
Our take: This action pushes stock price down temporarily. The good news is that once sellers are gone, the stock can continue its trajectory up.
 
Profit Warning: An announcement that a company cannot meet its profit expectation.
Our take: When management issues frequent profit warning, it generally tarnishes management's image as a reliable performer.
 
Property Tax: Tax levied on a real estate.
Our take: The tax amount varies depending on the value of the real estate.
 
Protectionism: actions taken by the government to protect certain industries from overseas threat.
Our take: An example of protectionism is tariff or quota.
 
Proxy Fight: It happens when shareholders band together to get enough vote to change the corporation in the way it does business.
Our take: Proxy fight occurs when shareholders are discontent with the way the board of directors make corporate policies.
 
Purchase Price: The price that investors buy for a security.
Our take: Purchase Price will affect the overall total return on investment. If investors buy it low, there are a good probability that the return on investment will be higher.
 
Purchasing Power: The amount of goods or service a certain amount of currency can buy.
Our take: For example the purchasing power of $ 1 nowadays is to buy a pack of gum.
 
Pure Play: A company that ties its fortune to a specific product line or industry.
Our take: For example, it is safe to say that Coca Cola Company is a pure play for the beverage industry.
 
Put Option: A contract giving the buyer the right but not the obligation to sell a security at a specified price within a specified time frame.
Our take: A put investor makes money when the price of the underlying security drops in value.
 
Put Call Ratio: The ratio of people buying put option versus call option.
Our take: This ratio measures the bearishness of the overall market. When Put Call Ratio shoots up, it indicates that investors are extremely cautious and sentiment is bearish. 
 

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