Financial Terms: M-S

1. Money that an investor has borrowed from a broker in order to buy securities. An investor who buys on margin can realize huge gains if the price of the security moves in a favorable direction; however, he/she also takes on a great deal of risk because it may not move in such a direction. See also: minimum maintenance, margin call. 2. A measure of how well a company controls its costs. It is calculated by dividing a company's profit by its revenues and expressing the result as a percentage. The higher the margin is, the better the company is thought to control costs. Investors use the margin to compare companies in the same industry as well as between industries to determine which are the most profitable. It is also called the profit margin.

Market cap refers to the value or capitalization the market puts on a company. It is calculated by multiplying the price of the stock by the number of stocks issued.

The state of holding a property the value of which is less than the amount of mortgage still unpaid.

The excess of revenues over expenses derived from normal business operations. Operating income, representing income from ordinary business activities, excludes expenses, such as interest and taxes. Unusual nonrecurring items, such as gains from selling a subsidiary or losses from closing a plant, are not included in the calculation of operating income.

The amount of profit realized from a business's operations after taking out operating expenses - such as cost of goods sold (COGS) or wages - and depreciation. Operating income takes the gross income (revenue minus COGS) and subtracts other operating expenses and then removes depreciation. These operating expenses are costs which are incurred from operating activities and include things such as office supplies and heat and power. Operating Income is typically a synonym for earnings before interest and taxes (EBIT) and is also commonly referred to as "operating profit" or "recurring profit".

An amount owed to a person or organization for funds borrowed. Debt can be represented by a loan note, bond, mortgage or other form stating repayment terms and, if applicable, interest requirements. These different forms all imply intent to pay back an amount owed by a specific date, which is set forth in the repayment terms.

A valuation ratio of a company's current share price compared to its per-share earnings. Calculated as: For example, if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95).

A ratio for valuing a stock relative to its own past performance, other companies or the market itself. Price to sales is calculated by dividing a stock's current price by its revenue per share for the trailing 12 months.

A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. Also known as the "price-equity ratio".

Indicates the value stockmarket analysts and investors put on a firm's earning expectations compared to what it had earned in the past, and is used to discover stocks that have high growth potential but are trading at a discount. A PEG ratio of 1 is considered a sign of good value. Formula: Stock's projected PE ratio ÷ Stock's projected EPS growth rate.

A company's earnings that are not calculated according to the Generally Accepted Accounting Principles. For example, a company may exclude non-cash expenses that the GAAP would ordinarily include. Companies often publish pro forma earnings to highlight positive aspects of their earnings. While this may indeed show positive earnings for a company that the GAAP can miss, pro forma earnings can also be manipulated more easily to make a company appear healthier than it is.

A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.

A relatively severe test of a company's liquidity and its ability to meet short-term obligations. The quick ratio is calculated by dividing all current assets with the exception of inventory by current liabilities.

A material or substance used in the primary production or manufacturing of a good. Raw materials are often natural resources such as oil, iron and wood. Before being used in the manufacturing process raw materials often are altered to be used in different processes. Raw materials are often referred to as commodities, which are bought and sold on commodities exchanges around the world.

A measurement of return on the investment needed for a business to function, otherwise known as capital employed, expressed as a dollar amount or a percentage. It is used to show a business' health, specifically by showing how efficiently its investments are used to create a profit. A good ROCE is one that is greater than the rate at which the company borrows. Because capital employed has no set definition, there are different ways to calculate ROCE. Two common ways are: ROCE = (Operating Profit Before Tax) / (Total Assets - Current Liabilities) and ROCE = ((Profit before Tax) / (Capital Employed)) * 100. One limitation to ROCE is the fact that it does not account for depreciation of the capital employed. Because capital employed is in the denominator, a company with depreciated assets may find its ROCE increases without an actual increase in profit. It also neglects inflation, which might depress ROCE unnecessarily. See also: Return on Average Capital Employed (ROACE), Required return.

The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.

analysis is the analysis of tradeable financial instruments called securities. These can be classified into debt securities, equities, or some hybrid of the two.

Individual, group, or organization that holds one or more shares in a firm, and in whose name the share certificate is issued. It is legal for a firm to have only one shareholder. Also called stockholder.

A firm's total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity represents the amount by which a company is financed through common and preferred shares.