Qualitative analysis Relying on subjective elements to take a view (e.g. valuing shares by judging the quality of management and strategic position).
Quant (Quantum) analysis Quantitative analysis using complex mathematical models.
Quantitative analysis Using statistics and mathematics to measure financial performance and the strengths of a company.
Quick asset value (net) Current assets minus inventory minus current liabilities.
Quick ratio (acid test) The ratio of current assets, less inventory (stock), to total current liabilities.
Quoted Those shares with a price quoted on a recognised investment exchange (e.g. the London Stock Exchange).
Quote-driven trading system Market makers post bid and offer prices on a computerised system.
R&D Research and development.
Rally A small rise in a market that is generally falling.
Random walk theory The movements in (share) prices are independent of one another; one day’s price change cannot be predicted by looking at the previous day’s price change.
Ranking (debt) Order of precedence for payment of obligations. Senior debt receives annual interest and redemption payments ahead of junior (or subordinated) debt. So, if the company has insufficient resources to pay its obligation the junior debt holders may receive little or nothing.
Rate of return The gain or loss on an investment over a specified period (usually one year), expressed as a percentage increase over the initial investment cost.
Rating An estimate of the quality of a debt from the lender viewpoint in terms of the relative likelihood of interest and capital not being paid and of the extent to which the lender is protected in the event of default. Credit rating agencies are paid fees by companies, governments, etc., wishing to attract lenders.
Real assets Assets used to carry on a business. These assets can be tangible (e.g. a building) or intangible (e.g. a brand), as opposed to financial assets.
Real cash flows Future cash flows are expressed in terms of constant purchasing power.
Real-estate investment trust (REIT) A closed-end investment company which predominantly buys property. If it pays out a high proportion of annual income in dividends each year it is granted tax concessions.
Real rate of return The rate that would be required (or obtained) in the absence of inflation. The nominal return minus inflation.
Realised gain (loss) An increase (decrease) in value realized when a deal has been completed and money released.
Real-time dealing An online brokerage service. The investor is directly connected to the market maker system. Retail service providers (RSPs) offer competing price quotes and the investor trades directly with one RSP.
Recapitalisation A change in a company’s financial structure, e.g. in the debt–equity ratio effected by selling more shares or bond holders swapping bonds for shares.
Receivable (accounts receivable) A sum due from a customer(s) for goods delivered: trade credit.
Receiver A receiver takes control of a business if a creditor successfully files a bankruptcy petition. The receiver may then sell the company’s assets and distribute the proceeds among the creditors.
Recognised investment exchange (RIE) A body authorised by the Financial Conduct Authority to regulate securities trading in the UK (e.g. the London Stock Exchange).
Record date When a share- out of profits is declared by a company, those on the share register on record day will receive dividends.
Recovery stock A share that has performed poorly but is expected to pick up.
Redeemable preference share A redeemable preference share is a preference share with a finite life. If you want to know more see Preference Shares.
Redemption The repayment of the principal amount, or par value, of a security (e.g. bond) at the maturity date resulting in the retirement and cancellation of the bond or other security.
Redemption gate An open-ended collective investment fund, e.g. unit trust temporarily limits/stops the redemption of units for cash. This can happen when there is a run on the fund, i.e. many investors trying to sell units. The managers may not be able to sell underlying securities, say shares in illiquid companies, fast enough to satisfy all the potential redeeming investors without resorting to fire-sale prices. Redemption gates are designed to stop the unfairness of the quickest to redeem getting the full amount while the slowest are left with the drags of the overall fund.
Redemption yield The redemption yield or yield to maturity of a bond is the discount rate such that the present value of all cash inflows from the bond (interest plus principal) is equal to the bond’s current market price.
Registered bond A bond where the owner’s details are kept on a register open to the company and the authorities.
Registrar An organisation that maintains a record of share (and other securities) ownership for a company. It also communicates with shareholders on behalf of the company.
Regular bonus The annual bonus given by an insurance company to with-profits policyholders.
Regulatory Information Services (RIS) Companies on UK stock exchanges are required to announce quickly any price sensitive information. They do this by making an announcement electronically via one of the Regulatory Information Services approved by
the Financial Conduct Authority which disseminates the news very quickly to dozens of financial websites and other places.
Regulatory News Service (RNS) A system for distributing important company announcements and other price-sensitive financial news run by the London Stock Exchange.
Relationship banking A long-term, intimate and relatively open relationship is established between a corporation and its banks. Banks often supply a range of tailor-made services rather than one-off services.
Relative return A return made on an asset relative to the performance of an index.
Rembrandt A foreign bond issued in the Netherlands.
Remuneration committee A group of directors of a company, all of which are independent of management, decide the remuneration of executive directors.
Repayment holiday A lender grants the borrower a delay in the repayment of interest and/or principal at the outset of a lending agreement.
Reporting accountant A company planning to float on the London Stock Exchange employs a reporting accountant to prepare a detailed report on the firm’s financial controls, track record, financing and forecasts.
Repurchase of shares A company which has prospered, or has no good use for its cash, buys back some of its shares.
Rescheduling/restructuring finance Rearranging the payments made by a borrower to a lender usually as a result of financial distress.
Rescue rights issue A company in dire trouble, in danger of failure, carries out a rights issue to raise capital.
Resistance line A line drawn on a price (e.g. share) chart showing the market participants’ reluctance to push the price below (or above) the line over a period of time.
Resolution A proposal put to the vote at a shareholders’ meeting.
Restructuring costs The costs associated with a reorganisation of the business (e.g. closing factories, redundancies).
Retail banking Banking for individual customers or small firms, normally for small amounts.
Retail brokers Stockbrokers acting for investors in the buying and selling of financial instruments and providing other investment-related services for investors.
Retail investor (individual investor, small investor) One who is not considered experienced enough to be regarded as a professional or expert. Under the Financial Conduct Authority rules retail investors receive regulatory protection and rights to compensation.
Retail Price Index (RPI) A measure of general inflation for the economy as a whole.
Retail service providers (RSPs) An automated computer dealing service to brokers and investors. Rather than using the telephone for a broker and market maker to strike a deal a computer system polls a number of retail service providers and the investor can trade quickly and cheaply electronically. See also Real-time dealing.
Retained earnings That part of a company’s profits after deduction of tax not paid as dividends.
Retention ratio Retained profits for the year as a proportion of profits after tax attributable to ordinary shareholders for the year.
Return on assets (ROA); Return on capital employed (ROCE); return on investment(ROI); Return on invested capital (ROIC) Traditional measures of profitability. Profit return divided by the volume of resources devoted to the activity. ‘Resources’ usually includes shareholders’ funds, net debt and provisions. Cumulative goodwill, previously written off, may be added back to the resources total. See also Accounting rate of return.
Return on equity (ROE) Profit attributable to shareholders as a percentage of equity shareholders’ funds. Calculated by dividing the net profit after tax by equity capital in the balance sheet.
Revaluation reserve A balance sheet entry that records accumulated revaluations of fixed assets.
Revenue reserves (retained earnings, profit and loss reserves) Profits retained by the company from previous year’s profits plus the gains made when non-current assets are sold (after tax deduction and losses on non-current asset sales). These are available to pay cash dividends.
Reverse floating-rate notes With reverse floaters the interest rate declines as the benchmark interest rate rises.
Reverse takeover The acquiring company is smaller than the target in terms of market capitalisation and offers newly created shares in itself as consideration for the purchase of the shares in the target. So many new shares are created that the former
shareholders in the target become the dominant shareholders in the combined entity.
Reverse yield gap In recent years we had a ‘reverse yield gap’ when the yield on a typical share was around 3–4 per cent and the yield on ten-year UK government bonds was under 2 per cent. This is unusual, because normally the anticipated growth in dividends encourages a higher share price, thus lowering the dividend yield below the gilt yield.
Reversing the trade Taking a second action in the futures market (say, selling the future) which is exactly opposite to the first action (say, buying the future). Also called ‘reversing the trade’.
Reversion to the mean The behaviour of financial markets is often characterised as reverting to the mean, in which an otherwise random process of price changes or returns tends over the medium- to long-term to move towards the average.
Reversionary bonus The annual bonus given by an insurance company to with-profits policyholders.
Revolving credit An arrangement whereby a borrower can draw down short-term loans as the need arises, to a maximum over a period of years.
Revolving underwriting facility (RUF) A bank(s) underwrites a corporate borrower’s access to funds at a specified rate in the short-term financial markets throughout an agreed period. If the notes are not bought in the market the underwriter is obliged to purchase them.
Reward-to-variability ratio A measure relating risk and return. The extent to which a portfolio’s (or share’s) return has been greater than a risk-free asset, divided by its standard deviation.
Reward-to-volatility ratio A measure relating return to risk. It is the return on a portfolio (or share) minus the risk-free rate of return, divided by beta.
Rights issue An invitation to existing shareholders to purchase additional shares in the company in proportion to their existing holdings.
Ring-fencing The separation of assets so that, for example, a customer’s cash and investments are not combined with their broker’s assets.
Risk A future return has a variety of possible values. Sometimes measured by standard deviation.
Risk arbitrage Taking a position (purchase or sale) in a security, commodity, etc., because it is mispriced relative to other securities with similar characteristics. The comparator securities are not identical (e.g. shares in Unilever and shares in Procter & Gamble) and therefore there is an element of risk that the valuation gap will widen rather than reduce. An extreme
form of risk arbitrage is to take a position hoping to make a profit if an event occurs (e.g. a takeover). If the event does not occur there may be a loss. The word ‘arbitrage’ has been stretched beyond breaking point, as true arbitrage should be risk-free.
Risk averter Someone who prefers a more certain return to an alternative with an equal return but which is more risky.
Risk-free rate of return (RFR) The rate earned on riskless investment. A reasonable proxy is short-term lending to a reputable government.
Risk lover (seeker) Someone who prefers a more uncertain position to an alternative with an equal but less risky outcome.
Risk premium The extra return, above the risk-free rate, for accepting risk.
Risk transformation Intermediaries offer low-risk securities or arrangements to primary investors to attract funds (e.g. bank account deal), which are then used to purchase higher risk securities issued by the ultimate borrowers (e.g. bank buys corporate bond).
Risk warning notice A statement from a UK broker to a private client alerting them to the risks inherent in trading particular financial securities.
Roadshow Companies and their advisers make a series of presentations to potential investors, usually to entice them into buying a new issue of securities.
ROI Profit return divided by the volume of resources devoted to the activity. ‘Resources’ usually includes shareholders’ funds, net debt and provisions. Cumulative goodwill, previously written off, may be added back to the resources total. See also Accounting rate of return.
Rolled-over overdraft Short-term loan facilities are perpetuated into the medium term and long term by the regular renewal of the facility.
Rolling cash spread betting (Rolling daily bets) A bet with a spread betting company on the cash price of the share. The investor ‘rolls’ his or her position overnight to the next day.
Rolling settlement Shares and cash are exchanged after a deal had been struck a fixed number of days later (usually two or three days) rather than on a specific account day.
RPI (Retail Price Index) A measure of general inflation.
Running yield on a fixed-interest security is the gross interest amount, divided by the current market price, expressed as a percentage.
Quant (Quantum) analysis Quantitative analysis using complex mathematical models.
Quantitative analysis Using statistics and mathematics to measure financial performance and the strengths of a company.
Quick asset value (net) Current assets minus inventory minus current liabilities.
Quick ratio (acid test) The ratio of current assets, less inventory (stock), to total current liabilities.
Quoted Those shares with a price quoted on a recognised investment exchange (e.g. the London Stock Exchange).
Quote-driven trading system Market makers post bid and offer prices on a computerised system.
R&D Research and development.
Rally A small rise in a market that is generally falling.
Random walk theory The movements in (share) prices are independent of one another; one day’s price change cannot be predicted by looking at the previous day’s price change.
Ranking (debt) Order of precedence for payment of obligations. Senior debt receives annual interest and redemption payments ahead of junior (or subordinated) debt. So, if the company has insufficient resources to pay its obligation the junior debt holders may receive little or nothing.
Rate of return The gain or loss on an investment over a specified period (usually one year), expressed as a percentage increase over the initial investment cost.
Rating An estimate of the quality of a debt from the lender viewpoint in terms of the relative likelihood of interest and capital not being paid and of the extent to which the lender is protected in the event of default. Credit rating agencies are paid fees by companies, governments, etc., wishing to attract lenders.
Real assets Assets used to carry on a business. These assets can be tangible (e.g. a building) or intangible (e.g. a brand), as opposed to financial assets.
Real cash flows Future cash flows are expressed in terms of constant purchasing power.
Real-estate investment trust (REIT) A closed-end investment company which predominantly buys property. If it pays out a high proportion of annual income in dividends each year it is granted tax concessions.
Real rate of return The rate that would be required (or obtained) in the absence of inflation. The nominal return minus inflation.
Realised gain (loss) An increase (decrease) in value realized when a deal has been completed and money released.
Real-time dealing An online brokerage service. The investor is directly connected to the market maker system. Retail service providers (RSPs) offer competing price quotes and the investor trades directly with one RSP.
Recapitalisation A change in a company’s financial structure, e.g. in the debt–equity ratio effected by selling more shares or bond holders swapping bonds for shares.
Receivable (accounts receivable) A sum due from a customer(s) for goods delivered: trade credit.
Receiver A receiver takes control of a business if a creditor successfully files a bankruptcy petition. The receiver may then sell the company’s assets and distribute the proceeds among the creditors.
Recognised investment exchange (RIE) A body authorised by the Financial Conduct Authority to regulate securities trading in the UK (e.g. the London Stock Exchange).
Record date When a share- out of profits is declared by a company, those on the share register on record day will receive dividends.
Recovery stock A share that has performed poorly but is expected to pick up.
Redeemable preference share A redeemable preference share is a preference share with a finite life. If you want to know more see Preference Shares.
Redemption The repayment of the principal amount, or par value, of a security (e.g. bond) at the maturity date resulting in the retirement and cancellation of the bond or other security.
Redemption gate An open-ended collective investment fund, e.g. unit trust temporarily limits/stops the redemption of units for cash. This can happen when there is a run on the fund, i.e. many investors trying to sell units. The managers may not be able to sell underlying securities, say shares in illiquid companies, fast enough to satisfy all the potential redeeming investors without resorting to fire-sale prices. Redemption gates are designed to stop the unfairness of the quickest to redeem getting the full amount while the slowest are left with the drags of the overall fund.
Redemption yield The redemption yield or yield to maturity of a bond is the discount rate such that the present value of all cash inflows from the bond (interest plus principal) is equal to the bond’s current market price.
Registered bond A bond where the owner’s details are kept on a register open to the company and the authorities.
Registrar An organisation that maintains a record of share (and other securities) ownership for a company. It also communicates with shareholders on behalf of the company.
Regular bonus The annual bonus given by an insurance company to with-profits policyholders.
Regulatory Information Services (RIS) Companies on UK stock exchanges are required to announce quickly any price sensitive information. They do this by making an announcement electronically via one of the Regulatory Information Services approved by
the Financial Conduct Authority which disseminates the news very quickly to dozens of financial websites and other places.
Regulatory News Service (RNS) A system for distributing important company announcements and other price-sensitive financial news run by the London Stock Exchange.
Relationship banking A long-term, intimate and relatively open relationship is established between a corporation and its banks. Banks often supply a range of tailor-made services rather than one-off services.
Relative return A return made on an asset relative to the performance of an index.
Rembrandt A foreign bond issued in the Netherlands.
Remuneration committee A group of directors of a company, all of which are independent of management, decide the remuneration of executive directors.
Repayment holiday A lender grants the borrower a delay in the repayment of interest and/or principal at the outset of a lending agreement.
Reporting accountant A company planning to float on the London Stock Exchange employs a reporting accountant to prepare a detailed report on the firm’s financial controls, track record, financing and forecasts.
Repurchase of shares A company which has prospered, or has no good use for its cash, buys back some of its shares.
Rescheduling/restructuring finance Rearranging the payments made by a borrower to a lender usually as a result of financial distress.
Rescue rights issue A company in dire trouble, in danger of failure, carries out a rights issue to raise capital.
Resistance line A line drawn on a price (e.g. share) chart showing the market participants’ reluctance to push the price below (or above) the line over a period of time.
Resolution A proposal put to the vote at a shareholders’ meeting.
Restructuring costs The costs associated with a reorganisation of the business (e.g. closing factories, redundancies).
Retail banking Banking for individual customers or small firms, normally for small amounts.
Retail brokers Stockbrokers acting for investors in the buying and selling of financial instruments and providing other investment-related services for investors.
Retail investor (individual investor, small investor) One who is not considered experienced enough to be regarded as a professional or expert. Under the Financial Conduct Authority rules retail investors receive regulatory protection and rights to compensation.
Retail Price Index (RPI) A measure of general inflation for the economy as a whole.
Retail service providers (RSPs) An automated computer dealing service to brokers and investors. Rather than using the telephone for a broker and market maker to strike a deal a computer system polls a number of retail service providers and the investor can trade quickly and cheaply electronically. See also Real-time dealing.
Retained earnings That part of a company’s profits after deduction of tax not paid as dividends.
Retention ratio Retained profits for the year as a proportion of profits after tax attributable to ordinary shareholders for the year.
Return on assets (ROA); Return on capital employed (ROCE); return on investment(ROI); Return on invested capital (ROIC) Traditional measures of profitability. Profit return divided by the volume of resources devoted to the activity. ‘Resources’ usually includes shareholders’ funds, net debt and provisions. Cumulative goodwill, previously written off, may be added back to the resources total. See also Accounting rate of return.
Return on equity (ROE) Profit attributable to shareholders as a percentage of equity shareholders’ funds. Calculated by dividing the net profit after tax by equity capital in the balance sheet.
Revaluation reserve A balance sheet entry that records accumulated revaluations of fixed assets.
Revenue reserves (retained earnings, profit and loss reserves) Profits retained by the company from previous year’s profits plus the gains made when non-current assets are sold (after tax deduction and losses on non-current asset sales). These are available to pay cash dividends.
Reverse floating-rate notes With reverse floaters the interest rate declines as the benchmark interest rate rises.
Reverse takeover The acquiring company is smaller than the target in terms of market capitalisation and offers newly created shares in itself as consideration for the purchase of the shares in the target. So many new shares are created that the former
shareholders in the target become the dominant shareholders in the combined entity.
Reverse yield gap In recent years we had a ‘reverse yield gap’ when the yield on a typical share was around 3–4 per cent and the yield on ten-year UK government bonds was under 2 per cent. This is unusual, because normally the anticipated growth in dividends encourages a higher share price, thus lowering the dividend yield below the gilt yield.
Reversing the trade Taking a second action in the futures market (say, selling the future) which is exactly opposite to the first action (say, buying the future). Also called ‘reversing the trade’.
Reversion to the mean The behaviour of financial markets is often characterised as reverting to the mean, in which an otherwise random process of price changes or returns tends over the medium- to long-term to move towards the average.
Reversionary bonus The annual bonus given by an insurance company to with-profits policyholders.
Revolving credit An arrangement whereby a borrower can draw down short-term loans as the need arises, to a maximum over a period of years.
Revolving underwriting facility (RUF) A bank(s) underwrites a corporate borrower’s access to funds at a specified rate in the short-term financial markets throughout an agreed period. If the notes are not bought in the market the underwriter is obliged to purchase them.
Reward-to-variability ratio A measure relating risk and return. The extent to which a portfolio’s (or share’s) return has been greater than a risk-free asset, divided by its standard deviation.
Reward-to-volatility ratio A measure relating return to risk. It is the return on a portfolio (or share) minus the risk-free rate of return, divided by beta.
Rights issue An invitation to existing shareholders to purchase additional shares in the company in proportion to their existing holdings.
Ring-fencing The separation of assets so that, for example, a customer’s cash and investments are not combined with their broker’s assets.
Risk A future return has a variety of possible values. Sometimes measured by standard deviation.
Risk arbitrage Taking a position (purchase or sale) in a security, commodity, etc., because it is mispriced relative to other securities with similar characteristics. The comparator securities are not identical (e.g. shares in Unilever and shares in Procter & Gamble) and therefore there is an element of risk that the valuation gap will widen rather than reduce. An extreme
form of risk arbitrage is to take a position hoping to make a profit if an event occurs (e.g. a takeover). If the event does not occur there may be a loss. The word ‘arbitrage’ has been stretched beyond breaking point, as true arbitrage should be risk-free.
Risk averter Someone who prefers a more certain return to an alternative with an equal return but which is more risky.
Risk-free rate of return (RFR) The rate earned on riskless investment. A reasonable proxy is short-term lending to a reputable government.
Risk lover (seeker) Someone who prefers a more uncertain position to an alternative with an equal but less risky outcome.
Risk premium The extra return, above the risk-free rate, for accepting risk.
Risk transformation Intermediaries offer low-risk securities or arrangements to primary investors to attract funds (e.g. bank account deal), which are then used to purchase higher risk securities issued by the ultimate borrowers (e.g. bank buys corporate bond).
Risk warning notice A statement from a UK broker to a private client alerting them to the risks inherent in trading particular financial securities.
Roadshow Companies and their advisers make a series of presentations to potential investors, usually to entice them into buying a new issue of securities.
ROI Profit return divided by the volume of resources devoted to the activity. ‘Resources’ usually includes shareholders’ funds, net debt and provisions. Cumulative goodwill, previously written off, may be added back to the resources total. See also Accounting rate of return.
Rolled-over overdraft Short-term loan facilities are perpetuated into the medium term and long term by the regular renewal of the facility.
Rolling cash spread betting (Rolling daily bets) A bet with a spread betting company on the cash price of the share. The investor ‘rolls’ his or her position overnight to the next day.
Rolling settlement Shares and cash are exchanged after a deal had been struck a fixed number of days later (usually two or three days) rather than on a specific account day.
RPI (Retail Price Index) A measure of general inflation.
Running yield on a fixed-interest security is the gross interest amount, divided by the current market price, expressed as a percentage.