Stock Markets, Equity, Dividends & Share Buy-backs

Vocabulary flashcards covering essential terms related to stock exchanges, equity structure, share issuance, dividends, financial ratios, share buy-backs, and private equity.

Stock Exchange

A marketplace where financial assets are issued and traded, providing a level playing field, liquidity, transparency, and publicity for companies and investors.

Liquidity (in stock markets)

The ease with which a security can be bought or sold in the market without affecting its price.

Fungibility

Interchangeability of an asset with other individual goods or assets of the same type.

Ordinary Share

Common equity that carries voting rights and entitles the holder to residual profits after preference shareholders.

Warrant

A derivative that gives the holder the right to purchase a company’s shares at a specific price before expiry.

Share Capital

The par value of all issued shares of a corporation.

Paid-in Capital

capital that shareholders invested

Retained Earnings

earnings that wrecked kept in the company over time

Reserves

Proportion of retired earnings reserved for something

Initial Public Offering (IPO)

The first sale of a company’s shares to the public.

Primary Offering

Sale of newly issued shares by the company to raise additional capital.

Secondary Offering

Sale of shares by existing shareholders to the public; proceeds go to the selling shareholders, not the company.

General Cash Offer

Public sale of new shares to any investor, typically by a public limited company.

Rights Issue

Offering giving current shareholders the right of first refusal to buy new shares, which they may exercise or sell.

Dividend

Payment made by a corporation to distribute profits to its shareholders, commonly in cash.

Payout Ratio

Cash Dividend ÷ Net Income; shows the proportion of earnings paid out as dividends.

Dividend Yield

Dividend Per Share ÷ Share Price; indicates the return on investment from dividends alone.

Earnings Per Share (EPS)

Net Income ÷ Total Number of Shares Issued; measures profitability per share.

Price-to-Earnings Ratio (P/E)

Price Per Share ÷ Earnings Per Share; expresses how much investors pay per unit of earnings.

Internal Financing

Funding investments using retained earnings; lowers leverage and should exceed cost of equity (WACC).

Share Buy-back

Company repurchase of its own shares, returning cash to shareholders; in Germany limited to 10 % of shares and needs shareholder approval.

Treasury Shares

Shares that a company has repurchased and retains in its own assets without canceling them.

Capital Reduction (via buy-back)

Repurchase of shares followed by their cancellation, reducing share capital.

Private Equity (PE)

Equity capital provided to non-listed companies, often by specialized investment funds.

Venture Capital

Equity financing for early-stage, high-growth startups, typically provided by venture funds or business angels.

Business Angel

An affluent individual who provides capital and expertise to startups in exchange for equity.

Management Buy-out (MBO)

Acquisition of a company, or a part of it, by its existing management team.

Leveraged Buy-out (LBO)

Purchase of a company mainly financed with debt, often secured by the target’s assets.

White Knight

A friendly investor invited to buy a significant stake (e.g., treasury shares) to fend off a hostile takeover.