Securities
A security is a document that shows a person’s legal ownership of a share in a company and reflects a financial value. A printed document is issued for the security in the past but this changed after the emergence of electronic documents.
A security is anything owned and has a cash value including the money owed by the company to others. The company’s assets are all it owns from cash and equipment as well as its accounts receivable.
Capital Assets
Capital assets are the long term assets that are not traded within the regular commercial operations of the company such as equipment, buildings and so on.
Current Assets
Current assets are the value of the company’s available assets whether it was cash or what can be easily transferred into cash including its accounts receivable, storage, and short term securities. Current assets are important because they are used to cover everyday expenses.
Gross Domestic Product (GDP)
GDP is the total monetary value of everything produced in the economy of goods and services within one year. The GDP is used as an indicator of the health, safety and productivity of the local economy.
Gross Profit Margin
Gross profit margin is calculated by dividing the total value of sales after deducting costs on the total value of sales and it is expressed as a percentage. For example, if a company’s sales are100 Thousand Riyals, and the cost of sales was 75 Thousand Riyals, then the gross profit margin is equal to a 25% (100,000 – 75,000) and the result is divided by 100,000.
Allocation
Asset allocation means making changes in the formation of the investment portfolio either by adding new investments to meet the investor’s objectives or by changing the portfolio’s investments as the investor’s objectives change or a change in the risk level or the time available.
Retained Earnings
Retained earnings are the profits that the company re-invests rather than distribute as dividends to shareholders. Retained earnings are listed under the shareholders’ equity in the company’s public budget and are sometimes referred to as the remaining surplus.
Revenue
Revenues are derived funds in exchange for a product or service. Revenue is different from profit in that profits represent the remaining revenue after deducting production and distribution costs or the costs of providing the service and paying any other taxes owed. Companies that provide services such as electricity and communications describe their income as revenue in their financial statements, while companies of specific products such as food and clothing describe their income as sales.
Costs
Costs are all the expenses that come under the production of a company’s products. It may include the expenses of production, marketing, and employees’ salaries and so on.
Diversification
Diversification is an investment strategy where an individual distributes his/her invested money on markets or industries or different securities. Diversification aims to protect the portfolio in case the returns of one of the sectors or securities are decreased.
Annual Report
It is the report that every public company should provide for its shareholders every year. The report includes the financial position and the income. It does not only include financial details but also general information on the company.
Inflation
Inflation is the great and continuing rise of the prices of most goods and services. Inflation often accompanies periods of economic recovery.
Insider Trading
The trading of the Board members, executives or major shareholders is considered legal if the decision to trade was based on publicly available information. An illegal trading is the one based on inside information that is not available to the public. Examples of insider information: changes in the executive management, financial position of the company, merger and acquisition decisions that have not been disclosed to the public. People who do not work for a company but can have access to material information about that company and illegally trade in its shares as a result of having access to that information, are considered to be in possession of insider information such as: lawyers, bankers, journalists and relatives of the company’s executives.
Overvaluation
A share price is considered overvalued if it exceeds the share’s fair value. One of the criteria used to measure the degree of overvaluation of the share is to look at the price-earnings ratio (P/E). When this ratio is significantly higher than the average of the entire market, or of other markets, or of the sector in which the company operates, the share is overvalued.
Undervaluation
A share price is undervalued when it is traded at a price lower than the share’s real value suggested by the standard valuation methods, such as high earnings or reputation of a company. This may sometimes occur when traders are no longer interested in a company’s share for one or more reasons.
Valuation
Valuation is the process of evaluating the value of the asset or the investment. It can also mean estimating the future value by using different data rates such as price to return ratio , price to sales or price to book value. The valuation can be based on long term expectations as the company develops a product or expand in market share.
Volatility
Volatility refers to the extent and speed in which the stock prices, indices or the financial market indicators change within. When, for example, a share is volatile, it means that prices fall and rise sharply in short periods of time.
Shareholders’ Equity
Shareholders’ equity are sometimes called Net Assets. They are calculated by adding the company’s profits, which are the remaining amount of cash after distributing the revenue on the shareholders, to the invested money in the company after deducting the long and short term commitments. Net assets or shareholders’ equity are usually mentioned in the annual financial report.
The plan to reinvest the returns
The plan to reinvest the returns is where the companies allow their shareholders to reinvest their dividends automatically by buying more of its shares. This plan helps in building the accumulated investments and benefit from reducing the average cost of investment policy.
Capital Losses
Capital losses are the losses resulting from selling an asset from the capital assets with a lower price than what was paid to buy it.
Income
Income, or return, is the total amount of cash and other assets that benefit individuals or companies.
Dividends
Profit distributed on the share is the part of the company’s revenues distributed on the shareholders as a return on their investments. Dividends are distributed in cash or shares quarterly, semiannually or just annually. Usually dividends are announced by the board recommendation.
Capital Market
The capital market is the actual place where securities are traded. It includes regulated electronic buying and selling of securities.
Liquidity
Liquidity means that the invested assets can be quickly and easily converted into cash without losses or small loss in its value. Invested assets can be easily liquefied if it can be bought and sold easily.
Share
A share is an investment that represents the ownership in a company and entitles the owner to earn a part of the company’s profits and assets.
Investment Fund
A joint investment program that aims to provide opportunity for its investors to collectively participate in its profits and is run by a fund manager in return for a fee.
Return on Investment
The return on investment is calculated by dividing the total profits from selling of shares on the size of the amounts invested and is expressed as a percentage. For example, if you invest 5,000 Riyals and after two years, the investment is worth 7,500 Riyals and the return on the investment is 50%. This result is obtained by dividing the profit of 2500 Riyals (7500 - 5000) on the investment value of 5,000 Riyals. For the annual return, the 50% is divided on the number of years.
The return on investment includes the income the investor earned from the investment in addition to any improvement on the price of the invested assets sale. The return on investment can be negative if the sale price of the invested assets in addition to the income earned on them less than their purchase price.
Return
Return is the gain or loss from the investments that include the income and the change in the invested assets. Return can be represented in a percentage calculated by adding the income to the change in the invested assets and then divide the result on the original amount invested. Annual return on investment can be calculated by dividing the total return on investment percentage on the number of years to invest. For example: If an investor bought shares worth 25 Riyals per share and then sold them in the amount of 30 Riyals per share, the return on investment is 5 Riyals. If the purchase had been on the third day of January, and the sale was on the fourth day of the same month next year, then the annual rate of return is 20%. This is obtained by dividing the return of 5 Riyals on the original investment of 25 Riyals. If the possession period of the share was five years before selling it in the amount of 30 riyals, the annual return on investment will be 4% (20 ÷ 5).
Compound interest
It is the interest rate that is calculated cumulatively as its value increases over the years. It is calculated based on the total amount, which represents the original invested amount, plus previously acquired interest.
Risk taking investors (bold investors)
Investors who are willing to take risks focus on the investments that can grow strongly. This kind of investors accepts the risk of losing a part of their capital in order to have high returns. Usually they are young investors who have long years ahead to invest their savings until retirement and those with long term investment goals. This kind of investors invests in companies that show high growth potential such as newly established companies or the ones in leading sectors. Although this type of companies holds a significant growth potential but at the same time it is exposed to severe volatility. Usually the prices of these companies increase in a faster pace and decrease at a slower pace compared with the average change in the prices of listed companies in the financial market.
Capital Gains
Capital gains are those resulting from the sale of capital assets in a price higher than the price paid to buy it.
Conservative Investors
Conservative investors’ priority is to keep the capital they invested. Thus, they avoid taking risks that might affect it even if it did not satisfy them with moderate returns. In some cases, this conservative methodology is appropriate. For example, if an investor has significant financial commitments in his/her own business; retired or on the verge of retirement in the near future, then it is wise to invest much of his/her assets in volatile securities.
Inventory
Inventory includes all the company's products, whether the final product or in one of the production stages. Raw materials used in the production of the final product are also included in it.
Liabilities
Liabilities are obligations owed by the company. They include: accounts payable (suppliers), payable wages and salaries, payable dividends, payable taxes and any other outstanding debts.
Macroeconomic information
Macroeconomics is information that reflects the overall condition of the domestic economy or the global economy. It also includes information and data covering international events or political affairs in a country that can reflect on the capital markets.
Microeconomic information
Microeconomic is information that covers a smaller aspect of the economy such as what is related to the information of a particular sector or company. Usually, the impact of this information is limited to the same sector or company. Examples of this kind of information: news of a merger between two companies, new technologies or products introduced by a company…etc.
Investment Portfolio
When an individual owns more than one security then a portfolio is created. Building the portfolio is integrated by buying shares or additional investments. Building an investment portfolio aims to choose the investments that are expecting an increase in its value in the future. The investor can decrease the risk level in the portfolio by diversification in securities where some can deliver good returns under any economical circumstance.
Risk
Risk can be defines as the possibility of losing the invested capital or its purchasing power. Investments hold different risks. In general, whenever the levels of risk increased the possibility of higher returns increases with it.
How an individual bears the risk decides w to what extent is he/she willing to take risks keeping in mind the investment objectives and the time to invest. As a general rule, the investor decreases the possible returns on investment if he/she is not willing to take risks. For example, if the investor decided to put his/ her money in the bank, where there is no risk, the returns will most probably not exceed the inflation level.
Expenses
Costs incurred by a company while conducting its business. It includes the expenses related to managing the company.
Growth
Investment growth is the increase in the financial value of the invested assets with time. Unlike investments that provide a steady return of income, there are investments that are not intended to do so, but to achieve steady growth in the financial value of the invested assets invested with time.
