Equity Investments Analysis glossary

A backward-looking, accrual-accounting measure of return actually earned (ARR, ROE, ROA), which can diverge from both the cost of equity and the investor's required return because it uses accounting profit rather than cash flow or market value.

Taught in Equity markets and securities

The accounting net asset value per share (the basis of the price-to-book ratio), a backward-looking historical-cost measure.

Taught in Equity markets and securities

Higher information and transaction costs, currency risk, and, for some markets, weaker investor protection or lower liquidity.

Taught in Equity markets and securities

Deep and liquid markets, low transaction costs, strong investor protection, transparent pricing, and efficient allocation of capital to its most productive use.

Taught in Equity markets and securities

Financial markets, financial intermediaries, and the regulatory infrastructure (covered in CIFA Regulation of Financial Markets) that together channel savings into investment.

Taught in Equity markets and securities

The firm's own required return on equity capital, estimated via CAPM or the dividend growth model, the discount rate used throughout this guide's discounted cash flow models.

Taught in Equity markets and securities

Currency risk, differing accounting standards and disclosure quality, political and regulatory risk, and market liquidity.

Taught in Equity markets and securities

Depository institutions (banks), insurance companies, and investment intermediaries such as brokers and fund managers, each transforming savers' funds into a form borrowers and issuers can use.

Taught in Equity markets and securities

Intermediation channels funds through an institution (a bank loan); disintermediation lets savers and borrowers transact directly, typically through securities markets (a corporate bond bought directly by an investor), bypassing the traditional intermediary.

Taught in Equity markets and securities

A good-till-cancelled order remains open until executed or cancelled; a day order expires unfilled at the end of the trading day.

Taught in Equity markets and securities

The gap between the two is the starting point for most of this paper's valuation work: intrinsic value estimates (see the chapter on the equity valuation process) are compared against market value to judge mispricing, while book value anchors asset-based approaches (see the chapter on private company valuation) and the residual income model.

Taught in Equity markets and securities

The forward-looking minimum return an investor demands to hold the security, given its risk, conceptually the same figure as the cost of equity from the company's own perspective, but estimated independently by each investor.

Taught in Equity markets and securities

Sets a maximum price to pay (buy) or minimum price to accept (sell), prioritising price over certainty of execution.

Taught in Equity markets and securities

Instructs immediate execution at the best currently available price, prioritising certainty of execution over price.

Taught in Equity markets and securities

What the security actually trades for, reflecting the market's collective, forward-looking assessment of the company's prospects.

Taught in Equity markets and securities

Diversification benefits, access to industries or growth opportunities underrepresented domestically, and exposure to different economic cycles.

Taught in Equity markets and securities

Mobilises savings, allocates capital to its best uses, enables risk transfer and diversification, and provides price discovery.

Taught in Equity markets and securities

Reducing search and transaction costs, providing maturity and risk transformation, pooling and diversifying risk, and supplying liquidity and price information to the market.

Taught in Equity markets and securities

Becomes a market order once a specified trigger price is reached, commonly used to limit losses on an existing position.

Taught in Equity markets and securities