P/E Ratio
See Price-Earnings Ratio.
Payout Ratio
Generally, the proportion of earnings paid out to the common stockholders as cash dividends. More specifically, the firm's cash dividend divided by the firm's earnings in the same reporting period. If the ratio declines significantly, the company might have to suspend payment of its common stock dividend. (SSG Section 3G)
Portfolio Diversification
Investing in different asset classes and in securities of many issuers in an attempt to reduce overall investment risk and to avoid damaging a portfolio's performance by the poor performance of a single security, industry or country investment.
Pre-tax Profit or Pre-tax Earnings
Net income before federal income taxes are deducted.
Price-Earnings (P/E) Ratio
A measure of the multiple of earnings at which a stock sells. Determined by dividing a stock's price by its earnings per share. Earnings per share for the P/E ratio is typically determined by dividing earnings for the past 12 months by the number of common shares outstanding. Earnings expected in the year ahead can also be used to calculate the P/E ratio. A higher multiple may mean investors have higher expectations for future growth and have bid up the stock's price. (SSG Sections 3D-E)
Profit Margin
Comparison of a company's earnings with its net sales, figured by dividing net income by revenue for the same 12-month period. Result is shown as a percentage. Indicator of profitability. Also called net profit margin; pre-tax margin when income before taxes is used. (SSG Section 2A)
Proxy Statement
Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders' meeting. Includes information on closely held shares. Information required by the SEC that must be provided to shareholders who wish to vote for directors and on other company decisions by proxy. These filings are also where shareholders find out how much a company's top executives are being paid in cash, stock and other perks.
Rate of Return
Calculated as the current value minus the value at the time of purchase divided by value at time of purchase. For equities, dividends are included with the current value. Often expressed in compound annual terms
Use of investment income to buy additional securities. Many mutual fund companies and investment services and some corporations offer investors automatic reinvestment in the fund or stock of dividends and capital gains distribution earned. See also dividend reinvestment plans (DRIPs).
Retained Earning
Accounting earnings that are retained by the firm for reinvestment in its operations; earnings that are not paid out as dividends.