Glossary

A


Allocation: If demand is higher than the supply of newly issued shares, subscriptions will be shortened and investors will be informed about their final share allocations.

Annual General Meetings (AGM): The AGM takes place at least once a year and is an opportunity for shareholders to air their concerns and to ask questions. The AGM is responsible for: the appointment and dismissal of the members of the Supervisory Board (but not of the employee representatives); decides on the use of profits; amendments of the company's statutes; capital increases, and actions that will significantly change the organisational structure of the company.

B


Balance Sheet: A balance sheet lists the total assets as well as the equity and debt (liabilities). A public limited company publishes a balance sheet at the end of the fiscal year and thus outlines its assets and liabilities.

Banking Syndicate: As soon as a decision to go public has been taken, the Global Co-ordinators that will lead the syndicate for the offering are selected. The banks involved form a syndicate up to the time at which the IPO has been completed. Their function is to advise the company about all the relevant matters and to market the stock to be issued. One or more banks lead the syndicate and are called the Global Co-ordinators.

Bear Market: Term for generally falling share prices. (Opposite: bull-market)

Benchmark: Point of reference, standard of comparison. A benchmark may, for example, be an index or a security, for example.

Bid price: The bid price states the price at which the shareholder is willing to buy shares. Equivalent: Offer price.

Blue chip: Generally refers to shares of prominent companies with a high market capitalization.

Bond: Long-term debt instrument. The terms of the bond issue oblige the issuer to meet certain requirements. Generally, these are the repayment of the amount borrowed and the payment of fixed-rate nominal interest on set dates.

Bonus share: The term bonus share can be misleading. When assets or a share premium reserve are re-evaluated, capital funds are usually distributed to the shareholders in the form of shares for which payment is not required. This process does not affect the total value of the company (market capitalisaton), the total value is just divided by a larger number of shares. The shareholders receive additional shares according to the size of their investment. These extra shares are also good for dividends.

Bookbuilding: There are a number of different procedures for determining the price of a stock when it is first issued to investors after the price range has been fixed. Bookbuilding is currently viewed as the most objective method. It originated in the USA and is now becoming increasingly popular world-wide. During the bookbuilding period investors submit their purchase requests specifying how many shares they would like to buy and at which price (within the specified price range). These purchase requests are known as subscriptions or orders, which can come from both institutional and retail investors (who typically put in their orders through their banks). All subscriptions are collected in a central electronic subscription book and provide the syndicate banks and the company with a concrete basis for determining the level of interest in the offer and the price that investors are willing to pay for the stock.

Broker: Broker is a term from the USA describing persons or companies that act as intermediaries in the purchase and sale of securities. For an appropriate commission, the broker buys and sells his client's shares at the stock market.

Brokerage: Fee charged by a broker to execute a securities transaction.

Bull Market: Phase of generally rising share prices. (Opposite: bear market)

C


Call Option: A call option is a purchase option for a shares in a certain period of time at a particular price. The equivalent is a put option. If the call option is not exercised, it will expire.

Cash flow: Indicator of a company's liquidity. Overall liquidity consists of the sums of operative liquidity as well as cash flow resulting from financing and investment activities. Operative cash flow is a good indicator of the company's ability to invest, repay debt and to pay dividends.

Chart: A chart illustrates the trend of a single shares or of market or industry-indices. Depending on the period of monitoring, the chart graphically presents either daily figures or long-term statistical series.

Chart analysis: Chart analysis is a form of share analysis, whereby an analyst can see how the price has reacted in specific situations in the past, and use the information to forecast future short- and medium-term price developments. Financial information about the company is not taken into consideration.

Closing Price: The final share price that is established at the end of the trading day.

Compulsory disclosure: Companies that have their shares listed at the stock exchange commit themselves to regularly informing the public about the development of its business. Some publicly limited companies go further than that and publish additional information about their asset and earnings' situation, their research and development efforts and investment plans in order to provider their shareholders with a comprehensive picture of the company. The type and extent of compulsory disclosure depends on the regulations relevant for the various segments of the stock exchange ("Amtlicher Markt", "Geregelter Markt"). If companies do not or only unsatisfactorily fulfil the disclosure requirements, these companies may be excluded from the market segment.

D


DAX: Abbreviation for Deutscher Aktien Index/ German Share Index) Represents the share price performance of the German market in a single figure and consists of the shares of the 30 biggest and most liquid German companies. The DAX not only takes the respective share price performances into consideration but also the dividends paid by the companies.

Declaration for exemption from withholding tax (Freistellungsauftrag): The declaration for exemption from withholding tax is filed by the investor with his or her bank or brokerage firm so as to avoid the deduction of withholding taxes, provided that interest and dividend income does not exceed the exemption amount.

Dividend: The Annual General Meeting decides on the amount of dividend. The dividend is the proportion of the profit paid out for each shares owned.

Dividend Yield: Represents the ratio of dividend paid and share price. This ratio is often used to compare different shares.

E


Employee shares: Shares offered to a company's employees, often under preferential conditions, with the aim of strengthening staff loyalty towards the company. Employee shares can be eligible for tax relief under certain circumstances. In this case employees must not sell their shares within a certain period in order to benefit from the tax relief. Employee shares carry the same rights as normal shares.

Earnings before interest and tax (EBIT): EBIT is defined as a companies net profit for the period before the deduction of taxes, financial result and extraordinary result. After subtracting these positions, a company's operative profitability can be compared.

Earnings before interest, tax and amortisation (EBITA): EBITA is a key ratio to assess corporate profitability. EBITA is defined as net profit for the period not only before the deduction of taxes, financial result and extraordinary result, but also before the amortisation of goodwill.

Earnings per share (EPS): One of the most important ratios in share analysis. EPS is calculated by dividing the company's net operating profits after tax by the number of shares issued.

Earnings retention: Earnings retention describes the use of undistributed profits for reinvestment into the company. In the area of mutual funds, there are cumulative or non-dividend funds that equally retain earnings. The dividends and interests realised by these funds are not paid out but reinvested. This automatic reinvestment leads to the effect of compound interest.

Equity Capital: The part of the equity capital of a public limited company, which has to be paid in by the founders at the moment of the company's foundation, has to be at least 50.000,00 €. In reality, this amount tends to be considerably higher. The equity capital is divided into shares. The nominal value of these shares multiplied by the number of shares make up the equity capital. An increase or decrease in equity capital can only be carried out after the amendment of the company's statutes.

Eurobond: A Eurobond is a bond floated on the euromarket, usually issued by an international bank syndicate. Eurobonds are issued in currencies not bound to the issuing country. Prevailing bond currencies are the US dollar, the yen and the euro.

Exchange ratio: In a capital increase the exchange ratio describes the proportion of old shares to new shares. A 5:3 ratio means that 3 new shares account for 5 old shares. If the current capital stock is € 500 million, it will this way be increased to € 800 million.

F


Free float: Free float is the part of a company's stock, which is held by a multitude of shareholders and which can be traded without any restriction at the stock market. The rest of the shares are owned by permanent and significant shareholders such as the management or the holding company. The lower the free float, the less liquid is the market for these shares. Only a few orders are sufficient to push the share price significantly up or down.

FTSE 100: Short for Financial Times Stock Exchange's 100-share index. The index consists of the 100 most valuable shares in the UK.

Fundamental Analysis: One of the two prevailing methods to forecast future share prices. The fundamental analysis is based on the assumption that a specific share price depends on the development of the expected earnings of a company. This way current share prices already reflect the expected earnings potential of a company. A comparison between the market capitalisation of a given company and its earning power can give valuable information as to whether the company is under, over or correctly valued.

Funds: Investment companies or mutual funds manage capital assets by investing capital in shares, property etc. The investor's share in the fund is documented. If an investment fund realises profits from share price increases, dividends, interests etc., they are normally paid out. In a fund with retained profits, the profits are re-invested and thus have an impact on the value of the client's proportion of the fund.

Futures Trading: Securities, goods or foreign currencies are sold or bought at a fixed price at a later point in time. (Opposite of spot trading)

G


Global Coordinator: The banking syndicate is lead by one or several banks in charge of the overall management of the offering and its technical handling.

Greenshoe: The underwriters are offered an over-allotment option, which can be used in order to stabilise the offer. If the share price rises too dramatically the over-allotment option can be used to stabilise the price. If the share price falls, the underwriters can buy in the market to support the offer. This over-allotment option is also called a Greenshoe (the name of the company involved when this concept was first introduced) and generally amounts to between 10 and 15 percent of the originally planned offer volume (or base deal).

I


Individual Share Certificate: Individual share certificates do not carry a nominal value and were introduced in Germany in 1998. All issued shares have to represent the same amount of the company's share capital. This amount is calculated by dividing the company's share capital by the number of shares issued.

Initial Public Offering: Expression used to describe the process during which a company offers its shares for the first time to the public. The public is given the chance to invest in the company and thus to participate in the success of the company. In this way, the company can raise fresh capital to finance future growth and further expansion. An IPO is usually handled in Germany by a banking syndicate.

Institutional investor: Institutional investors are capital collectors. Among them are banks, insurers, and asset management companies, but also companies investing their retire-ment contributions in securities.

IFRS / International Financial Reporting Standards: The accounting standards to be applied in drawing up consolidated financial statements according to IFRS were issued by the International Accounting Standards Board (IASB). The IASB is an international association of accountants, financial analysts and business representatives.

Insider: Persons who (1) are members of the Management or Supervisory Boards of the issuer, (2) who have stakes in the issuing company or (3) who have, due to their professional position, access to information that might have an influence on the company's share price and which is not publicly available. The use of this information to one's own advantage is a criminal offence.

Investment funds: See: Funds

Investor Relations: Department in charge of communication with financial markets. When the shares are finally placed and traded on the stock market, the newly listed company enters a completely new phase, in particular regarding its relations with the public. Shareholders, stock market experts and financial journalists wish to be kept informed accurately and regularly. This requires specifically targeted information and programmes, which are normally run by the Investor Relations department. The objective is to facilitate further capital raising, to lower the cost of capital and to maximise shareholder value.

Issuer: Company or public body issuing securities.

L


LIBOR: Abbreviation for London Interbank Offered Rate. A short-term interest rate set and published daily, used by banks to borrow and lend money amongst themselves on the London money market. Among other things, LIBOR is also used as the reference interest rate on the swap market.

M


Main Market (Amtlicher Markt): German main market for trading in officially listed securities. Companies aiming for an official listing on the Amtlicher Markt have the obligation to publish a detailed prospectus during its Initial Public Offering (IPO). Additionally, there are certain publication requirements during the financial year such as the publication of the Annual Report and Interim Reports. Official brokers are in charge of the fixing of quotations, which implies the investor has the right to have his orders executed at the fixed price.

Major exchanges: Major exchanges are the world's most important stock exchanges since most minor exchanges reflect their development and market participants are influenced by their trends. Among the major exchanges are New York, Tokyo, London, and Frankfurt.

Managing Board: Is responsible for the management of the company and its representation. It is appointed by the Supervisory Board for a maximum of 5 years.

Market Capitalisation: Sum total of number of shares issued multiplied by the share price. Market capitalisation or "market cap" is the value of the company at prevailing price traded on the stock exchange.

Market outperformer: A market outperformer is a security that performs above market average.

Market performer: A market performer is a security that performs according to market average.

Market underperformer: A market underperformer is a security that performs below market average.

Mid-swap: Average value of the bid price and the offer price of a swap.

N


New shares: New shares are issued in connection with a capital increase. Old shareholders are usually granted special subscription rights to enable them to maintain their previous percentage holding of the stock corporation. Once the shares fully qualify for dividends, they are no longer considered "new".

Nominal interest: Rate of interest based on the nominal value of capital.

O


Offer Price: The offer price states the price for which a shareholder is willing to sell his shares. Equivalent: Bid price.

Official Broker: Official participant in trading activities, exercising a brokering function between buyers and sellers of securities.

Order: With an order, the investor instructs his broker to buy shares on the stock market.

Ordinary Share: Share carrying all standard rights. This type of share dominates in Germany. (see also preference shares)

Oversubscription: Occurs if demand for newly issued shares is higher than their supply. In this case share allocations may be scaled down.

P


Performance: Performance describes the increase or decrease in value of a specific stock or mutual fund. It reflects e. g. the success of investment decisions taken by a asset management company.

Portfolio: A portfolio describes the totality of investments in securities made by individuals or companies.

Preference Shares: Shares that do not carry voting rights but are endowed with additional rights such as preferential dividend pay-outs.

Premium: Amount describing the uplift difference between the share price following an offering and its issue price in the offer.

Price-Earnings Ratio: Describes the relationship between share price and earnings per share. When comparing companies of the same sector, this ratio can be used to determine whether a share is under or overvalued.

Prime rates: Prime rates are interest rates determined by the European Central Bank. Prime rates provide the banks with "cheap money" - provided they are on a low level - or they make capital more "expensive" (increasing interest rates).

Profit taking: Profit taking is a result of shareholders selling shares usually after a rise in the share price and thus realising market profits.

Put option: A put option is an option to sell a shares in a certain period of time at a particu-lar price. The opposite is a call option.

Put/Call ratio: Proportion of put options and call options. The put/ call ratio can be used as an indicator of market trends and developments. If the ratio is above one, one assumes a falling share price. Is the ratio below one, one assumes rising share prices.

R


Rally: This term describes a strong increase in share price levels over a short period of time.

Real time share price: The share price is monitored on a continuous basis as it develops from moment to moment.

Registered Share: Share registered to a named shareholder, that is, a shareholder who did not oppose being recorded in the share register, whose name is known to the stock corporation and who is recorded in the share register.

Regulatory announcements: Publicly quoted companies are required by law to announce immediately all information, which could have a significant influence on its share price. This is to ensure that so-called insiders do not use information which is yet to be announced to the market to their advantage and to inform all shareholders quickly about important events relating to the company.

Resistance level: The resistance level is a term used in chart analysis to describe the price ceiling at which a further increase in share prices should be stopped automatically.

Rights Issue: This describes a shareholder's right to purchase, in the event of a capital increase, an amount of shares corresponding to his or her present share ownership in the company. They have the objective of maintaining the prevailing voting proportions in the case of a capital increase and to counterbalance possible pecuniary losses the shareholders might suffer. In the case of a capital increase of a publicly listed company rights can be sold and bought on the stock exchange. Rights can be excluded under certain conditions on the basis of an Annual General Meeting's resolution.

Roadshow: In the context of an IPO, institutional investors in major financial centres will want to meet the management of the company. The company will introduce itself to the international investment community by presenting its strategy, goals and particular strengths. The roadshow is an important means to stimulate interest in the company and help generate orders during the subscription period.

S


Securities deposit: Place in which a bank deposits and administers securities.

Share: Security representing a part of a company's overall equity capital. German stock corporation law differentiates between nominal value shares and so-called individual share certificates. Owning a share entitles the shareholder to participate in Annual General Meetings; to vote at Annual General Meeting's; to receive dividends, and to subscribe for "new" shares in case of a capital increase. Some of these rights can be limited or excluded under certain circumstances.

Share analysis: Share analysis is one of the key measures to assess corporate profitability or performance of a company's shares from various viewpoints using different methods. Certain financial ratios are calculated and, depending on the investment approach, weighted differently.

Shareholder Value: This concept relates to the creation of value for shareholders. Shareholder value orientated businesses aim to maximise corporate value in order to increase shareholder assets. A company's success is measured by the shareholders by a high share price and high dividend pay-outs.

Share Index: A market indicator that representatively reflects the development of the stock market or a certain part of the market (certain sectors etc.) in real-time.

Share Price: Price at which shares are traded on the stock exchange. This price can change several times during the day following changing offers to buy and sell. The share price is an expression of market expectations; if investors are confident about a company's outlook and profit situation, share prices will rise.

Share register: The owner of a registered share is the person recorded with his name, residence and date of birth in a special register called the share register.

Spot Trading: Securities' dealings that have to be settled within two days on German Stock Exchanges.

Spread: Difference between two interest rates. Also, the difference between the bid price and the offer price.

Stock Split: In a stock split, a company's current amount of shares is divided to create a higher number of shares. Thus, shares with a high price level appear to be optically cheaper. There are, however, no changes for the shareholder since he receives a higher number of shares than he had prior to the split.

Stop-loss/Stop-buy order: A stop-loss order is a limited order to sell shares if the share price falls below a certain level (limit). A stop-buy order is a limited purchase order to buy shares if a certain level is reached (limit).

STOXX 50: This index is published by Dow Jones and consists of the 50 biggest European companies (the so-called blue chips). Within the index, these 50 com-panies are weighted according to their market capitalisation, trading volume and sector membership.

Subscription: When subscribing for shares the investor commits himself to buy a certain amount of newly issued securities at the end of the so-called bookbuilding period.

Subscription period: Within the subscription period, investors can subscribe for new shares. This is done by declaring one's commitment to purchase a determined amount of shares.

Supervisory Board: Mandatory control body which ensures the protection of shareholders' rights with regard to the Managing Board. The members of the Supervisory Board are elected by the Annual General Meeting and the employees for a maximum of 4 years. The most important functions of the Supervisory Board are the appointment and dismissal of the Managing Board as well as the control of its management.

Support level: The support level is a term used in chart analysis to describe the price ceiling at which a further decline in share prices should be stopped automatically.

Swap (here: interest rate swap): In an interest rate swap, two parties agree to exchange interest payments on a certain amount at set times in the future. The interest payments are usually arranged so that one party pays a fixed rate of interest (set today), while the other party pays a variable rate of interest. This rate of interest is based on a published money market interest rate, such as LIBOR.

T


Tranche: 1. Partial repayment amount on a redemption loan.
2. Partial amount of a securities issue: the partial amounts are issued at different points in time or at different places.

V


Vorzugsaktie: The shareholder is entitled to vote resolutions that are proposed at the Annual General Meeting of the company he or she is a shareholder of. The weight of his or her vote depends on the amount of shares held. The shareholder may also transfer his or her voting rights to a bank.

X


Xetra (Short for Exchange Electronic Trading System): Term for the newly developed electronic trading system of the German Stock Exchange (Deutsche Börse AG), which was introduced to all German stock exchanges in 1999. All dealings can be fully executed electronically through this system.

Y


Yield: Earnings on a security in relation to its market price; expressed as a percentage.