The WJ Exchange Glossary of Terms

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Term

Description

ADR

American Depository Receipt.  These instruments track the stock prices of foreign based companies.

BDC

Business Development Company.  Publicly traded companies that invest in equity and debt in small business generally between $10 Million and $100 Million in revenue.  BDC's avoid corporate income taxes by distributing 90% of their income to shareholders, thereby mitigating the double taxation issues with traditional common stocks.

CEF

Closed End Fund. Similar to mutual funds and ETF’s except that no new shares are created or retired based on inflows and outflows.  The market price of the funds move in concert with the underlying positions.  They may trade at a premium or discount to Net Asset Value (NAV)

Div/FCF Ratio

This is the percentage of dividend payments relative to free cash flow.  The lower the number, the more secure the dividend. If ratio exceeds 100%, expect either a cut in the dividend or new debt or stock issuance to finance the dividend.

ETF

Exchange Traded Funds invest in a basket of stocks as a means to track a particular sector of companies.  Unlike traditional mutual funds that are purchased and redeemed with the issuing firm, ETF’s are traded like stocks on the various exchanges.

Enterprise Value

Enterprise Value is calculated by adding the total market capitalization of a common stock (stock price multipled by number of shares outstanding) to the total Long Term Debt minus cash on hand. Enterprise Value serves as the theoretical price to purchase the entire company including the assumption of its debt.

EV/E Ratio

A variation of the P/E (Price/Earnings) ratio.  EV stands for Enterprise Value which is equal to total stock market capitalization + Long Term Debt minus Cash.  E stands for Net Income. This is a more prudent measurement of earnings than the P/E ratio because it considers the effect of debt on the balance sheet, where the P/E ratio ignores it.

Ex Dividend Date

This is the date that the buyer of a stock will not be eligible to receive the next scheduled dividend payment.

MLP

Master Limited Partnerships trade on the exchanges just like stocks. However, in most cases distributed income will be reported to unit holders with a K-1 instead of a 1099 which may pose additional complexities to individual income tax returns.  MLP’s pay no federal income tax.  Most MLP’s operate in the oil and gas area.

NAV

Net Asset Value is the sum total of the market value of the securities held in a Mutual Fund, Closed End Fund, or Exchange Traded Fund.

REIT

Real Estate Investment Trusts are required to distribute 90% of their taxable income to its holders which makes them an attractive investment for those seeking income over capital appreciation.