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You are Here : Home > Investor Education > Glossary

Glossary to investment terminology : P

 
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P/D Ratio
This is the price-to-dividend ratio. It is calculated by dividing the price of the share by the last paid out dividend. It assists in measuring the value of an investment.

P/E Ratio
This is the price-to-earnings ratio. It is calculated by dividing the market price per share by the earnings registered in the last twelve months. It is the most common measure of how expensive a share is. Companies that are not profitable at all, i.e. those with negative earnings do not have a P/E ratio at all. Companies with very high P/E ratios are normally considered to be risky.

Paid-up Capital
This is the total amount of money paid in full by shareholders of a company for the purchase of their shares. It is calculated by multiplying the total number of shares issued by the par value of each share.

Panic Selling
This is a condition of the stock market where investors take fright and start selling a particular share with little regard to the price they sell at thereby pushing down its price. This usually results in a vicious cycle in which investors see a declining price as a sign to sell off their shares which further depresses the price and prompts even more investors to sell their shares fearing to incur loss.

Paper Loss
This is when the market price of a share is less than its original purchase price giving rise to a loss in value which is not a realized loss until the shares are actually sold.

Paper Profit
This is when the market price of a share is greater than its original purchase price giving rise to a profit which is not a realized profit until the shares are actually sold.

Par Value
This is the face value of a bond and is the amount repaid back to the investor upon its maturity. It is also known as the principal or maturity value.

Parking
This is when an investor places his money in safe investments while alternative investment avenues are being considered or while the stock market is unfavourable for fresh investments.

Partial Delivery
This is when a broker fails to meet his/her part of the contractual obligation to deliver all securities at an agreed upon date. Example; if the investor has placed an order of 1,000 shares, a delivery of 800 shares is a partial delivery.

Payment Date This is the date on which a declared share dividend is made or scheduled to be made. It is only payable to those shareholders who bought the shares before the ex-dividend date.

Payout Ratio
The payout ratio indicates how much of a company's earnings are actually paid out as dividends to shareholders. It is calculated by dividing the dividends per share by the earnings per share. Example; a very low payout ration may indicate that the company is keen to retaining its earnings rather than pay out dividends.

Penny Stock
These are shares with a very low price and market capitalization usually not traded in the main exchanges. They are generally considered to be highly speculative and high risk.

Portfolio
This is the diverse collection of investments owned by the same individual or organization. This collection may include shares (which is investing in companies) or bonds (which is investing in debt) or mutual funds (which is pooling your money together with others to make investments). One creates a portfolio by deciding which avenues to invest in depending on his/her investment objectives and risk tolerance.

Positive Carry
This is a condition in which the returns on an investment are greater than the cost of financing it. Example; if you were to borrow KES 100,000 at an interest rate of 10% and invest the same in a bond paying 12%, then there is a positive carry.

Pivotal Shares
Sometimes the shares of some blue chip companies act as a pivot on which the market is balanced; if the turn bearish, the market follows and if they turn bullish the market looks up. These are called pivotal shares.

Premium This is the amount by which a share (or any other financial security) sells above its face value.

Premium Raid
This is an offer to purchase shares in a company from the current shareholders at a price greater than the market price so as to induce them to sell. The additional amount is the premium and normally the objective is to take control of the company.

Price Weighted Index This is an index where each share affects the index in proportion to its price per share.

Primary Market
This is a market for new securities issues e.g. shares, debentures or bonds. In the primary market, the security is purchased directly from the issuer. Example; an IPO is conducted through the primary market. Any subsequent trading on the securities is done in the secondary market i.e. the stock exchange, through stockbrokers.

Private Placement
This is when a company raises capital via a private rather than public placement. It therefore sells shareholding to a selected few investors, mostly institutional investors.

Privatization
This is when government-owned shareholding in companies is sold off to the private sector. This can be done either through a public offering, or a tender or a private contract. Private ownership of companies tends to increase overall efficiency and this leads to a substantial increase in profits.

Profit Warning
This is an announcement made by a public company in advance before announcing its earnings indicating that its profits won't meet previously held expectations. Companies do this to soften the blow to investors.

Prospectus
A prospectus is a formal document offering to sell shares to the public that gives all relevant details of the company (or mutual fund) that an investor needs to know to make an investment decision.

Proxy A proxy is an agent legally authorized to act on behalf of a shareholder during meetings of the company and to vote on his behalf.

Public Company
This is a limited liability company whose shares have been issued through an initial public offering and are traded at the stock exchange.

Public Offering
This is offering shares to the investing public. This is done through an initial public offering and any other subsequent offerings. It is different from a rights offering to existing shareholders or a private placement.

Pullback
This is the falling back of the price of a share from its peak. It could either be a brief reversal of the prevailing upward trend, or it may be a sign of a definite trend reversal.