A capital expenditure (CAPEX) consists of a long-term investment in a business. It is an outlay of money to acquire or improve capital assets, i.e. fixed, tangible assets (land, buildings and machinery). Fixed assets are depreciated so as to allocate the cost over their depreciable life. Depreciation reduces taxable income, but does not reduce cash.
A Cyclical Sector is a type of sector for which the financial performance is closely linked to the macroeconomic cycle, with very large amplification effects (up and down) on results and cash generation. Automobile, Chemical sector, Steel & mining and Advertising are considered to be Cyclical Sectors.
A Float Shrink is a reduction in the number of a publicly traded company’s shares available for trading. Float Shrink can occur in a number of ways: through a buyback or repurchase of a company’s shares, an investor acquiring a large stake in a company or even through a reverse split or share consolidation. The term Float Shrink however, is most commonly associated with share buybacks. A Float Shrink achieved through a share buyback reduces the number of total shares outstanding for a company, which has a positive impact on Earnings per Share (EPS), Cash Flow per Share and Return on Equity.
A Growth Sector experiences a higherthan-average sales and/or earnings growth rate as compared to other sectors, whatever the point in the
macroeconomic cycle. Technology, Biotechnology and Staples are considered to be Growth Sectors.
A Short Interest ratio is the ratio between the numbers of shares sold short at a given time, to the total number of shares traded on a given day. Also known as the Days to Cover ratio, it gives an estimate for the number of days needed to cover short positions and is used by a certain category of investors to measure market sentiment toward a specific stock.
Short Interest Ratio = Short Interest / Average Daily Trading Volume
The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has an exceptional degree of creditworthiness and can easily meet its financial commitments
An actively managed fund that aims to generate positive returns in both up markets and down markets
Accruals are non-cash earned revenues and incurred expenses that impact the income statement but are not yet reflected into cash movements. They also affect the balance sheet, via liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among others, accounts payable, accounts receivable, goodwill, future tax liabilities and future interest expenses. Although accrual accounting has the advantage of encompassing forward elements of the activity, it also leaves room for accounting abuse or analysis bias. Accruals over Assets can then be used as a proxy for earnings quality and are calculated as follows:
Accruals over Assets = (Net Income – CFO) / Total Assets
Please note that this calculation does not apply for financials given that virtually no cash flow is retained.
Alpha is the component of the fund’s return that is not correlated to the markets. Hence it is a performance linked to the idiosyncratic risk of the fund.
Investments considered outside of the traditional asset classes of stocks, bonds and cash, e.g. real estate, commodities, options and financial derivatives. Often used by hedge funds
Arbitrage usually refers to a financial strategy designed to profit from a discrepancy in the market. The arbitrage opportunity occurs when short term pricing inefficiencies are detected. A typical arbitrage would be to simultaneously buy and sell similar financial instruments in different markets to capture an abnormal price difference.
is an investment strategy that seeks to balance the risk and rewards from investing. It entails adjusting the amount (or percentage) of money that is invested in different asset classes such as stocks, bonds, cash. This adjustment will depend on an investor’s tolerance for risk, their particular goals and investment time frame.
Asset Backed Securities (ABS) are financial securities backed by specific assets. The collateral typically used to back ABS include: auto loans, credit card receivables, housing loans or student loans. ABS differ from traditional secured debt as they are issued by special purpose vehicles. This separates the underlying assets from the original institution which issued the loans, providing further protection.