PTHE price per earnings (P/E) ratio can be an important indicator for investors of how a listed company is performing, highlighting its financial health, future prospects and any potential investment risk. However, P/E is a complex
measure of performance and needs to be considered along with other key performance indicators. The P/E ratio is arrived at by dividing the share price by the earnings per share (profit after tax and interest divided by the number of ordinary shares in issue). Earnings per share are a yearly total so the P/E ratio is also an expression of how many years it will take for earnings to cover the stock price investment. Such ratios are therefore best viewed over a period of time to give a more accurate measure of performance.
QQUALIFIED joint and survivor annuity is an annuity that pays out at a given level for the duration of the holder's life and then shifts to another level, typically between 50 per cent and 100 per cent of the original payout, for the duration of the holder's spouse's life.
RA REAL estate investment trust (Reit) is a company that is listed on a recognised stock exchange and invests in property. A REIT utilises the pooled capital of many investors to purchase and manage income property and/or mortgage loans. The advantage of Reits over actually owning properties is that they are highly liquid, unlike traditional real estate. They also allow sharing in non-residential properties and have no minimum investment. Reits tend to move with the broader stockmarket (in particular property company shares) and pay dividends but will only be able to do so if sufficient profits are generated.
SA SHORT sale is where a security is borrowed from a broker and then sold with the understanding that it must be bought back later, preferably at a lower price, and returned to the broker. This was recently highlighted with the fall in prices for HBOS as it was rumoured that brokers were "selling short" in a bid to capitalise on the falling share price. An example of this would be an investor who wants to sell 100 shares believing they are overpriced and will fall. The investor's broker will borrow the shares from someone who owns them with the promise that the investor will return them later. The investor immediately sells the borrowed shares at the current market price and, if the share price drops, buys them back again and returns them while retaining the profit made up of the first sale price and the subsequent lower purchase price. Obviously this kind of dealing depends both on share prices falling and buying and selling at exactly the right moment.
TA TAX shelter is any method adopted to legally reduce or avoid tax liabilities which an investor may incur. As the structure of a tax shelter will vary as they are regularly updated to reflect changing legislation, they are really only of use if applied with the assistance of an accountant or business adviser who can prevent the unwary investor from some of the pitfalls inherent in such shelters.
? Stuart Turner is a financial planning consultant with PKF accountants and business advisers
The full article contains 552 words and appears in The Scotsman newspaper.
