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PUT OPTION

A contract that gives the person who buys it (the “holder”) the right, but not the obligation, to sell an asset (perhaps 1,000 shares) at a fixed price (“the strike”) on or before a specified date. The further the price of the asset is below the strike price at the point the option is exercised, …

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PTM LEVY

This is a £1 charge levied on share transactions valued at £10,000 or more which helps to pay for the Panel on Takeovers and Mergers. This non-statutory body imposes certain requirements on publicly listed firms when they attempt to buy, or merge with, other firms. READ MORE

PROFIT AND LOSS ACCOUNT

A financial statement that summarises the revenue (or “sales”) that a firm has generated over a year less the costs incurred. The net result is its profit (where revenue exceeds costs) or loss (the reverse). READ MORE

PRIVATE EQUITY

This umbrella term for essentially private investment covers two main activities.. First off young fast growing firms can struggle to attract finance for expansion from traditional sources such as banks and may be too small to approach the public via a listing on an exchange. Private equity firms often specialise in providing the venture capital …

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PRICE TO SALES RATIO

Used in sectors where firms struggle to make profits, this ratio compares a firm’s share price to revenue (or, sales) per share. So if a firm has a share price of say £2 and makes sales of 80p per share, the price to sales ratio is 2.5 (£2/80p). A high number indicates that the shares …

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PRICE TO BOOK RATIO

This ratio compares the current share price of a firm to the book value per share to give an indication about whether it is cheap or expensive. For example if a firm has net assets (it’s “book”) of £100m and 100m shares in issue, the book value per share is £1 (£100m/100m). Let’s say the …

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POTENTIALLY EXEMPT TRANSFER

Assets that are given away by their owner before death may not form part of that person’s death estate on death and may therefore not attract inheritance tax. The term “potentially exempt” refers to the fact that at the time of making the gift, the donor won’t know how long they will subsequently live. If …

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PENNY STOCK

This is the name typically given to the shares of small high risk firms. Sometimes their share price may only be a few pence – hence the name – but this isn’t a requirement to be classified as a penny share. As a rule of thumb if the bid to offer spread (the gap between …

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P/E RATIO

Price to earnings ratios are a common way to assess whether a share is cheap or expensive. The ratio compares the current share price to one year’s earnings, typically either the last year or a forecast for the next year. The higher the current share price in relation to one year’s earnings per share the …

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PEG RATIO

Price to earnings ratios are a common way to assess whether a share is cheap or expensive. So for example if a firm has a P/E ratio of 10 and its earnings growth rate is 20%, the PEG is 10/20, or 0.5. A PEG below one suggests a share may be cheap as the P/E …

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