11 June 2024

Glossary of key terms

Glossary of key terms for the Summer 2024 edition of Prospects.

Gearing – The extent a company uses debt relative to equity in its capital structure. The greater the reliance on debt, the greater the gearing. Gearing can contribute to increased return on equity but also increases the financial risk to the business. 

Hard/soft landing – A ‘hard’ landing refers to a period of economic slowdown caused by central bank tightening that triggers a recession.  In a ‘soft landing' despite tightening, recession is either mild or avoided.

Headwinds/tailwinds – headwinds are factors likely to negatively affect a company, tailwinds on the other hand are likely to have a positive impact.

Index-linked bonds – both coupon payments and principal for these bonds are linked to a measure of inflation, typically the Consumer Price Index except in the UK when it is the Retail Price Index. This is in contrast to conventional bonds, which have no built in link to inflation.  

Leveraged buyout – a corporate acquisition of another company that is funded predominantly by debt.

Maturity of a bond/gilt – the date at which a
debt instrument ends, at which point the borrower
must pay back the principal value of the debt in full to the bondholder.

Price/earnings ratio – a ratio derived by dividing a company’s share price by its earnings per share. It is a relative valuation measure to determine if a company’s share price could be over or undervalued relative to its earnings.

Retail Price Index – one of several indexes that can be used to gauge changes in consumer inflation. It tracks prices of a theoretical basket of goods over time. 

The Purchasing Managers' Index – A survey-based measure of sentiment around current and future business conditions in the service and manufacturing sectors. A number greater than 50 indicates expansion whilst below 50 represents contraction. 

‘Sticky’ inflation – Persistently elevated levels of inflation within an economy, typically associated with core measures where prices do not adjust as quickly to supply and demand changes.

Understanding Finance

Helping clients understand what we do is key to building relationships. To explain some of the industry jargon that creeps into our world, we’ve pulled together a section of our site to help.

Managing your wealth

Managing your wealth

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