The Motley Fool Glossary

Definitions P - R


Par value (bond)
The stated value of a bond as printed on its certificate or the amount the issuer must repay when the bond reaches maturity. A par bond is one selling at its face value.
Par value (stock)
An arbitrary dollar value that a company assigns to its shares. Par value has no economic significance. The legal significance of par value is, roughly, that if shares are issued below par value, the holders of those shares might be assessed the difference between par value and the issue price. Most stock certificates state that the shares are fully paid and nonassessable to indicate that holders are not on the hook for additional contributions because the shares were issued at a price greater than par value. Companies usually assign a very low par value to common stock.
Payment date
The date that dividend checks go out.
Penny stock
A very cheap, speculative stock, selling for less than $1 a share, though the term is sometimes applied to stocks selling for up to $5 a share. See Buy Zeigletics! for a humorous explanation of why you should avoid penny stocks.
All the securities held by an individual, institution, or mutual fund. For examples of real, live portfolios, see the Rule Breaker Portfolio, the Rule Maker Portfolio, or the Drip Portfolio. See Fool FAQ: Portfolio Performance to learn how to track your portfolio.
Portfolio manager
Any individual(s) in charge of the investment decisions for a portfolio.
Power of attorney
A legal agreement that authorizes a specific individual to handle certain decisions for another. There are two types of power of attorney: limited and full. A limited power of attorney might permit one to engage in transactions in a specific investment account. A full power of attorney could allow more enhanced authority, including transferring funds between accounts.
Preferred stock
Preferred stock pays a dividend on a regular schedule and is given preference over common stock in regard to the payment of dividends or -- heaven forbid -- any liquidation of the company. Their share prices tend to remain stable, and will generally not carry the voting rights that common stock does.
Pretax contribution
A contribution to a retirement account (such as a 401(k)) with money from your paycheck before the federal government takes its cut. Pretax contributions reduce your taxable pay and, therefore, reduce the taxes withheld from your paycheck.
Price-to-book ratio
Shareholders' equity divided by the number of shares of stock outstanding. For more on book value, see "How To Read a Balance Sheet."
Price-to-earnings ratio (P/E)
The share price of a stock, divided by its per-share earnings over the past year. See Fool's School: The P/E Ratio.
Prime rate
The interest rate that lenders charge their very best, most-reliable customers.
The original cash put into an investment.
The cash received from selling an investment. Net proceeds are the cash pocketed after subtracting the purchase price, including all fees and commissions.
Pro forma
Financial statements that are adjusted to reflect a projected or recently completed transaction. For example, pro forma results are used to show the earnings that newly merged companies might have achieved had the merger occurred at the beginning of the reporting period. The term may be applied to income statements, balance sheets, and statements of cash flow. Pro forma quarterly results can sometimes be confusing, as they may exclude information such as certain stock-based employee compensation costs.
Property, plant, and equipment (PP&E)
The original cost of assets, less their accumulated depreciation. Often called fixed assets. Accounting does not normally use market prices, either selling prices or replacement costs, for fixed assets. Reasons may be that the company usually does not intend to sell these assets, so their market resale prices are not relevant; original cost is a verifiable, objective number, while market prices (selling or buying) fluctuate; and financial statements portray the stewardship of the managers, so it is natural to show how they spent the money entrusted to them by shareholders.
A legal document usually written in extraordinarily tedious language that provides information about a potential investment, including discussions of its investment objectives, policies, past performance, risks, and cost.
A put option is a contract that gives the buyer the right, but not the obligation, to sell the stock underlying the contract at a predetermined price (the strike price). The seller (or writer) of the put option is obligated to buy the stock at the strike price. Put options can be exercised at any time before the option expires. You buy a put if you think the share price of the underlying stock will fall, or sell one if you think it will rise. You don't have to own the stock to buy a put. You can buy a put, wait for the price to fall below the strike price, then buy the stock and immediately resell it for the higher strike price. The person who sold the put gets stuck with buying the stock at the higher price. See The Fool FAQ: Options.

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Qualified retirement plan
A retirement plan sponsored by a business for its employees, such as a 401(k) or a 403(b). Contributions are pre-tax, and the earnings grow tax-deferred. Any withdrawals made before age 59 1/2 will usually be penalized. To be qualified, the plan must be open to all employees.
Businesses have four quarters (come to think of it, everything has four quarters -- but we digress), roughly equal to three months, in every fiscal year. After each quarter, a company is required to file a report with the SEC providing investors with juicy details about the company's performance.
Quick ratio
Current assets minus inventories divided by current liabilities. By taking inventories out of the equation, you can check and see if a company has sufficient liquid assets to meet short-term operating needs.
The price being bid (by a prospective buyer) or offered (by a potential seller) for a stock. For the current quotes on stocks, go to Quotes & Data.

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See Research and development.
Real estate investment trust (REIT)
REITs are a specialized form of equity that allows investors to own a portion of a group of real estate properties, although many investors think of them as an alternative to bonds. Granted special tax status by the Internal Revenue Service, REITs pay out at least 95% of their earnings in the form of dividends to shareholders, often offering healthy dividend yields of the same magnitude as bonds. Even better, as REITs acquire more property and increase the value of the properties they own, the value of the equity may increase as well, providing a nice total return. For more information on REITs, check the website for the National Association of REITs (NAREIT).
Real return
The inflation-adjusted returns of an investment. For example, the returns for stocks during the 20th century were approximately 11% annually. However, that does not factor in the roughly 3% annual inflation rate over the same time period. Therefore, the real return of stocks was approximately 8% annually.
Real yield
Since the interest payment on an individual bond is the same every year, the bond's future payments are worth less and less as inflation erodes the value of the dollar. To account for this degradation, economists talk about the "eral yield" of a bond, which is the nominal, or stated, interest rate minus the inflation rate.
Record date
The date on which a company's books are closed in order to identify share owners and distribute quarterly dividends, proxies, or other financial documentation.
Use of investment income or dividends to buy additional shares.
See Real estate investment trust.
Relative strength
Relative strength rates the performance of every stock listed on the three major U.S. exchanges (the New York Stock Exchange, the American Stock Exchange, and the Nasdaq). The rating system gives a numerical grade to the performance of a stock over the past 12 months, assigning a grade of 1 to 99. Thus, relative strength is a momentum indicator. A relative strength of 95, for example, indicates a wonderful stock that has outperformed 95% of all other stocks over the past year.
Research and development (R&D)
An expense reported on the income statement, reflecting the company's effort to discover and invest in new technologies. You want to make sure that the company is spending a reasonable amount on research and development, especially if it's in a rapidly changing field, in order to keep pace with that change.
Retained earnings
Income a company has earned, less the dividends it has paid. The key is the word "retained," which implies that income remains in the business, rather than being distributed to stockholders as dividends.
Return on equity (ROE)
Return on equity is a measure of how much in earnings a company generates in four quarters compared to its shareholders' equity. It is measured as a percentage. For instance, if XYZ Corp. made $1 million in the past year and has shareholders' equity of $10 million, then the ROE is 10%. Some use ROE as a screen to find companies that can generate large profits with little in the way of capital investment. See Return on Equity: A Definition.
Return on invested capital
Return on invested capital (ROIC) is a measure of financial performance and a financial performance forecasting tool. See A Look at ROIC.
Money that a company collects from customers for the sale of a product or service. When you subtract out all costs from revenues, you get profits or earnings. See Revenue-Based Valuations.
Reverse split
This is a stock split that reduces the number of outstanding shares and proportionately increases the price per share. Say there was a "one-for-ten" reverse split. For every ten shares you owned, you would now be left with one. Meanwhile, the share price is increased tenfold. If yesterday you owned 100 shares at $5 each, today you own 10 shares at $50 each. The value is still $500. A reverse split is usually a sign that a company is in trouble.
Risk tolerance
The measurement of an investor's willingness to suffer a decline (or repeated declines) in the value of investments while waiting and hoping for them to increase in value.
Risk-adjusted return
A measure of how much risk a portfolio has employed to earn its returns.
See Return on equity.
See Return on invested capital.
Moving all or a portion of tax-deferred retirement plan savings into another plan (e.g., moving 401(k) assets into an IRA). See Getting the Loot to an Individual Retirement Account.
Rollover IRA
A traditional individual retirement account holding money from a qualified plan, such as a 401(k). See Getting the Loot to an Individual Retirement Account.
Roth IRA
An individual retirement account to which contributions are not tax-deductible. Withdrawals from the account are tax-free. See All About IRAs: The Ten Types.
Round lot
A group of shares traded in multiples of 100.
Russell 2000
A market-cap weighted index that serves as the benchmark for U.S. small-cap stocks.

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