Financial Terms for The Nigerian Economy

May 1, 2019 by  
Filed under Nigeria Stock Exchange

Real Estate Investment Trust (REIT) – A security that sells like a stock and invests in real estate directly, either through properties or mortgages. There are three types of REITs:

  1. Equity REITs: Invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties’ rents
  2. Mortgage REITs: Deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans
  3. Hybrid REITs: Combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages

Receiving agent – Banks and stock broking firms appointed by the issuing houses to serve as centers for the distribution of offer application forms, as well as for the receipt of subscription monies, on behalf of an issuing house. Receiving agents charge a fee for the service they offer.

Receiving bank – Banks designated by an issuer to receive proceeds.

Registrar – An institution, usually a bank or a trust company that is responsible for keeping records of shareholders and bondholders. They ensure that the amount of shares outstanding in the market matches the amount of shares authorized by the company. For bonds, the registrar also makes sure that the company’s obligation from a bond issue is certified as being an actual legal obligation. They perform corporate actions for the companies they represent, arrange general and extraordinary meetings, distribute annual reports and notices of shareholders’ meetings, and verify/reconcile investors’ claims with the depository of the CSCS.

Reporting accountants – Accounting firms which provide independent assessments of issuer accounts. They also examine and review forecasts, and prepare the issuer’s statement of indebtedness, among other things.

Return on assets (ROA) – An indicator of how profitable a company is relative to its total assets. ROA tells investors how much profit a company generated for each N1 in assets. It measures how effectively a company is converting the money it has to invest (shareholders’ capital plus short and long-term borrowed funds) into net income. It is considered the most stringent test of return to shareholders. Companies such as telecommunication providers, car manufacturers and railroads are very asset intensive, meaning they require big, expensive machinery or equipment to generate a profit. It a company has no debt, the ROA and ROE figures will be the same. ROA is a company’s annual earnings divided by its total assets. It is expressed as a percentage. Sometimes this is referred to as “return on investment”. ROA = Net Income / Total Assets

Return on equity (ROE) – The amount of net income returned as a percentage of shareholder equity. Return on equity measures a company’s profitability by revealing how much profit a company generates with the money shareholders have invested. More simply, it shows how well a company uses investment funds to generate earnings growth; how efficiently it uses its assets to produce earnings. ROE is expressed as a percentage. It may be more meaningful to look at ROE over a period of five years rather than one year. ROE = Net Income / Shareholder Equity Reverse stock split – A reduction in the number of a company’s shares outstanding that increases the par value of its stock or earnings per share (EPS).

Rights (or subscription rights or share purchase rights) – When a company wants to raise additional capital, it may give stockholders entitlement to purchase new shares at a predetermined price (normally less than the current market price) in proportion to the number of shares already owned. Rights are issued only for a short period of time, after which they expire. Failure to exercise or sell rights is an actual loss to the stockholder. Rights are a basic form of derivatives.

Risk – The chance that an investment’s actual return will be different than the expected return. With all investments there is an element of risk, desirable or undesirable. The basic definition for investment risk is deviation from an expected outcome. This can be either positive or negative.

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