Glossary

When a company based overseas wants to sell its shares in the US markets, it can offer them through a US bank, which is known as the depositary.

The depositary bank holds the issuing company's shares, known as American depositary shares (ADSs), and offers them to investors as certificates known as American depositary receipts (ADRs). Each ADR represents a specific number of ADSs.

ADRs are quoted in US dollars and trade on US markets just like ordinary shares. While hundreds are listed on the major exchanges, the majority are traded over the counter, usually because they're too small to meet exchange listing requirements.

In addition to reporting earnings per share, corporations must report diluted earnings per share. This accounts for the possiblity that all outstanding warrants and stock options are exercised, and all convertible bonds and preferred shares are exchanged for common stock.

Diluted earnings actually report the smallest potential earnings per common share that a company could have based on its current earnings. In theory, at least, knowing the diluted earnings could influence how much you would be willing to pay for the stock.

Earnings per share (EPS) is calculated by dividing a company's total earnings by the number of outstanding shares.

For example, if a company earns $100 million in a year and has 50 million outstanding shares, the earnings per share are $2.

Earnings per share can also be calculated on a fully diluted basis, by adding outstanding stock options, rights, and warrants to the outstanding shares.

The results report what EPS would be if all of those options, rights, and warrants were exercised and the company had to issue more shares to meet its obligations.

Earnings and other financial measures are provided on a per share basis to make it easier for you to analyze the information and compare the results to those of other investments.

Floating shares are shares of a public corporation that are available for trading in a stock market.

The number of floating shares may be smaller than the company's outstanding shares if founding partners, other groups with a controlling interest, or the company's pension fund, employee stock ownership plan (ESOP), or similar programs hold shares in their portfolios that they aren't interested in selling.

Some equity index providers, including Standard & Poor's, use floating shares rather than outstanding shares in calculating their market-capitalization weighted indexes on the grounds that a float-adjusted index is a more accurate reflection of market value.

If you reinvest your dividends or invest a fixed dollar amount in a stock dividend reinvestment plan (DRIP) or mutual fund, the amount may not be enough to buy a full share.

Alternately, there may be money left over after buying one or more full shares. The excess amount buys a fractional share, a unit that is less than one whole share.

In a DRIP, a fractional share gives you credit toward the purchase of a full share. With a mutual fund, in contrast, the fractional share is included in your account value.

The shares of stock that a corporation has issued and not reacquired are described as its outstanding shares. Some of but not all these shares are available for trading in the marketplace.

A corporation's market capitalization is figured by multiplying its outstanding shares by the market price of one share. The number of outstanding shares is often used to derive much of the financial information that's provided on a per-share basis, such as earnings per share or sales per share.

However, some analysts prefer to use floating shares rather than outstanding shares in calculating market cap and various ratios.

Floating shares are the outstanding shares that are available for trading as opposed to those held by founding partners, in pension funds, employee stock ownership plans (ESOP), and similar programs.

A share is a unit of ownership in a corporation or mutual fund, or an interest in a general or limited partnership. Though the word is sometimes used interchangeably with the word stock, you actually own shares of stock.

Some stocks and certain mutual funds subdivide their shares into classes or groups to designate their special characteristics.

For example, the differences between Class A shares and Class B shares of stock may focus on voting rights, resale rights, or other provisions that enhance the power of certain shareholders.

In fact, in the United States, most dual class shares involve one class that is publicly traded and another class that is privately held.

In some overseas countries, Class A shares can be purchased by citizens only, while Class B shares can be purchased by noncitizens only.

In the case of mutual funds, class designations indicate the way that sales charges, or loads, are levied. Class A shares have front-end loads, Class B shares have back-end loads, also called contingent deferred sales charges, and Class C shares have level loads.

If you own stock in a corporation, you are a shareholder of that corporation.

You're considered a majority shareholder if you alone or in combination with other shareholders own more than half the company's outstanding shares, which allows you to control the outcome of a corporate vote. Otherwise, you are considered a minority shareholder.

In practice, however, it is possible to gain control by owning less than 51% of the shares, especially if there are a large number of shareholders or you own shares that carry extra voting power.

A shareholder proposal is a resolution that's put forward for consideration at a corporation's annual meeting by an individual shareholder or a group of shareholders rather than by the corporation's board of directors.

A shareholder who has owned at least $2,000 worth of stock or 1% of a company's outstanding shares for at least a year is entitled to offer a proposal.

In most cases, management opposes these proposals and urges shareholders to vote against them. However, management may negotiate with activist investors to make changes in corporate policy to avoid the threat of a shareholder proposal.

A shareholder proposal must be included in proxy materials unless the corporation receives authorization from the Securities and Exchange Commission (SEC) to omit it.