Glossary
Debt to equity ratio
The debt-to-equity ratio measures the extent of a company’s debt exposure. This is a useful ratio because it indicates where a company stands in relation to its creditors. Generally speaking the higher the figure the greater the risk the company faces in repaying its debtors. Although there is no hard-and-fast rule about the safest level of debt a company should have in order to stay out of trouble, we believe that 80% gearing or below (depending on the sector) is a useful guide to judge whether a company is being financially responsible or not.
There are a few ways of calculating this ratio but this simple calculation is a good indicator of a company’s debt position. We prefer to use only interest-bearing liabilities such as bank loans and other borrowings, minus the company’s cash because these are the most important liabilities. Now here’s a formula:
Debt-to-equity ratio = (borrowings - cash/shareholders’ equity) x 100
One thing to keep in mind is that this figure doesn’t tell you the full story. A company with a steady income stream and continued profits coupled with high gearing such as Hills Motorway is often safer than a company with less debt but more volatile earnings such as NRMA.
Delisting
Is when a company’s shares are removed from the official list. Reasons for removal include a company failing to comply with the exchange’s rules or no longer meeting listing requirements.
Demutualisation
A case where a company established for the benefit of its customers, who are often called 'members', becomes publicly listed. This normally entitles the customer to receive shares in the company.
Direct ownership
Holding an asset in your own name rather than through a managed fund.
Director
A member of a company’s board who is charged with overseeing the affairs of the company, and ensuring that senior management acts in shareholders’ interests.
Diversification
The process of spreading your investments across different classes or assets.
Dividend
The income paid by a company, usually every six months, to shareholders.
Dividend
A dividend represents the distribution of part of a company's net profit to shareholders. To receive a declared dividend the shares must be purchased before the ex-dividend date. You will receive the declared amount for each share held.
Dividend yield
The percentage of the dividend, in cents per share, divided by the share price in cents.
DPS
Dividend Per Share, the amount of earnings paid out to shareholders on a per share basis.
DRP
Allows the shareholder to choose to receive dividends in the form of shares in the company instead of a dividend cheque. The new shares are usually offered without brokerage costs and often at a small discount to the market price.
