The annual profits of a company after deduction of tax, dividends to preference shareholders and bondholders. Earnings are usually expressed on a per-share basis (e.g. 7p), and the earnings per share (EPS) figure is calculated by dividing total earnings by the average number of shares in issue for the relevant accounting period.

E.g. earnings of £2m, with 10m shares in issue would give an EPS of 20p

You may see earnings used in several ways:

1. Reported earnings: the figure in the company's accounts
2. Underlying earnings: the figure derived from reported earnings by excluding any one-off items (e.g. profit from the sale of land which is not part of the company's normal business)
3. Diluted earnings: earnings after adjustment has been made for shares that may be issued in the future if holders of options, warrants and convertibles choose to exercise their rights.

Earning per Share (EPS) = Earnings / Number of Shares in Issue

EPS is a key ratio used in share valuations. It shows how much of the company's profits, after tax, each shareholder owns.

Example: Goodco makes a post-tax profit of £1.2 million. There are 20 million shares in issue. EPS = £0.6

What starts out as an easy calculation gets complicated because the rules on what constitute earnings are fuzzy, especially when it comes to 'extraordinary' items:

• When an industrial manufacturer sells a large parcel of land to a developer should that profit be treated the same as the profits from its mainstream activities?
• If its profits one year are wiped out by an uninsurable natural disaster at its plant, should that event be regarded as just a normal cost of doing business?

Until recently companies had discretion about how they treated one-offs. They could call an unusual profit 'exceptional' and include it in their EPS, and call an unusual loss 'extraordinary' and exclude it from EPS. This made it very difficult for investors to gauge the true progress of the business.

Various Financial Reporting Standards (FRS) have tried to regularise treatment of one-offs, but if anything have made analysis harder. Large companies now report EPS in different ways, and the challenge for investors is knowing what basis has been used. When newspapers report EPS they use 'adjusted' EPS (also known as 'headline earnings') which strips out all profits/losses attributable to non-core activities.

The earnings of a company are its annual profits after deduction of tax, dividends to preference shareholders and bondholders. They are usually expressed on a per-share basis (e.g. 7p), and the earnings per share (EPS) figure is calculated by dividing total earnings by the average number of shares in issue for the relevant accounting period.

e.g. earnings or £2m, with 10m shares in issue would give an EPS of 20p

The earnings yield is the EPS as a percentage of the current market price of the share. So if the EPS was 7p and the current market price is 116p, the earnings yield

7 / 116 x 100 = 6.03%

Earnings yield is not used as commonly as its reciprocal measure, the P/E ratio. On the same figures, the P/E would be:

116 / 7 = 16.6

Earnings before interest and tax. Calculated by taking the pre-tax profit of a company and adding back only the total interest charges which it has paid on debt.

EBIT is a commonly used way of measuring the profitability of a company.

Earnings before interest, tax, depreciation and amortisation.

EBITDA is a commonly used way of measuring the profitability of a company.

A measure of corporate performance which reveals whether a company is earning more or less than the amount which its capital is costing. If it is, value is being added to the enterprise, which is good news for shareholders. If it isn't, shareholders have cause for grievance because their capital would be better employed in a bank account earning interest.

The study of manufacturing, distribution and consumption of products and services in an economy.

This is broadly divided into macroeconomics and microeconomics

• Macroeconomics: The study of a country's economy using such elements as unemployment, price levels, government spending, interest rates, national productivity etc and the influence of government policy on them.
• Microeconomics: The study of economic elements at the level of the household or the company. People within a household are primarily concerned with employment prospects and how taxation affects their income. Companies are mainly concerned with product costs and operating expenses etc.

Ralph Elliott was an accountant who lived from 1871 to 1948 and who is remembered by technical analysts for his 'wave theory' of stock markets.

The tenets of this theory were:

1. That stock markets go up over time.
2. That the manner in which they advance and decline follows a pattern of 8 waves. There are 5 waves which take the market up and three waves which take it down, but at the end of the 8 waves the market will be higher than it was at the beginning.
3. If you know where the market is within the wave cycle, you can predict the movement of prices, and so make money.
4. As with all technical analysis, the pattern of price movement is determined by investor psychology. Investor optimism builds, becomes euphoric, bursts, then recovers.

The stock markets of countries which have a low per head income compared with the developed world but which nevertheless have functioning stock exchanges.

For Western investors, emerging markets attract because the potential for rapid economic growth in emerging market countries is better than in more mature markets. However, the risks, both economic and political, are high.

One way to get exposure to emerging markets is through a unit or investment trusts that specialises in this type of investment.

The Enterprise Investment Scheme is a UK tax incentive scheme designed to encourage investors to invest in unquoted companies. The benefits are:

• Income tax relief at 20%: so if you invest £10,000, the taxman gives you £2,000 back.
• CGT relief: provided you hold your investment for five years, any gains subsequently made are free of capital gains tax.
• Tax relief on losses: if your EIS investment is a disaster, you can set the losses off against gains made in the tax year in which you incur losses.
• Rollover relief: if you use the proceeds from selling shares in Company A to invest in Company B, and Company B is an EIS-qualifying company, you won't have to pay tax on the gains made from Company A until you subsequently dispose of Company B's shares. i.e. your gain is rolled over.

The maximum amount you can invest in an EIS is £400,000 annually (2006-2007). Similar tax breaks are available from investments in Venture Capital Trusts (VCTs). Essentially, these are investment trusts that invest in small unquoted companies. As with EIS investments, there are lots of rules which, if broken, will invalidate the tax advantages.

The risks associated with EIS companies are high and you should take professional advice before committing funds to them.

A company's value is sometimes measured in terms of the total funds being used to finance it. This investment ratio is increasingly used in place of the price/earnings ratio in the analysis of certain types of companies. It indicates the economic rather than accounting return that the company is generating on the total value of the capital supporting it.

Typical companies for which this ratio is appropriate are those that have borrowed heavily to finance growth, like telecoms companies building a network or those that have paid large premiums for acquisitions or assets.

The amount which shareholders own in a publicly quoted company. Equity is the risk-bearing part of the company's capital and contrasts with debt capital which is usually secured in some way and which has priority over shareholders if the company becomes insolvent and its assets are distributed.

For most companies there are two types of equity: ordinary shares, which have voting rights, and preference shares which do not. Owners of preference shares rank ahead of ordinary shareholders in a liquidation.

A scheme designed to allow homeowners to 'release' cash from the value of their property. They come in two varieties:

1. Home income plans
2. Home reversion schemes

With either type, you can choose to receive the equity as income, as a lump sum or as a mixture of both.

Schemes offered by financial institutions vary considerably and, as always, it is important to look at the small print. Some schemes are only available to people over 70, while others are suitable for younger homeowners with longer life expectancies.

Safe Home Income Plans (SHIP) is a self-regulatory body that was formed in 1991 to promote fairer schemes after thousands of elderly homeowners were left with large losses in the late Eighties. SHIP can be contacted on 01242 539 494.

The concept that justifies investment in stocks, where your capital is at risk, rather than gilt-edged bonds which are as safe an investment as you can get and where your capital is not at risk provided you hold the bond til maturity.

The theory goes that it is only worth investing in stocks if the return you get exceeds the return you could get on gilts - otherwise, why would you take on the extra risk? The difference in returns is known as the equity risk premium.

Every historical analysis of returns achieved by stocks compared to bonds shows that stocks outperform bonds in the long term. This is why you repeatedly hear pundits say that the stock market, while risky in the short term, is not risky in the long term. The key thing, as a private investor, is to leave your money in the market for long enough for the long term benefit to eradicate the short term risk. Stick your money in the market for two months, and it might go down 20% if you are unlucky. Stick it in a well-diversified portfolio for 30 years, and it should produce returns that comfortably exceed what you could have got from bonds.

The total value of a deceased person's assets.

For example:

• Total value of property, automobile and all other possessions = £500,000
• Allowable deductions such as mortgage, overdraft at bank, credit cards and other expenses = £70,000
• Total net value of estate = £430,000

The policy of selecting stocks for your portfolio partly on the grounds of the ethical or environmental code pursued by the companies in question.

If you ask ten people what they think is ethical you will get ten different answers. Ethical views, by their very nature, are subjective.

The major exclusions tend to be arms, alcohol, tobacco, gambling, animal testing, environmental damage and the payment of exploitative wages in developing countries. But the list could extend almost indefinitely and a complete screening by the Ethical Investment Research Service (EIRIS) would eliminate 60% of the FTSE 100 index.

You can screen out negative factors or adopt a positive screening process and select companies with a clear environmental policy, for example.

An ethical fund or portfolio of shares requires an appropriate performance benchmark. It will not reflect the market movements as a whole as it will hold a higher than average proportion of smaller companies which are much more volatile than blue chips.

EIRIS maintains a database which you can use to filter an existing portfolio or to build one from scratch, using your own selection of a wide range of criteria. EIRIS: 020 7840 5700. e-mail: ethics@eiris.org website http://www.eiris.org

In February 2000 FTSE International launched a set of stock indices called FTSE4Good. This is a tradeable and benchmark index which requires member companies to meet certain ethical standards for inclusion.

EPIC codes are the abbreviations given to company share quotations (e.g. the EPIC code for Vodafone is VOD). They serve the same function as 'ticker symbols' in the USA.

In the USA, almost any newspaper or web article about a quoted company refers to its ticker symbol, and because of this investors are familiar with them. This makes it very easy for them when they are using websites and need to search for a company.

In the UK, EPIC codes have been replaced by Tradable Instrument Display Mnemonic (TIDM) codes.

ETFs are a new kind of collective investment fund competing with investment trusts and unit trusts for investors' money.

In some ways they are a conventional tracker fund, pooling the cash of a large number of investors and investing it in a basket of shares in companies that make up an index (e.g. members of the FTSE A All-Share).

Like unit trusts, ETFs are open ended, which means that new units can be issued in response to demand. The advantage of this is that they trade at a price which is close to the net asset value of the fund (i.e. the value of its investments) - something that cannot be said of investment trusts which are closed funds.

But unlike unit trusts, ETFs do not usually have initial charges and their annual management charges are much lower (averaging 0.35%). You will have to pay broking commission, but some ETFs are exempt from Stamp Duty.

Another feature of ETFs is that their prices are updated continuously during the trading day to reflect the indexes they track. This is an improvement over unit trusts where prices are only recalculated every 24 hours. So if you buy shares in an ETF at 2 o'clock on Monday the price you pay will be directly related to the NAV at that time.

ETFs pay a dividend to their shareholders, which is the sum of all the dividends received from the ETF's investments minus an annual management fee. Typical annual fees are under 0.5% of the fund's value.

The UK's first ETF was launched by Barclays Global Investors in 2000 and took 80,000 trades in its first week. It can be held in both PEPs and ISAs and does not attract Stamp Duty.

You can buy ETFs through most stockbrokers.

A broker who buys and sells shares on the instructions of clients but who offers no advice about what to buy and sell.

Self-directed investors who want to make their own decisions are most suited to this service, and will probably be attracted by the lower dealing costs. Investors who want advice will need to use the services of an advisory of discretionary broker.

The website of The Association of Private Client Investment Managers and Stockbrokers- http://www.apcims.co.uk - provides a list of brokers and the services which they offer.

1. The price at which an option or warrant holder can buy or sell the underlying instrument (for example, shares, an index, commodities etc). Also known as the strike price.
2. The price at which a new issue of shares is sold to investors where the issue has taken place as a tender offer. The exercise price is calculated as the maximum price at which all the shares being issued can be sold, bearing in mind the bids put in by investors.

1. For 'American-style' options and warrants, the holder can exercise rights at any time up to the 'expiry date'. After the expiry date has passed, the holder's rights to buy or sell the underlying asset expire.
2. For 'European-style' options/warrants, exercise can only take place on the expiry date and not before.

An EGM is a special meeting of a company and its shareholders which can be called by company directors or anyone with at least 10% of the voting rights on the company's shares.

EGMs have to be called in order for certain special resolutions to be passed (e.g. to approve a takeover or merger or break-up of the company) and for the resolution to be passed, 75% of more of the shareholders have to vote for it.