• In calculating the acquisition cost, you can include including broker commissions and stamp duty. Depending on when you bought the shares, the base cost can be increased through the indexation allowance - a good thing from a tax point of view because the higher your acquisition cost, the lower your chargeable gain.
• In calculating the disposal proceeds, you can deduct commissions and other charges incurred in the process of selling.
• Whether you have to pay Capital Gains Tax on the chargeable gain will depend on whether you have already used up your annual exemption (the amount of gains you can make in any one year without paying CGT), and on the level of your other gains or losses in the tax year.
• Taper relief, which reduces the rate of tax you pay on gains, may also be available, depending on how long you have held the shares at the time you sell them.

The most common use of the term 'gearing' is to describe the level of a company's debt compared with its equity capital, and usually it is expressed as a percentage. So a company with gearing of 60 per cent has levels of debt which are 60 per cent of its equity capital.

The significance of the gearing ratio is that it shows at a glance how encumbered a company is with debt. Depending on the industry, a gearing ratio of 15% would be considered prudent whilst anything over 100% would be considered risky or 'highly geared'.

'Gearing' is also used in a related sense to refer to borrowings by an investment trust which boosts the return on capital and income via additional investment. When the trust is performing well shareholders enjoy an enhanced or 'geared profit'. However if the trust performs poorly then the loss is similarly exaggerated.

Finally, 'gearing' is also used to refer to the ratio between a company's share price and its warrant price.

Gilts are fixed income or index-linked bonds issued by the UK Government.

When you buy a gilt, you are lending the government money in return for regular interest payments and the promise that the nominal value of the gilt will be repaid (redeemed) on a specified later date. The rate of interest will be in the name of the gilt (e.g. 8% Treasury 2021 is a gilt issued by the Treasury which pays 8% interest p.a. and is repayable in 2021)

You don't have to hold a gilt until its redemption however, as they are tradeable instruments just like shares. Since they are tradeable, their prices continually move in line with supply and demand, and the main influences on prices are the market's view of future interest rates and inflation.

Prices tend to fall when interest rates rise and when inflation is on the increase. The prospect of low interest rates and low inflation makes gilts more attractive. Index-linked gilts pay a lower rate of interest than fixed-interest gilts, but both the rate of interest and the amount paid on redemption rise in line with inflation.

If the gilts are redeemable, the redemption amount will be paid to whoever is the owner at the redemption date. Redeemable gilts are classified as longs (redeemable after fifteen years or more), mediums (redeemable between five and fifteen years) and shorts (redeemable within five years). The amount redeemed will not be the market price of the bonds at the time of redemption, but its nominal value (usually £100).

You can buy gilts directly, or you can buy shares in investment and unit trusts that invest in gilts. The direct route tends to be less expensive, and the Bank of England offers a low cost service.

Income from gilts is liable for tax but capital gains are tax free.

The value of a business to a purchaser over and above its net asset value. It reflects the value of intangible assets like:

• reputation
• brand name
• good customer relations
• high employee morale

and other factors which improve the company's business.

Goodwill is normally given a value in a company's balance sheet, but is amortised over a period of time.

The unofficial trading of securities before their formal issue.

A good example of a grey market is the spread betting that takes place before the launch of a new issue, as investors try to predict which way the price of the newly issued shares will go.

1. Interest earned by deposits at banks and financial institutions, or on gilts etc. before deduction of tax.
2. Interest charged on bank loans etc before any tax relief is taken into account.

The difference between the selling price of an item and the purchase or manufacturing cost, expressed as a percentage of the selling price.

For example, if it costs a company £6 to manufacture an item and the selling price is £10, the gross margin is:

(£10 - £6) / £10 x 100 = 40%

When looking at a company's Report and Accounts, the gross margin of the business as a whole is its turnover less the cost of sales, divided by the turnover, multiplied by 100.

For example: (£2,000,000 - £1,200,000) / £2,000,000 x 100 = 40%

The difference between (i) turnover and (ii) the cost of making a product or providing a service, before taking into account overheads, salaries and wages, and interest payments.

The logical step after calculating gross profit is to go on to calculate the gross profit margin, which is the gross profit as a percentage of turnover.

Example: a company has turnover of £10m and the cost of providing its service is £5m

• its gross profit is £5m
• its gross profit margin is £5m / £10m x 100 = 50%

1. The interest rate earned on money placed on deposit with banks and financial institutions before deduction of tax.
2. The interest rate charged to lenders by banks, mortgage providers and other lenders before any tax relief is taken into account.

The yield on a security before the deduction of tax.

Yield is a measure of the return on an investment, through dividends or interest, compared with its price. The higher the yield, the greater the return you are making on an investment relative to its price.

To see how to calculate yield, see 'dividend yield'.

A unit or investment fund which invests in the stocks of growth companies.

Since growth companies often do not pay dividends, the income of the funds which invest in them is correspondingly low. The fund's objective is to achieve high capital appreciation. However the investment risk is correspondingly greater.

Also known as maximum capital gains funds or capital appreciation funds.

The approach to investing which aims to invest in fast-growing companies which are rapidly increasing their turnover and profits, and where the expectation is to make money from a rising share price (rather than income).

The theory with a growth share is that the share price rise happens in two ways:

• firstly, through the multiplication of a static P/E on rising earnings per share. So a company on a P/E of 7 with earnings of 10p per share has a share price of 70p. If EPS rises to 15p, its share price rises to 105p.
• secondly, by a re-rating of the company's P/E multiple. In the case of the company above the earnings of 105p may be accompanied by a rise in P/E ratio from 7 to 10, in which case the share price rises to 150p.

Growth investing is often contrasted with value investing. The traditional view is that:

• value investors look for shares that are cheap in relation to the net asset value of a company
• growth investors are only interested in earnings growth

In fact, there is common ground between the two. Value investors are very interested in earnings if they can acquire them cheaply enough (i.e. on a low P/E), and growth investors don't completely ignore things like company debt and balance sheet ratios.

Nevertheless, there is an important underlying distinction between the methods:

• value investing is based entirely or mainly on quantitative criteria (numbers): on asset values, on cash flow, and on discounted future earnings.
• growth investing is based on qualitative criteria: on value judgements about the business, its markets, its management, and its ability to extract future earnings growth from its industry.

Stocks whose earnings have grown at an above average rate over a number of years and which are expected to continue to grow at a high rate for some time to come.

Growth stocks usually trade on higher P/E ratios than non growth stocks, but their share prices also tend to be more volatile, which means they are inherently more risky than other stocks. If their growth falters, the market may punish them by marking down the share price severely.

Because their primary attraction is capital growth, growth stock companies are often not expected to pay dividends. The reasoning is that the shareholders are better served by the money being invested back into the company. This is fine if the company delivers on its growth promises, as increases in earnings will, if the P/E stays the same, result in higher share prices. But if the company fails to deliver on its promises, investors will not only miss out on the capital appreciation they expect, but won't even have dividend income to compensate.

1. A commitment made by a person to be answerable for the debts or liabilities of another.
2. A document, supplied by a manufacturer, indicating that in the event of product failure it will be repaired or replaced. This usually involves a specified time period. Also known as a warranty.