Glossary: G to I

G

GAAP: "Mind the..." No, nothing to do with the tube at Embankment station, this is an acronym for Generally Accepted Accounting Principles, employed in the accounts you'll see in company reports.

GDR: Global Depositary Receipt. Similar to an ADR but used for international stocks traded in London as well.

Gearing: Buy a house for £100,000 with a deposit of £10,000 and the rest as a mortgage. Six months later, sell it for £150,000 and you've made 400% profit on your original investment: that's gearing. Of course, it can work the other way too: see negative equity. Gearing can be expressed as the ratio of debt to assets, and is used by companies and investing individuals to enhance their profits, as well as by homeowners to allow them to buy a home.

Goodwill: The difference between what a company pays for another company and the book value of that company. In the unlikely event of the book value being higher than the purchase price, then you get Badwill.

Gilts: When the government needs to borrow money, it sells you these. They are government bonds and as a rule the interest is paid gross (i.e. free of tax). They are very safe and their US equivalent is the Treasury bill, or "T-Bill". See risk-free rate of return.

Greenshoe: A process designed to smooth out price fluctuations after a company has issued new shares. The investment bank involved will actually sell more shares than it has initially contracted to. If the market is strong, and the shares are taken, the bank will go the company and ask for the additional shares to be issued to satisfy the demand. However, if appetite for the issue is weak the bank will buy the shares back as if they have effectively never been issued.

Gross Profit: Gross Profit is calculated as "sales less all costs directly attributable to those sales". These costs might include, for example, raw materials and manufacturing labour.

Gross: The payment of any form of income (interest or dividend payout) without the prior deduction of tax. Errol Flynn knew all about 'gross': "My problem is reconciling my gross habits with my net income." Also, see net profit.

Growth: An increase in the capital value of an asset.

H

Hedge Fund: A fund, usually marketed to the ultra-wealthy, that attempts to make money out of small inefficiencies in the financial markets such as the difference between the price of a share in London and New York.

I

Income: The return from an investment on a sustainable basis.

Independent Financial Adviser (IFA): A financial adviser who is not employed by a particular company to market their products. They may currently be paid by commission*, which in the Fool's view can generate a conflict of interest, or else by agreed fee.
* The Financial Services Authority (FSA) has stated that financial advisors (independent or otherwise) will be banned from receiving commission as from the end of 2012.

Index: Groups of shares mathematically reworked to be representative of the current level of the market or of different sub-groups of companies within the market. See FTSE 100, FTSE ASI, FTSE 250, FT 30.

Index-linking: Something which increases at the rate of inflation is index-linked. Some gilts are index-linked and the old age pension is index-linked.

Index Tracker: A fund follows a given stock market index such as the FTSE 100 or the FTSE-All Share Index. The Fool likes them, as they charge much less than other funds and consequently tend to do better in the long run.

Individual Savings Account (ISA): ISAs started in April 1999 and replaced PEPs and TESSAs. ISAs are schemes to protect your investments (shares, bonds, cash or insurance funds) from tax. Think of them as a tax-free wrapper.

Inflation: A fall in the value of money.

Initial Charges: The fees payable to the fund manager at the time a fund is purchased. Ostensibly, this is to cover the spread.

Initial Commission: Another name for initial charges.

Initial Public Offering (IPO): The US name for a company's first sale of shares to the public. In the UK we call it a New Issue.

Insider Dealing: This is when you buy or sell a share and at the same time possess privileged information that would move the price if it were widely known. It's illegal, but is also widespread and there are few prosecutions for it.

Institutions: Institutional investors include pension funds, unit trusts and insurance companies. These are the big players in the stock market as they have a lot of money to invest and as major shareholders they often have a say in company decisions.

Intangible Asset: An asset in thin air that someone thinks is valuable. Typically this could be a brand name, the rights to a process or a publishing title. See Fixed Asset.

Internal Rate of Return This is the interest rate which, when used as the discount rate for a series of cash flows, gives a net present value of zero. In other words, if we assume that we invest some money now (giving us an initial negative cash flow figure) and get some cash flows back in the future (giving us positive cash flow figures), it is the overall rate of growth on the investment.

Investment Club: Group of investors which meets regularly to discuss which shares to buy and sell out of a common fund. They are increasingly popular.

Investment Fund: A pooled collection of funds, owned by one or more investors, that is managed as one entity by one or more managers. The legal structure of the fund can take many forms and can include Unit Trusts, Investment Trusts and Open Ended Investment Company.

Investment Trust: A public limited company that makes investments into a variety of other companies. Notwithstanding several important differences to unit trusts, these are also pooled stock market investment funds. Unlike unit trusts they can take on debt that can amplify the underlying movements. See Gearing.

ISA: See Individual Savings Account.

ISEQ: The Irish stock market index.