Financial Dictionary

Accurate and concise: Our dictionary explains the most important stock-market related terms from around the world.

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Actuarial gains and losses The actuarial calculation of provisions for pensions is based on forecasts of a number of variables, such as projected future salaries and pensions. An actuarial gain or loss results when these assumptions are changed because the actual numbers turn out to be different from the projections.

Adjusted EBIT Adjusted earnings before interest and taxes. An indicator of a business's long-term earnings power, adjusted EBIT is E.ON's key performance metric. It is an adjusted figure derived from income/(loss) from continuing operations before income taxes and minority interests. The adjustments include book gains and losses on disposals, restructuring expenses, and other nonrecurring expenses (see Other nonoperating earnings).

Adjusted EBITA Adjusted earnings before interest, taxes, depreciation, and amortization.

Adjusted EBITDA ÷ Net financial position Indicator of a company’s ability to service its debt. It equals the portion of an company’s net financial liabilities that could be paid back out of its adjusted EBITDA.

Adjusted EBITDA ÷ Net interest expense Indicator of a company’s ability to service its debt. It equals the number of times a company’s net interest expense could be paid using its adjusted EBITDA.

Adjusted net income An earnings figure after interest income, incomes taxes, and minority interests that has been adjusted to exclude certain extraordinary effects. The adjustments include book gains and losses on disposals, restructuring expenses, and other nonoperating income and expenses of a nonrecurring or rare nature (after taxes and minority interests). Adjusted net income also excludes Income/Loss (-) from discontinued operations, net.

ADR Acronym for American Depository Receipts. Depository certificate traded on US stock exchanges in place of a foreign share.

A significant benefit ADR offer US investors is their denomination in US dollars. Dividends are also paid in US dollars. Furthermore, a number of US investors are only allowed to purchase shares of foreign companies listed on a US stock exchange.

By issuing ADR, E.ON affords investors the opportunity to purchase E.ON shares and hold share certificates which are basically equivalent to American stocks. In addition, people who purchase ADR also acquire all the rights and obligations of common stockholders such as entitlements to profits, rights to obtain information and the chance to participate and vote in shareholder meetings.

E.ON has decided to change the exchange ratio between E.ON ADR and E.ON shares from 1:1 to 3:1 as from March 29, 2005. As a result, since that day three times as many ADR have been tradable on the NYSE. The increased liquidity and tradability of E.ON ADR makes E.ON shares even more attractive to US investors.

Articles of incorporation Contractual basis of a stock corporation stating the company name, headquarters, business purpose, amount of capital stock and further basic rules and regulations.

Associated companies Companies not included in a multi-business' full or partial scope of consolidation and in which a consolidated company has an interest according to the German Commercial Code (HGB) and on which the latter's holding company exercises significant influence. Associated companies are included in the consolidated financial statements using the equity method.

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Balance sheet Running tally of a company's assets and liabilities, usually disclosed at year-end. Assets show the concrete utilization of the company's financial resources, capital, creditor's claims (liabilities) and the company's capital (stockholders' equity). Together with the other portions of the financial statements, the balance sheet is the most important instrument for assessing the status and development of an enterprise. Click here for E.ON's Consolidated Financial Statements.

Bearer share Transferable share certificate that does not specify the owner of the share. The bearer of the share is entitled to the rights and obligations stated on the share certificate. (Antonym: registered share.) Bearer shares are the primary form of shares in Germany because they are easier to transfer to a new owner.

Beta factor Indicator of a stock's relative risk. A beta coefficient of more than one indicates that a stock has a higher risk than the overall market; a beta coefficient of less than one signals a lower risk.

Blue chip Describes a large company with solid finances and earnings.

Board of management A stock corporation's directly responsible management and representative body. Members are appointed by the supervisory board. Click here for E.ON's Board of Management.

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Capital Employed Capital employed represents the entire capital tied up in a reporting entity. On the fixed asset side, it includes intangible assets and property, plant, and equipment. On the nonfixed asset side, it includes only shares in affiliated and associated companies, since other types of financial assets (loans and securities) are interest-bearing and therefore not included in ROCE (see ROCE).

Capital stock Money or property contributed by stockholders to a stock corporation. Its value equals the nominal value of all issued shares. On the balance sheet, this item is listed under liabilities and shareholders' equity. As of December 31, 2006 E.ON's authorized capital stock of EUR 1,799,200,00 consists of 692,00,00 ordinary shares issued without nominal value.

Capital yield tax Special income tax currently amounting to 21.1 percent of the dividend in Germany. It is immediately deducted from the dividend payment. For exceptions, see tax credit.

Cash flow Financing key figure indicating the amount of cash provided by operating activities for financing investments, repaying debt and distributing net income in the form of dividends.

Cash flow statement Calculation and presentation of the cash flow a company has generated or consumed during a reporting period as a result of its operating, investing, and financing activities.

Commercial paper (CP) Unsecured, short-term money market obligations issued by commercial firms and financial institutions. CP are usually quoted on a discounted basis, with repayment at the par value. The maturities of CP are typically from 2 to 364 days.

Conditional Capital Increase in capital of a stock corporation that is implemented only insofar as additional shares are subscribed or assumed by exercising conversion or subscription rights [Sec. 192, German Stock Corporation Act (AktG)].

Consolidation Consolidated financial statements are compiled as if all Group companies formed a single legal entity. All expenses, earnings and interim results from accounts receivable and payable and other transactions are offset by shareholders' equity and eliminated by counterbalancing. Shareholdings in Group companies are offset by their respective shareholders' equity and all Group-internal assets and liabilities are eliminated, since this kind of legal circumstance cannot exist within one and the same corporate body. The sum and consolidation of the remaining items in the financial statements flow into the consolidated balance sheet and the Group profit and loss statement.

Contractual trust arrangement (CTA) Model for financing pension obligations under which company assets are converted to assets of a pension plan administered by an independent trust that is legally separate from the company.

Cost of capital Weighted average of the costs of debt and equity funds (weighted average cost of capital: WACC). The cost of equity is the return expected by an investor in a given stock. The cost of debt is equivalent to a firm's long-term financing terms. The interest on corporate debt is tax deductible.

Cusip no. US securities identification number (ISIN).

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DAX DAX Acronym for Deutscher Aktien-Index (German stock market index) (stock market index). The DAX usually refers to the DAX 30, comprising Germany's standard thirty blue-chip companies. Their share performance is factored into the index according to their significance on the stock market. The DAX includes over 75 percent of widely held capital stock, thus reflecting the development of the German stock market for the most part.

(DAX)

There are a number of other indices besides the DAX 30. These include the DAX 100 (the 100 largest listed companies), the MDAX (medium-sized listed companies) and the CDAX (industry-specific indices, including the CDAX Utilities Index).

Depot Synonym: custody account. Set up by credit institutions to administer securities for their customers. Every customer can deposit securities individually (under special wrapper) or in a collective security deposit bank. The latter option is common practice and more affordable.

Derivative Product whose value derives largely from the price, price fluctuations, or price expectations of an underlying instrument (such as a share, bond, currency, interest rate, or commodity).

Discontinued operations Businesses or parts of a business that are planned for divestment or have already been divested. They are subject to special disclosure rules.

Dividend Every shareowner has a right to a share of the corporation's annual earnings, proportionate to his or her shareholding. This payment is called a dividend. In addition to the dividend, shareholders also receive a tax credit.

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Equity method A method for valuing shareholdings in associated companies whose assets and liabilities are not fully consolidated. The proportional share of the company's annual net income (or loss) is reflected in the shareholding's book value. This change is shown in the owning company's income statement.

Euro-Stoxx The German stock market, Paris Stock Exchange (SBF), Swiss Bourse, and Dow Jones have collaborated to establish the Stoxx family of European share indices. They comprise:

Dow Jones Stoxx, a Europe-wide index including over 600 companies from 16 countries
Dow Jones Euro Stoxx containing 300 corporations headquartered in countries participating in the European Monetary Union (EMU)
Dow Jones Stoxx 50, a blue-chip index that includes 50 major companies from across Europe
Dow Jones Euro Stoxx 50, a blue-chip index containing 50 major corporations based in EMU countries.

E.ON AG is represented in both blue-chip indices.

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Fair value The price at which assets, debts, and derivatives pass from a willing seller to a willing buyer, each having access to all the relevant facts and acting freely.

Financial derivative Contractual agreement based on an underlying value (reference interest rate, securities prices, commodity prices) and a nominal amount (foreign currency amount, a certain number of stock shares). Little or no payment is necessary at the time the agreement is concluded.

Form 20-F Foreign companies listed on a US stock exchange are required to prepare an annual report on Form 20-F in compliance with U.S. GAAP.

Certain sections of the Form 20-F are much more detailed than the annual report.

Free cash flow Cash provided by operating activities less investments in intangible assets and property, plant, and equipment.

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Goodwill Intangible but recognized business asset that is the result of such features as production or sale of reputable brand-name products, a good relationship with customers and suppliers, and the standing of the business in its community.

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Impairment test Periodic comparison of an asset's book value with its fair value. A company must record an impairment charge if it determines that an asset's fair value has fallen below its book value. Effective January 1, 2002, E.ON a U.S. accounting standard under which goodwill is no longer periodically amortized but instead is tested for impairment on at least an annual basis.

Insider Term used to describe persons that have an informational advantage due to their position in a company. Using this information to one's own advantage in stock market transactions is illegal.

International Financial Reporting Standards (IFRS) Under regulations passed by the European Parliament and European Council, capital-market-oriented companies in the EU must apply IFRS for fiscal years that begin on or after January 1, 2005. However, the regulations gave member states the option to allow companies to apply IFRS beginning on January 1, 2007, at the latest. In October 2004 the German parliament passed a law allowing late application.

International Security Identification Number (ISIN) Shares, bonds, investment certificates and option bonds listed on German stock exchanges are identified via a 6-digit international security identification number (ISIN). E.ON's ISIN Code is DE 000 761 4406.

IPO Synonym: first-time listing. Initial public offering of a company's shares on the stock exchange. In order to qualify for an IPO, a company must fulfill certain accounting, gearing and disclosure requirements. In addition to the disclosure requirements of unlisted stock corporations, listed stock corporations are obligated to disclose price-sensitive share information.

The listing committee decides whether the shares qualify for stock-market trading upon receipt of a request from a bank and on the basis of a listing prospectus.

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Listing See IPO.

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Market capitalization Market value of a listed company. Market capitalization is calculated based on the number of shares outstanding multiplied by the current share price.

Market quotation Share price officially quoted on the stock exchange, determined by supply and demand and expressed in euros. Primary share price determinants are a stock corporation's earnings situation and future perspectives.

Medium-term note program Flexible bond programs used to issue debt instruments. Volumes, currencies, and maturities (usually between 2 and 30 years) can be adjusted to meet a company's financing needs.

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Net financial position Difference between a company’s total financial assets (cash and securities) and total financial liabilities (debts to financial institutions and third parties).

Non-GAAP financial measures Under U.S. securities laws, financial measure not computed in U.S. GAAP must be designated as such in financial reports.

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Option The right, not the obligation, to buy or sell an underlying asset (for instance, a security or currency) at a specific date at a predetermined price from a counterparty or seller. Buy options are referred to as calls; sell options, as puts.

Ordinary share Participation in the ownership of an enterprise. It has no par value (the nominal value assigned to a share of stock by the corporate charter at the time of issuance). Ordinary shares typically entitle owners to receive any dividends that are declared and to vote at the annual shareholders meeting.

Other nonoperating earnings Income and expenses that are unusual or infrequent, such as book gains or losses from disposals and restructuring expenses (see Adjusted EBIT).

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Performance Development of the value of a security. Performance is based on share price, dividend payments and subscription rights in the case of capital increases. It is expressed as a percentage at a certain point in time.

Prepaid expenses or deferred income On the balance sheet, these are listed under assets to facilitate deriving a company's performance for a given reporting period.

Price/earnings ratio (PER) One criteria for determining whether a company's stock is over or undervalued. PER = current share price divided by company earnings per share (EPS). The lower the PER, the "cheaper" the share.
Quasi no-par-value shares (=Stückaktie)
Many German-based companies managed the transition from the deutschmark (DM) to the euro (EUR) by converting their ordinary shares into quasi no-par-value shares (Stückaktien). The advantage of this is that, while each quasi no-par-value share represents an equal portion of the issuing company’s share capital, the share certificate itself does not actually state a par value. The nominal value of each such share is determined with reference to the number of shares issued and a euro/deutschmark conversion rate specified by the issuing company.

Purchase price allocation In a business combination accounted for as a purchase, the values at which the acquired company's assets and liabilities are recorded in the acquiring company's balance sheet.

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Quasi no-par-value shares (=Stückaktie) Many German-based companies managed the transition from the deutschmark (DM) to the euro (EUR) by converting their ordinary shares into quasi no-par-value shares (Stückaktien). The advantage of this is that, while each quasi no-par-value share represents an equal portion of the issuing company’s share capital, the share certificate itself does not actually state a par value. The nominal value of each such share is determined with reference to the number of shares issued and a euro/deutschmark conversion rate specified by the issuing company.

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Rating Rating Standardized performance categories for an issuer´s short- and long-term debt instruments based on the probability of full repayments. Company analyses providing the foundation for a rating are conducted by specialized agencies like Standard & Poor's and Moody's. Ratings provide the foundation for investors and creditors to compare the risks of various financial investments.

Return on capital employed Acronym: ROCE. This figure measures the return on capital employed in percent. There are two ways of calculating returns:

a) dividend yield = ratio of dividend + tax credit + share price to share purchase price, and

b) return on investment (ROI) = ratio of dividend + tax credit + share price fluctuations + subscription rights to share purchase price.

Return on equity Acronym: ROE. Ratio of earnings (net income excluding minority interests) to net asset value. The ROE indicates a company's earnings situation and is comparable to interest on a financial investment.

REX-Performance-Index Acronym: REX-P. Index that mirrors the development of the German government bond market.

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SEC Acronym: Securities and Exchange Commission. Regulatory authority for US stock markets. One of the SEC's main tasks is to verify whether the Form 20-F contains required information.
Mandatory Publications of US Companies are obtainable on the Internet courtesy of the EDGAR information-retrieval system.

Share Synonym: stock. Security that represents a claim on a stock corporation's earnings and assets. Click here for more information on E.ON's Share.

Shareholders Meeting A stock corporation's shareholders meet at least once a year. The shareholders meeting decides on the utilization of company profits, allocation of capital, amendments to the articles of association and other basic issues. The meeting elects the auditor and the supervisory board's shareholder representatives. The shareholders meeting is the only body that can provide relief for the Supervisory Board and the Board of Management (see voting rights). Proposals for the shareholders meeting agenda are published in the invitation to the shareholders meeting.

Spot price Synonym: middle rate. Official price set at the stock exchange at noon daily, at which all small orders (normally fewer than 50 shares) are traded. Higher volumes of securities are traded at variable rates (continuous auction prices) during official trading hours.

Stock appreciation rights (SAR) Virtual stock options in which compensation is in cash instead of in stock. At E.ON, the exercise gain equals the difference between the price of E.ON on the exercise date and at the time the SAR were issued.

Stock corporation Abbreviation: Corp. A company whose capital stock is divided up into individual shares. It often happens that a great number of shareholders has very small interests in a corporation (click here for E.ON's Shareholder Structure). Such businesses are also called public companies. Shareholder liability is limited to the respective interest held via shares. Therefore, unlike partners in private limited companies, shareholders are not liable with their entire personal assets.

Shareholders in stock corporations listed on stock markets can sell their shares through banks at any time.

A stock corporation's representative bodies are the Shareholders Meeting, the Supervisory Board, and the Board of Management.

Stock corporations are subject to certain disclosure requirements which safeguard the interests of their shareholders. These include the publication of an annual report and share price-sensitive business transactions or related events (ad-hoc disclosure).

Stock market Market for securities (where supply and demand meet). Stock trading takes place during established times at specific locations or via electronic stock trading systems. Germany's eight stock exchanges and the electronic stock trading system Xetra are monitored by the government. The listing committee determines which stocks are admitted to the stock market (see IPO). Authorized traders on the stock exchange are representatives of financial institutions as well as official and independent brokers.
Click here to learn where E.ON Shares are listed.

Stock market index (price index, performance index) Stock market indices measure changes in the price or performance of a basket of shares. Each index weights the individual shares according to specific criteria. Price indices (i.e. the FAZ stock market index), are solely based on share performance. Performance indices (i.e. the DAX), also reflect dividends and subscription rights in case of capital increases. They thus include all factors that determine the performance of shares contained in the index.

Stock market indices are used to compare performances and for making investment decisions. Performance comparisons are often made by looking at the difference between the performance of an individual share and that of the respective index. A growing portion of investment capital worldwide is being placed in index funds. Managers of such funds do not actively select individual shares. Instead, in adopting a passive investment strategy, they seek to duplicate the structure of an index and its performance as closely as possible. This automatically generates demand for shares that are contained in major indices.

Funds with an active investment policy also use indices as a benchmark. In this case, fund managers attempt to outperform the index by over or underweighting individual shares compared with their respective weight in the index.

Stockholders' equity Contrary to outside capital, stockholders' equity comprises funds raised by company owners for financing purposes or funds which remain in the company as income.

Subscription right Right conferred upon a shareholder in the event of a capital increase to acquire a pro-rata number of new shares at their price of issue. If the issue price is lower than the current stock-market price, the subscription right has a notional value.

Supervisory Board Appoints, monitors and advises the Board of Management. Members of the Supervisory Board are elected at the Shareholders Meeting by employee representatives. Click here for E.ON's Supervisory Board.

Syndicated line of credit Credit facility extended by two or more banks that is good for a stated period of time (usually one to seven years) and a stated amount.

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Tax shield Deductions that reduce an enterprise's tax burden. For example, the interest on corporate debt is tax deductible. An enterprise takes this into consideration when choosing between equity and debt financing (Cost of capital).

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U.S. GAAP Acronym: US Generally Accepted Accounting Principles. US accounting, valuation and disclosure policies developed by the Financial Accounting Standards Board (FASB), an independent organization, since 1973. Whereas the German Commercial Code primarily has the creditors' interests in mind when laying down its accounting principles and thus prescribes that valuations be performed very carefully to this end, US GAAP lends priority to the interests of the shareholders and therefore requires valuations to be performed with the highest possible level of market proximity. For example, under US GAAP, equity interests in other companies must be valued at market prices.

Furthermore, US GAAP requires much more comprehensive disclosure, i.e. segment reporting along with the additional mandatory disclosure of specific financial information on a company's individual segments.

US GAAP earnings E.ON has adopted accounting and valuation policies in compliance with U.S. GAAP since 1995, insofar as permissible within the scope of exercising valuation options available pursuant to the German Commercial Code (HGB). E.ON has summarized effects on earnings from valuation and accounting instances not permissible under German commercial law, but mandatory under US GAAP, in a reconciliation to US GAAP. This calculation is shown in the Consolidated Financial Statements.

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Value added Key measure of E.ON’s financial performance based on the residual wealth calculated by deducting the cost of capital (debt and equity) from operating profit. It is equivalent to the return spread (ROCE minus the cost of capital) multiplied by capital employed, which represents the interest-bearing capital tied up in the group.

Volatility Range of fluctuation in share prices. Stocks whose market prices have extreme highs and lows have a high volatility. This provides investors with an opportunity to quickly make substantial profits on the stock exchange. Naturally, the potential for making heavy losses is just as prominent. Traditionally, E.ON stock has shown low volatility.

Voting right Right conferred upon shareholders to participate in decisions at the Shareholders Meeting (usually one vote per share). Every shareholder can transfer his or her voting right to his or her security deposit bank or another shareholder-meeting participant per proxy.

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Working Capital The difference between a company´s current assets and long-term liabilities.

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Xetra Acronym: Exchange Electronic Trading, a computerized securities trading system. Almost all of the shares listed at Frankfurt Stock Exchange, equity warrants and a number of government bonds are traded on Xetra. Official trading hours for bank and investment company brokers are from 9:00 a.m. to 5:30 p.m. CET. Xetra replaced the former IBIS system for the German equity market on November 28, 1997. The new system is technologically more advanced, and provides additional features such as opening and closing quotations. Additional information is available from Deutsche Börse AG.

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