Investment Glossary

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Undercapitalised

pertaining to or being a firm that has insufficient long-term equity to support its assets. A rapidly growing firm that finds itself financing its operations primarily with short-term loans may be under capitalised. See also the opposite condition - Underleveraged

Underleveraged

of, relating to or being a firm that has insufficient debt in its capital structure. Because bond interest is deductible for tax purposes and is generally fixed in amount over a long period of time, some use of debt can often result in greater earnings per share for share holders.

Underlying asset

1 - the physical and financial asset to which a security holder or a class of security holders has a claim. An analyst may feel that a share is under priced on the basis of the value of the firm's underlying assets and the potential earning power of these assets. 2 - the asset that underlies and gives value to a security. The underlying asset of a share option is the share that the option can be used to purchase. Likewise, the underlying asset of a convertible bond is the share for which the bond can be exchanged. The market value of a security is directly affected by changes in the value of any underlying asset into which it may be exchanged.

Underperforming asset

an asset that earns a lower rate of return than it would be capable of earning if it were properly used. A firm with underperforming assets is a prime target for takeover.

Undervalued

pertaining to or being a security that trades at a price lower than it logically should be. Whether or not a security is undervalued may be a subjective view.

Unencumbered

pertaining to an owned asset without a claim against it. Real estate not being used as collateral for a loan is unencumbered.

Unit trust (open ended)

an investment fund that continually offers new shares and stands ready to redeem existing shares from the owners. Since the shares are purchased directly from and are redeemed directly to the unit trust, there is no secondary market in these companies' shares. Individual unit trusts vary substantially in terms of the types of investments, the entry fees and the management fees.

Unrealised loss

the increased market value of an asset that is still being held, compared with the asset's cost of acquisition. Also called paper gain; paper profit.

Unsecured creditor

the reduction in value of an asset that is being held compared with the original cost.

Unsystematic risk

a credit with a claim for which no specific assets are pledged.

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