Having worked collaboratively with several UK-based colleagues and discussed stock ideas with institutional investors in Great Britain, I’ve encountered some subtle, and not-so-subtle, distinctions between the financial terms used in American cities and in London. In some instances, I’ve found myself subconsciously adopting a hybrid trans-Atlantic vernacular that incorporates business idioms used in both financial centers. Four sets of contrasting investment and business terms stand out in my memory.
1. Ratings and Re-ratings. American analysts generally reserve the term “rating” for a class of investment recommendation on a security. Many US analysts will alternate between referring to a favorable opinion on a security as a “buy” recommendation or a “buy” rating. Among UK-based analysts and money managers, the somewhat similar term “re-rating” implies a change in the valuation multiple assigned to a stock by the equity market. In the US, such a change in valuation sentiment might be referred to as multiple expansion or multiple contraction.
2. Leverage and Gearing. Most US analysts use the term “leverage” in the context of debt and capital structure, such as debt-to-equity ratios. Operating leverage describes the impact of a firm’s fixed cost structure on the rate at which changes in revenues beget changes in operating profits. In the UK, the term most analogous to financial leverage is “gearing.” In its online guide to financial terminology, the London Stock Exchange defines “gearing” as “gross long term debt divided by debt plus equity shareholders funds” – a ratio an American would typically refer to as debt-to-capitalization. In the same vein, financial ratios classified as leverage measures in the US are generally referred to as gearing ratios in the UK.
3. Revenues and Turnover. Analysts in North America tend to associate sales with references to the term “revenues.” Americans use the terms “inventory turnover,” “receivable turnover,” and “asset turnover” to refer to the number of times in a given period that receivables, inventory or other current assets are “turned over,” or converted, into sales. In the UK, the term “turnover” does a lot more linguistic “heavy-lifting.” When not further qualified, the term “turnover” is used synonymously with revenues, as described by US-based analysts. The UK-based website, London South East, defines “turnover” more generally as “the volume of business over time.”
4. Spinoffs and Demergers. Several years ago, I worked as the research director of a Manhattan-based firm that focused on special situations, including corporate restructurings and spinoffs. In that capacity, I worked closely with a colleague who had spent much of his career in London and wrote extensively on restructurings outside the US. He invariably used the term “demerger” to refer to a situation that most Americans would describe as a spinoff. London South East, for its part, defines a “demerger” as “the separation of companies or business units that are currently under one corporate umbrella.”