Commonly Used Financial Terms
Glossary courtesy of Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University
Accounts payable - Money owed to suppliers.
Accounts receivable - Money owed by customers.
Accounts receivable turnover - The ratio of net credit sales to average accounts receivable, which is a measure of how quickly customers pay their bills.
Active - A market in which there is frequent trading.
Active account - Refers to a brokerage account in which many transactions occur. Brokerage firms may levy a fee if an account generates an inadequate level of activity.
Adjusted basis - Price from which to calculate and derive capital gains or losses upon sale of an asset. Account actions such as any stock splits that have occurred since the initial purchase must be accounted for.
Adjusted gross income (AGI) - Gross income less allowable adjustments, is the income on which an individual is taxed by the federal government.
Advance - Increase in the market price of stocks, bonds, commodities, or other assets.
After-tax basis - The comparison basis used to analyze the net after-tax returns on a corporate taxable bond and a municipal tax-free bond.
After-tax profit margin - The ratio of net income to net sales.
After-tax real rate of return - The after-tax rate of return minus the inflation rate.
Agency - In context of general equities, buying or selling for the account and risk of a customer. Generally, an agent, or broker, acts as intermediary between buyer and seller, taking no financial risk personally or as a firm, and charging a commission for the service. The broker represents a customer buyer/seller to a customer seller/buyer and does not act as principal for the firm's own trading account. Antithesis of principal.
Agent - The decision-maker in a principal-agent relationship.
Air pocket stock - A stock whose price drops precipitously, often on the unexpected news of poor results.
Allotment - The number of securities assigned to each of the participants in an underwriting syndicate.
American Association of Individual Investors (AAII) - A not-for-profit organization to educate individual investors about stocks, bonds, mutual funds, and other financial instruments.
American Stock Exchange (AMEX) - Stock exchange with the third highest volume of trading in the U.S. Located at 86 Trinity Place in downtown Manhattan. The bulk of trading on AMEX consists of index options (computer technology index, institutional index, major market index) and shares of small to medium-sized companies are predominant.
Analyst - Employee of a brokerage or fund management house who studies companies and makes buy-and-sell recommendations on stocks of these companies. Most specialize in a specific industry.
Annual exclusion - A tax rule allowing the deduction of certain income from taxation.
Annual percentage rate (APR) - The periodic rate times the number of periods in a year. For example, a 5% quarterly return has an A.P.R. of 20%.
Annual percentage yield (APY) - The effective, or true, annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of compounding. The APY is calculated by taking one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate has an APY of 12.68% (1.01^12 -1).
Annual rate of return - There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, we sometimes multiply this by 12 to express an annual rate of return. This is often called the annual percentage rate (APR). The annual percentage yield (APY), includes the effect of compounding interest.
Annual report - Yearly record of a publicly held company's financial condition. It includes a description of the firm's operations, as well as balance sheet, income statement, and cash flow statement information. SEC rules require that it be distributed to all shareholders. A more detailed version is called a 10-K.
Annuity - A regular periodic payment made by an insurance company to a policyholder for a specified period of time.
Appreciation - Increase in the value of an asset.
Ask - This is the quoted ask, or the lowest price an investor will accept to sell a stock. Practically speaking, this is the quoted offer at which an investor can buy shares of stock; also called the offer price.
Asked price - In context of general equities, price at which a security or commodity is offered for sale on an exchange or in the OTC Market.
Asked to bid/offer - Used in context of general equities. Usually a seller (buyer) looking to aggressively sell (buy) stock, usually asking for a capital commitment from an investment bank.
Asset - Any possession that has value in an exchange.
Asset activity ratios - Ratios that measure how effectively the firm is managing its assets.
Asset/equity ratio - The ratio of total assets to stockholder equity.
Asset turnover - The ratio of net sales to total assets.
Asset value - The net market value of a corporation's assets on a per-share basis, not the market value of the shares. A company is undervalued in the market when asset value exceeds market value.
Assumed interest rate - Rate of interest used by an insurance company to calculate the payout on an annuity contract.
At risk - The exposure to the danger of economic loss. Frequently used in the context of claiming tax deductions. For example, a person can claim a tax deduction in a limited partnership if the taxpayer can show it is at risk of never realizing a profit and of losing its initial investment.
Auction markets - Markets in which the prevailing price is determined through the free interaction of prospective buyers and sellers, as on the floor of the stock exchange.
Audit - An examination of a company's accounting records and books conducted by an outside professional in order to determine whether the company is maintaining records according to generally accepted accounting principles.
Authorized shares - Number of shares authorized for issuance by a firm's corporate charter.
Average cost - In the context of investing, refers to the average cost of shares or stock bought at different prices over time.
B2B - An Internet strategy of dealing directly with businesses, rather than consumers, i.e. business to (2) business.
Bad debt - A debt that is written off and deemed uncollectible.
Balance of payments - A statistical compilation formulated by a sovereign nation of all economic transactions between residents of that nation and residents of all other nations during a stipulated period of time, usually a calendar year.
Balance sheet - Also called the statement of financial condition, it is a summary of a company's assets, liabilities, and owners' equity.
Balanced budget - A budget in which the income equals expenditure. See: budget.
Balanced mutual fund - This is a fund that buys common stock, preferred stock, and bonds.
Bank holding company - A company that owns or has controlling interest in two or more banks and/or other bank holding companies.
Bankruptcy - Inability to pay debts. In bankruptcy of a publicly owned entity, the ownership of the firm's assets is transferred from the stockholders to the bondholders.
Base market value - A group of securities, average market price at a specific time. Used for the purpose of indexing.
Basic business strategies - Key strategies a firm intends to pursue in carrying out its business plan.
Boston Exchange Automated Communication Order-Routing Network (BEACON) - This system permits the automatic execution of trades based on the current stock prices on the consolidated markets at any of the U.S. securities exchanges.
Bear market - Any market in which prices exhibit a declining trend. For a prolonged period, usually falling by 20% or more.
Before-tax profit margin - The ratio of net income before taxes to net sales.
Below par - Less than the nominal or face value of a security.
Benchmark - The performance of a predetermined set of securities, used for comparison purposes. Such sets may be based on published indexes or may be customized to suit an investment strategy.
Beneficiary - Term used to refer to the person who receives the benefits of a trust or the recipient of the proceeds of a life insurance policy.
Bid - The price a potential buyer is willing to pay for a security. Sometimes also used in the context of takeovers where one corporation is bidding for (trying to buy) another corporation. In trading, we have the bid-ask spread which is the difference between what buyers are willing to pay and what sellers are asking for in terms of price.
Bid price - This is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically speaking, this is the available price at which an investor can sell shares of stock. Related: Ask, offer.
Bidding through the market - In the context of general equities, aggressive willingness to purchase a security at a premium to the inside market. Contrast with bidding buyer.
Board of Directors - Individuals elected by the shareholders of a corporation who carry out certain tasks established in the charter.
Board of Governors of the Federal Reserve System - The managing body of the Federal Reserve System, set which policies on bank practices and the money supply.
Bond - Bonds are debt and are issued for a period of more than one year. The U.S. government, local governments, water districts, companies and many other types of institutions sell bonds. When an investor buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the loan at a specified time. Interest-bearing bonds pay interest periodically.
Bond agreement - A contract for privately placed debt.
Bondholder - The firm often has stockholders and bondholders. In a liquidation, the bondholders have first priority.
Book value - A company's total assets minus intangible assets and liabilities, such as debt. A company's book value might be higher or lower than its market value.
Book value per share - The ratio of stockholder equity to the average number of common shares. Book value per share should not be thought of as an indicator of economic worth, since it reflects accounting valuation (and not necessarily market valuation).
Branch - An operation in a foreign country incorporated in the home country.
Break - A rapid and sharp price decline.
Budget - A detailed schedule of financial activity, such as an advertising budget, a sales budget, or a capital budget.
Budget deficit - The amount by which government spending exceeds government revenues.
Budget surplus - The amount by which government revenues exceed government spending.
Business cycle - Repetitive cycles of economic expansion and recession. The official peaks and troughs of the U.S. cycle are determined by the National Bureau of Economic Research in Cambridge, MA.
Business risk - The risk that the cash flow of an issuer will be impaired because of adverse economic conditions, making it difficult for the issuer to meet its operating expenses.
Buy on close - Buying at the end of the trading session at a price within the closing range.
Buy on margin - Borrowing to buy additional shares, using the shares themselves as collateral.
Buy on opening - Buying at the beginning of a trading session at a price within the opening range.
Buyer's market - Market in which the supply exceeds the demand, creating lower prices. Antithesis of seller's market.
Bylaws - Rules and practices that govern management of an organization.
Calendar effect - Describes the tendency of stocks to perform differently at different times, including performance anomalies like the January effect, month-of-the-year effect, day-of-the-week effect, and holiday effect.
Cap - An upper limit on the interest rate on a floating-rate note (FRN) or an adjustable-rate mortgage (ARM).
Capacity - Credit grantors' measurement of a person's ability to repay loans.
Capital - Money invested in a firm.
Capital account - Net result of public and private international investment and lending activities.
Capital asset - A long-term asset, such as land or a building, not purchased or sold in the normal course of business.
Capital budget - A firm's planned capital expenditures.
Capital expenditures - Amount used during a particular period to acquire or improve long-term assets such as property, plant, or equipment.
Capital gain - When a stock is sold for a profit, the capital gain is the difference between the net sales price of the securities and their net cost, or original basis. If a stock is sold below cost, the difference is a capital loss.
Capital gains distribution - A distribution to the shareholders of a mutual fund out of profits from selling stocks or bonds, that is subject to capital gains taxes for the shareholders.
Capital gains yield - The price change portion of a stock's return.
Capital goods - Goods used by firms to produce other goods, e.g., office buildings, machinery, equipment.
Capital loss - The difference between the net cost of a security and the net sales price, if the security is sold at a loss.
Capital market - The market for trading long-term debt instruments (those that mature in more than one year).
Capital market efficiency - The degree to which the percent asset price accurately reflects current information in the market place.
Capital shares - One of two types of shares in a dual-purpose investment company, which entitle the holder to the appreciation or depreciation in the value of a portfolio, as well as the gains from trading in the portfolio. Antithesis of income shares.
Capital stock Stock authorized by a firm's charter and having par value, stated value, or no par value. The number and the value of issued shares are usually shown, together with the number of shares authorized, in the capital accounts section of the balance sheet.
Capital structure - The makeup of the liabilities and stockholders' equity side of the balance sheet, especially the ratio of debt to equity and the mixture of short and long maturities.
Capital surplus - Amounts of directly contributed equity capital in excess of the par value.
Capital turnover - Calculated by dividing annual sales by average stockholder equity (net worth). The ratio indicates how much a company could grow its current capital investment level. Low capital turnover generally corresponds to high profit margins.
Cash flow - In investments, cash flow represents earnings before depreciation, amortization, and non-cash charges. Sometimes called cash earnings. Cash flow from operations (called funds from operations by real estate and other investment trusts) is important because it indicates the ability to pay dividends.
Cash flow per common share - Cash flow from operations minus preferred stock dividends, divided by the number of common shares outstanding.
Cash flow from operations - A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses that are deducted in calculating net income.
Casualty loss - A financial loss caused by damage, destruction, or loss of property as a result of an unexpected or unusual event.
Ceiling - The highest price, interest rate, or other numerical factor allowable in a financial transaction.
Certificate of deposit (CD) - Also called a time deposit this is a certificate issued by a bank or thrift that indicates a specified sum of money has been deposited. A CD has a maturity date and a specified interest rate, and can be issued in any denomination. The duration can be up to five years.
Chair of the board - Highest-ranking member of a Board of Directors, who presides over its meetings and who is often the most powerful officer of a corporation.
Chastity bonds - Bonds redeemable at par value in the case of a takeover.
Chief Financial Officer (CFO) - The officer of a firm is responsible for handling the financial affairs of a company.
Chief Operating Officer (COO) - The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president.
Classified stock - The division of stock into more than one class of common stock, usually called Class A and Class B. The specific features of each class, which are set out in the charter and bylaws, usually give certain advantages to the Class A shares, such as increased voting power.
Close - The close is the period at the end of the trading session. Sometimes used to refer to closing price. Related: Opening.
Closing price - Price of the last transaction of a particular stock completed during a day's trading session on an exchange.
Closing sale - A transaction in which the seller's intention is to reduce or eliminate a long position in a stock, or a given series of options.
Collection ratio - The ratio of a company's accounts receivable to its average daily sales, which gives the average number of days it takes the company to convert receivables into cash.
Combined financial statement - A financial statement that merges the assets, liabilities, net worth, and operating figures of two or more affiliated companies. A combined statement is distinguished from a consolidated financial statement of a company and subsidiaries, which must reconcile investment and capital accounts.
Common market - An agreement between two or more countries that permits the free movement of capital and labor as well as goods and services.
Common shares - In general, a public corporation has two types of shares, common and preferred. The common shares usually entitle the shareholders to vote at shareholders meetings. The common shares have a discretionary dividend.
Common stock - Securities that represent equity ownership in a company. Common shares let an investor vote on such matters as the election of directors. They also give the holder a share in a company's profits via dividend payments or the capital appreciation of the security. Units of ownership of a public corporation with junior status to the claims of secured/unsecured creditors, bondholders and preferred shareholders in the event of liquidation.
Common stock equivalent - A convertible security that is traded like an equity issue because the optioned common stock is trading at a high price.
Common stock fund - A mutual fund investing only in common stock.
Common stock market - The market for trading equities, not including preferred stock.
Common stock/other equity - Value of outstanding common shares at par, plus accumulated retained earnings. Also called shareholders' equity.
Common stock ratios - Ratios that are designed to measure the relative claims of stockholders to earnings (cash flow per share), and equity (book value per share) of a firm.
Compound interest - Interest paid on previously earned interest as well as on the principal.
Compounding - The process of accumulating the time value of money forward in time. For example, interest earned in one period earns additional interest during each subsequent time period.
Concession - The per-share or per-bond compensation of a selling group for participating in a corporate underwriting.
Control stock - The shares owned by the controlling shareholders of a corporation.
Corporate financing committee - A committee of the NASD that reviews underwriters' SEC-required documents to ensure that proposed markups are fair and in the public interest.
Cost basis - The original price of an asset, used to determine capital gains.
Cost-benefit ratio - The net present value of an investment divided by the investment's initial cost. Also called the profitability index.
Cost of capital - The required return for a capital budgeting project.
Council of Economic Advisers - A group of economists appointed by the President of the United States to provide economic counsel and help prepare the president's budget presentation to Congress.
Credit - Money loaned.
Credit analysis Evaluating information on companies and bond issues in order to estimate the ability of the issuer to live up to its future contractual obligations.
Credit balance - The surplus in a cash account with a broker after purchases have been paid for, plus the extra cash from the sale of securities.
Credit bureau - An agency that researches the credit history of consumers so that creditors can make decisions about granting of loans.
Credit rating - An evaluation of an individual's or company's ability to repay obligations or its likelihood of not defaulting See: Creditworthiness.
Credit risk - The risk that an issuer of debt securities or a borrower may default on its obligations, or that the payment may not be made on a negotiable instrument. Related: Default risk.
Credit union - A not-for-profit institution that is operated as a cooperative and offers financial services such as low-interest loans, to its members.
Cyclical stock - Stock that tends to rise quickly when the economy turns up and fall quickly when the economy turns down. Examples are housing, automobiles, and paper.
Day trading - Establishing and liquidating the same position or positions within one day's trading.
Debt - Money borrowed.
Debtor - Borrower of money.
Deduction - An expense that is allowable as a reduction of gross taxable income by the IRS e.g., charity donations.
Default - Failure to make timely payment of interest or principal on a debt security or to otherwise comply with the provisions of a bond indenture.
Default premium - A differential in promised yield that compensates the investor for the risk inherent in purchasing a corporate bond that entails some risk of default.
Default risk - The risk that an issuer of a bond may be unable to make timely principal and interest payments. Also referred to as credit risk (as gauged by commercial rating companies).
Deferred annuities - Tax-advantaged life insurance products. Deferred annuities offer deferral of taxes with the option of withdrawing one's funds in the form of life annuity.
Deferred taxes - A non-cash expense that provides a source of free cash flow. Amount allocated during the period to cover tax liabilities that have not yet been paid.
Deficit - An excess of liabilities over assets, of losses over profits, or of expenditure over income.
Depreciate - To allocate the purchase cost of an asset over its life.
Depreciation - A non-cash expense that provides a source of free cash flow. Amount allocated during the period to amortize the cost of acquiring long-term assets over the useful life of the assets.
Dip - Slight drop in securities prices after a sustained uptrend. Analysts often advise investors to buy on dips, meaning to buy when a price is momentarily weak. See: Correction, break, crash.
Direct investment - The purchase of a controlling interest in a company or at least enough interest to have enough influence to direct the course of the company.
Disclosure - A company's release of all information pertaining to the company's business activity, regardless of how that information may influence investors.
Discount rate - The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.
Dishonor - A refusal to pay.
Disposable income - The amount of personal income an individual has after taxes and government fees, which can be spent on necessities, or non-essentials, or be saved.
Distribution stock - A small amount of a specific stock that forms part of a larger block of stock that is sold small amount by small amount so as not to disrupt the stock's market price.
Diversification - Dividing investment funds among a variety of securities with different risk, reward, and correlation statistics so as to minimize unsystematic risk
Diversified investment company - An investment vehicle such as a mutual fund that invests in an assortment of securities.
Dividend - A portion of a company's profit paid to common and preferred shareholders. A stock selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.
Dividend payout ratio - Percentage of earnings paid out as dividends.
Dividend rate - The fixed or floating rate paid on preferred stock based on par value.
Dividend requirement - The annual earnings minimum required for payment of dividends on a preferred stock.
Dividend rights - A shareholder's rights to receive per-share dividends identical to those other shareholders receive.
Dividends payable - The declared dividend dollar amount that a company is obligated to pay.
Dividends per share - Dividend paid for the past 12 months divided by the number of common shares outstanding, as reported by a company. The number of shares often is determined by a weighted average of shares outstanding over the reporting term.
Domestic market - A nation's internal market representing the mechanisms for issuing and trading securities of entities domiciled within that nation. Compare external market and foreign market.
Dow Jones Industrial Average - The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including, stocks that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest U.S. companies are performing. There are hundreds of investment indexes around the world for stocks, bonds, currencies, and commodities.
Dow Theory - Used in the context of general equities. Technical theory that a major trend in the stock market must be confirmed by simultaneous movement of the Dow Jones Industrial Average and the Dow Jones Transportation Average to new highs or lows.
Earnings - Net income for the company during a period.
Earnings before interest and, taxes (EBIT) - A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest and income taxes.
Earnings before taxes (EBT) - A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of income taxes.
Earnings per share (EPS) - A company's profit divided by its number of outstanding shares. If a company earning $2 million in one year had $2 million shares of stock outstanding, its EPS would be $1 per share. In calculating EPS, the company often uses a weighted average of shares outstanding over the reporting term.
Earnings yield - The ratio of earnings per share, after allowing for tax and interest payments on fixed interest debt, to the current share price. The inverse of the price-earnings ratio. It is the total twelve months, earnings divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is shown in percentage terms. We often look at earnings yield because this avoids the problem of zero earnings in the denominator of the price-earning ratio.
Economic growth rate - The annual percentage rate of change in the Gross National Product.
Effective annual interest rate - An annual measure of the time value of money that fully reflects the effects of compounding.
Efficiency - The degree and speed with which a market accurately incorporates information into prices.
Equity - Ownership interest in a firm. Also, the residual dollar value of a futures trading account, assuming its liquidation is at the going trade price. In real estate, dollar difference between what a property could be sold for and debts claimed against it. In a brokerage account, equity equals the value of the account's securities minus any debit balance in a margin account. Equity is also shorthand for stock market investments.
Equity funding - An investment consisting of a life insurance policy and a mutual fund. The insurance policy is paid by the collateral value of fund shares, give the investor the advantages of insurance protection with the growth potential of a mutual fund.
Equityholders - Stockholders; those holding shares of the firm's equity.
Exact interest - Interest paid based on the basis of a 365-day/year schedule by a bank or other financial institution as opposed to a 360-day basis (ordinary interest). Difference can be material when large principal sums of money are involved.
Exchange - A marketplace in which shares, options and futures on stocks, bonds, commodities, and indexes are traded. Principal U.S. stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and National Association of Securities Dealers Automatic Quotation System (NASDAQS).
Exchange, The - A nickname for the New York Stock Exchange. Also known as the Big Board, where more than 2000 common and preferred stocks are traded. The exchange is the oldest in the United States, founded in 1792, and the largest. It is located on Wall Street in New York City.
Exclusive - In the context of general equities, having sole possession of the customer order/indication; not in competition with other dealers.
Fair market price - Amount at which an asset would change hands between two parties, that both have knowledge of the relevant facts. Also referred to as market price.
Fair price - The equilibrium price for futures contracts. Also called the theoretical futures price, which equals the spot price continuously compounded at the cost of carry rate for some time interval.
Federal Deposit Insurance Corporation (FDIC) - A federal institution that insures bank deposits.
Federal Open Market Committee (FOMC) - The body that is responsible for setting the interest rates and credit policies of the Federal Reserve System.
Federal Reserve Bank - One of the 12 member banks constituting the Federal Reserve System that is responsible for overseeing the commercial and savings banks of its region to ensure their compliance with regulation.
Finance charge - The total cost of credit a customer must pay on a consumer loan, including interest.
Finance company - A company whose business and primary function is to make loans to individuals, while not receiving deposits like a bank.
Financial analysts - Also called securities analysts and investment analysts,. Professionals who analyze financial statements, interview corporate executives, and attend trade shows, in order to write reports recommending either purchasing, selling, or holding various stocks.
Financial position - The account status of a firm's or individual's assets, liabilities, and equity positions as reflected on its financial statement.
Financial risk - The risk that the cash flow of an issuer will not be adequate to meet its financial obligations. Also referred to as the additional risk that a firm's stockholder bears when the firm uses debt and equity.
Financial structure - The way in which a company's assets are financed, such as short-term borrowings, long-term debt, and ownership equity. Financial structure differs from capital structure in that capital structure accounts for long-term debt and equity only
Firm commitment underwriting - An underwriting in which an investment banking firm commits to buy and sell an entire issue of stock and assumes all financial responsibility for any unsold shares.
First preferred stock - A type of preferred stock that has priority over other preferred issues and common stock when claiming dividends and assets.
Fiscal year (FY) - Accounting period covering 12 consecutive months over which a company determines earnings and profits. The fiscal year serves as a period of reference for the company and does not necessarily correspond to the calendar year.
Fixed asset - Long-lived property owned by a firm that is used by a firm in the production of its income. Tangible fixed assets include real estate, plant, and equipment. Intangible fixed assets include patents, trademarks, and customer recognition.
Fixed annuities - Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period.
Fixed cost - A cost that is fixed in total for a given period of time and for given production levels.
Fixed premium - Payments of a fixed, equal amounts paid to an insurance company for insurance or an annuity.
Fluctuation - A price or interest rate change.
Forbes 500 - Forbes magazine's list of the largest publicly owned corporations in the United States according to sales, assets, profits, and market value.
Foreclosure - Process by which the holder of a mortgage seizes the property of a homeowner who has not made interest and/or principal payments on time as stipulated in the mortgage contract.
Fortune 500 - Fortune magazine's listing of the top 500 U.S. corporations determined by an index of 12 variables.
Gain - A profit on a securities transaction recognized by selling a security for more than the security originally cost. The gain is the difference between the cost and the sale.
Gap - Financing that is required, but for which no provision has been made. The difference in total funding needed for a proposal and the amount of funding already made available.
Globalization - Tendency toward a worldwide investment environment, and the integration of national capital markets.
Going private - When publicly owned stock in a firm is replaced with complete equity ownership by a private group. The firm is delisted on stock exchanges and can no longer be purchased in the open markets.
Going public - When a private company first offers shares to the public market and investors.
Gold exchange standard - A fixed exchange rate system adopted in the Bretton Woods agreement. It required the U.S. to peg the dollar to gold and other countries to peg their currencies to the dollar.
Gross domestic product (GDP) - The market value of goods and services produced over time including the income of foreign corporations and foreign residents working in the U.S., but excluding the income of U.S. residents and corporations overseas.
Gross earnings - A person's total taxable income prior to adjustments.
Gross income - A person's total income prior to exclusions and deductions.
Gross interest - Interest earned before taxes are deducted
Gross National Product (GNP) - Measures and economy's total income. It is equal to G.D.P. plus the income abroad accruing to domestic residents minus income generated in domestic market accruing to non-residents.
Gross profit - Sales minus the cost of goods sold.
Gross profit margin - Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold.
Gross sales - Total sales calculated by summing all sales at invoice values, neglecting any adjustments such as customer discounts or returns.
Growth rates - Compound annual growth rate for the number of full fiscal years shown. If there is a negative or zero value for the first or last year, the growth is N.M. (not meaningful).
Growth stock - Common stock of a company that has an opportunity to invest money and earn more than the opportunity cost of capital.
High price - The highest (intraday) price of a stock over the past 52 weeks, adjusted for any stock splits.
Highs - Stocks that have hit an all-time high for the current 52-week time period.
Historical cost - Describes the accounting cost carried in the books for a current cost of the item.
Historical exchange rate - An accounting term that refers to the exchange rate in effect at the time an asset or liability is acquired.
Hold - To maintain ownership of a security over a long period of time. "Hold" is also a recommendation of an analyst who is not positive enough on a stock to recommend a buy, but not negative enough on the stock to recommend a sell.
Holding company - A corporation that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors.
Holding period - Length of time a security is held.
Holding-period return - Rate of return on an investment over a given period.
Homeowner's equity account - A credit line offered by mortgage lenders allowing a homeowner a second mortgage that uses the equity present in the customer's account as collateral.
Income beneficiary - One who receives income from a trust.
Income dividend - Any payout to mutual fund shareholders resulting from interest, dividends, or other income.
Income statement (statement of operations) - A statement showing the revenues, expenses, and income (the difference between revenues and expenses) of a corporation over some period of time.
Income tax - A state or federal government's levy on individuals as personal income tax and on the earnings of corporations as corporate income tax.
Index - Statistical composite that measures changes in the economy or in financial markets, often expressed in percentage changes from a base year or from the previous month. Indexes measure the ups and downs of stock, bond, and some commodities markets, in terms of market prices and weighting of companies the index.
Individual Retirement Account (IRA) - A retirement account that may be established by an employed person. IRA contributions are tax deductible according to certain guidelines, and the gains in the account are tax-deferred.
Inflation - The rate at which the general level of prices for goods and services is rising.
Inside market - Refers to over-the-counter trading. Best (highest) bid and best (lowest) offer, often used in the O.T.C. Market. See: In-line.
Insider information - Material information about a company that has not yet been made public. It is illegal for holders of this information to make trades based on it, however received.
Insider trading - Trading by officers, directors, major stockholders, or others who hold private inside information allowing them to benefit from buying or selling stock.
Insurance - Guarding against property loss or damage making payments in the form of premiums to an insurance company, which pays an agreed-upon sum to the insured in the event of loss.
Insurance agent - The insurance company representative and adviser who sells insurance policies.
Insurance broker - A broker, independent of any insurance company, who represents the interests of the buyer in searching for insurance coverage at the lowest cost and providing the highest benefit to the buyer.
Insurance claim - A claim for reimbursement from the insurance company when the insured has suffered a loss that is covered under an insurance policy.
Insurance dividend - Money paid annually to policyholders participating in cash value life insurance policies.
Insurance policy - A contract detailing an insurance policy and outlining what risks are insured, what insurance premiums are to be paid by the policyholder, what deductibles prevail, and all the details associated with a policy.
Insurance premium - Payments calculated by the insurance company based on risk factors that must be made by the insured to guarantee protection of property loss under an insurance policy.
Insurance settlement - The payment of proceeds by an insurance company to the insured to settle an insurance claim within the guidelines stipulated in the insurance policy.
Interest - The price paid for borrowing money. It is expressed as a percentage rate over a period of time and reflects the rate of exchange of present consumption for future consumption. Also, a share or title in property.
Interest rate - The monthly effective interest rate. For example, the periodic rate on a credit card with an 18% annual percentage rate is 1.5% per month.
Investment - The creation of more money through the use of capital.
Joint stock company - A form of business organization that falls between a corporation and a partnership. The company sells stock, and its shareholders are free to sell their stock, but shareholders are liable for all debts of the company.
Leader - A stock or group of stocks that is the first to move in a market upsurge or downturn.
Leading the market - In the context of general equities, this is a stock or group of stocks moving with the market as a whole, but moving in advance of the general market.
Life annuity - An annuity that pays a fixed amount for the lifetime of the annuitant.
Life insurance - An insurance policy that pays a monetary benefit to the insured person's survivors after death.
Limited liability - Limitation of loss to what has already been invested.
Limited partnership - A partnership that includes one or more partners who have limited liability.
Limited warranty - A warranty with certain conditions and limitations on the parts covered, type of damage covered, and/or time period for which the agreement is good.
Long-term - In accounting terms, one year or longer.
Loss - The opposite of profit.
Market prices - The amount of money that a willing buyer pays to acquire something from a willing seller, when a buyer and seller are independent and when such an exchange is motivated by only commercial consideration.
Market share - The percentage of total industry sales that a particular company controls.
Market value
(1) The price at which a security is trading and could presumably be purchased or sold.
(2) What investors believe a firm is worth; calculated by multiplying the number of shares outstanding by the current market price of a firm's shares .
Mutual company - A corporation that is owned by a group of members and that distributes income in proportion to the amount of business that members do with the company.
NASDAQ stock market - The first electronic stock market listing over 5000 companies. The NASDAQ stock market comprises two separate markets, namely the NASDAQ National Market, which trades large, active securities and the NASDAQ Smallcap Market that trades emerging growth companies.
National Association of Securities Dealers (NASD) - Nonprofit organization formed under the joint sponsorship of the investment bankers' conference and the SEC to comply with the Maloney Act, which provides for the regulation of the OTC market.
National Association of Securities Dealers Automatic Quotation System (NASDAQ) - An electronic quotation system that provides price quotations to market participants about the more actively traded common stock issues in the OTC market. About 4000 common stock issues are included in the NASDAQ system.
Net - The gain or loss on a security sale as measured by the selling price of a security less the adjusted cost of acquisition.
Net assets - The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand.
Net income - The company's total earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest, taxes and other expenses.
Net operating losses - Losses that a firm can take advantage of to reduce taxes
Net operating margin - The ratio of net operating income to net sales.
Net period - The period of time between the end of the discount period and the date payment is due.
Net profit margin - Net income divided by sales; the amount of each sales dollar left over after all expenses have been paid .
Net working capital - Current assets minus current liabilities. Often simply referred to as working capital.
New York Stock Exchange (NYSE) - Also known as the Big Board or the Exchange.
NM - Abbreviation for "not meaningful".
Nominal - In name only. Differences in compounding cause the nominal rate to differ from the effective interest rate. Inflation causes the purchasing power of money to differ from one time to another.
Offer - Indicates a willingness to sell at a given price. Related: Bid.
Offerings - Often refers to initial public offerings. When a firm goes public and makes an offering of stock to the market.
Opening - The period at the beginning of the trading session officially designated by an exchange, during which all transactions are considered made "at the opening." Related: Close.
Opening price - The range of prices at which the first bids and offers are made or the first transactions are completed on an exchange.
Opening purchase - Creation of or increase in a long position in a given series of options.
Opening sale - Creation of or increase in a short position in a given series of options.
Opening transaction - Applies to derivative products. (1)Buy or sell transaction that creates a position out of a flat one (writing an option short or buying an option long). Antithesis of closing transaction. (2) First transaction of the day in a stock.
Operating cash flow - Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements.
Overwriting - A speculative options strategy that involves selling call or put options on stocks that are believed to be overpriced or underpriced; the options are expected not to be exercised.
Owner's equity - Paid-in capital plus donated capital plus retained earnings less liabilities.
Parent company - A company that controls subsidiaries through its ownership of voting stock, as well as runs its own business.
Performance stock - High-growth stock in a company that retains earnings for further growth and therefore pays no dividends, but that an investor feels has significant future potential.
Preferred shares - Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders.
Preferred stock - A security that shows ownership in a corporation and gives the holder a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most preferred stock pays a fixed dividend that is paid prior to the common stock dividend, stated in a dollar amount or as a percentage of par value. This stock does not usually carry voting rights. Preferred stock has characteristics of both common stock and debt.
Premium
(1) A bond sold above its par value
(2) The price of an option contract; also, in futures trading, the amount by which the futures price exceeds the price of the spot commodity. For convertibles, amount by which the price of a convertible exceeds parity, and is usually expressed as a percentage. If a stock is trading at $45, and the bond convertible at $50 is trading at 105, the premium is $15, or 16.66% (15/90). If the premium is high, the bond trades like any fixed income bond; if low, like a stock.
President - Highest-ranking officer in a corporation after the chief executive officer.
Profit - Revenue minus cost. The amount one makes on a transaction.
Quarterly - Occurring every three months.
Quoted price - The price at which the last trade of a particular security or commodity took place.
Ratings - An evaluation of credit quality of a company's debt issue by Moody's, S&P, and Fitch Investors Service. Investors and analysts use ratings to assess the riskyness of an investment.
Reinsurance - The spreading of risk and division of client premiums among insurance companies allowing the sharing of the burden of a large risk.
Retained earnings - Accounting earnings that are retained by the firm for reinvestment in its operations; earnings that are not paid out as dividends.
Reverse mortgage - A mortgage agreement allowing a homeowner to borrow against home equity and receive tax-free payments until the total principal and interest reach the credit limit of equity, and the lender is either repaid in full or takes the house.
S&P 500 Composite Index - Index of 500 widely held common stocks that measures the general performance of the market.
S&P phenomenon - Tendency of stocks newly added to the S&P composite index to rise in price due to a large number of buy orders as S&P-related index funds add the stock to their portfolios.
Securities & Exchange Commission (SEC) - A federal agency that regulates the U.S. financial markets. The SEC also oversees the securities industry and promotes full disclosure in order to protect the investing public against malpractice in the securities markets.
Security ratings - Commercial rating agencies' assessment of the credit and investment risk of securities.
Shareholder - Person or entity that owns shares or equity in a corporation.
Shareholders' equity - This is a company's total assets minus total liabilities. A company's net worth is the same thing.
Shares - Certificates or book entries representing ownership in a corporation or similar entity.
Short-term - Any investments with a maturity of one year or less.
Stakeholders - All parties that have an interest, financial or otherwise, in a firm-stockholders, creditors, bondholders, employees, customers, management, the community, and the government.
Stock - Ownership of a corporation indicated by shares, which represent a piece of the corporation's assets and earnings.
Stock dividend - Payment of a corporate dividend in the form of stock rather than cash. The stock dividend may be additional shares in the company, or it may be shares in a subsidiary being spun off to shareholders. Stock dividends are often used to conserve cash needed to operate the business. Unlike a cash dividend, stock dividends are not taxed until sold.
Taxable income - Gross income less a variety of deductions.
Time value of money - The idea that a dollar today is worth more than a dollar in the future, because the dollar received today can earn interest up until the time the future dollar is received.
Underwrite - To guarantee, as to guarantee the issuer of securities a specified price by entering into a purchase and sale agreement. To bring securities to market.
Underwriter - A firm, usually an investment bank, that buys an issue of securities from a company and resells it to investors. In general, A party that guarantees the proceeds to the firm from a security sale, thereby in effect taking ownership of the securities.
Underwriting - Acting as the underwriter in the issue of new securities for a firm.
Underwriting fee - The portion of the gross underwriting spread that compensates the securities firms that underwrite a public offering for their services.
Underwriting income - For an insurance company, the difference between the premiums earned and the costs of settling claims.
Underwriting spread - The income that is generated by the underwriting syndicate and the selling group, which is essentially the difference between the amount paid to the issuer of securities in a primary distribution and the public offering price.
Underwriting syndicate - A group of investment banks that work together to sell new security offerings to investors. The underwriting syndicate is led by the lead underwriter. See also: Lead underwriter.