A-Z Financial Glossary
Arbitrage: Profiting from price differences of the same asset in different markets.
Annual General Meeting (AGM): A yearly meeting where shareholders discuss company matters.
Accounts Payable: Money owed by a company to its suppliers or creditors for goods or services purchased on credit.
Accounts Receivable: Money owed to a company by its customers for goods or services sold on credit.
Acquisition: The process of one company purchasing or taking control of another company.
Algorithmic Trading: Trading financial securities using computer algorithms to execute transactions based on predefined criteria.
Alpha: A measure of an investment’s performance compared to its benchmark, indicating excess returns.
Annuity: A series of periodic payments or receipts of a fixed amount over a specified time period.
Asset-Based Security: A financial security backed by a pool of assets such as loans, receivables, or leases.
Bear Market: A period of declining stock prices and pessimism.
Blue Chip Stocks: Shares of large, stable, and established companies.
Broker: An intermediary who executes trades on behalf of clients.
Bull Market: A period of rising stock prices and optimism.
Buy and Hold: A long-term investment strategy without frequent trading.
Backtesting: Evaluating a trading strategy using historical data to assess its potential effectiveness.
Bad Debt: A debt that is unlikely to be collected and is considered uncollectible.
Benchmark: A standard or reference point used to evaluate the performance of an investment or portfolio.
Bid-Ask Spread: The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask) for a security.
Bond: A debt security that represents a loan made by an investor to a borrower, typically a government or corporation.
Book Value: The value of an asset as recorded on a company’s financial statements, based on its original cost minus accumulated depreciation.
Capital Gain: Profit from selling a stock at a higher price than it was bought.
Call Option: A financial contract that gives the buyer the right, but not the obligation, to buy an underlying asset at a specified price within a certain time frame.
Capital: Financial assets or funds that a company uses to generate income or invest in its operations.
Capital Gain: The profit earned from selling a capital asset, such as stocks, real estate, or other investments, at a higher price than its original cost.
Cash Conversion Cycle: The time it takes for a company to convert its investments in inventory and other resources into cash flows from sales.
Cash Flow Statement: A financial statement that shows the inflows and outflows of cash and cash equivalents in a business over a specific period.
Collateralized Debt Obligation: A complex financial product that pools various debt assets and sells them to investors.
Common Size Income Statement: An income statement where each line item is expressed as a percentage of total revenue, allowing for easier analysis of expense proportions.
Common Stock: Equity ownership in a company that entitles shareholders to voting rights and potential dividends.
Consumer Price Index (CPI): A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
Consumer Surplus: The difference between the total amount consumers are willing to pay for a good or service and the actual price they pay.
Convertible Bond: A bond that can be converted into a predetermined number of shares of the issuing company’s common stock.
Corporate Social Responsibility (CSR): A company’s commitment to conduct business ethically and contribute positively to society and the environment.
Corporate Tax: Taxes levied on the profits of corporations by government authorities.
Cost of Capital: The required return rate for an investment, reflecting the cost of financing and the associated risks.
Cost Control: The process of managing and reducing expenses to maintain profitability.
Cost of Debt: The cost or interest rate a company incurs when borrowing funds.
Cost of Equity: The rate of return required by investors to hold a company’s stock.
Cost of Goods Sold (COGS): The direct costs associated with producing or purchasing the goods a company sells during a given period.
Day Trading: Buying and selling stocks within the same trading day.
Derivatives: Financial instruments whose value depends on an underlying asset.
Diversification: Spreading investments across different assets to reduce risk.
Dividend: A portion of a company’s profits distributed to its shareholders.
Dividend Yield: A stock’s annual dividend as a percentage of its current price.
Days Payable Outstanding: A measure of how long it takes a company to pay its suppliers.
Days Sales of Inventory (DSI): A measure of how long it takes a company to sell its inventory.
Days Sales Outstanding: A measure of how long it takes a company to collect payments from its customers.
Debt: Money borrowed by a company or individual that needs to be repaid, often with interest.
Delta: A measure of how much the price of an option is expected to change for a $1 change in the price of the underlying asset.
Depreciation: The allocation of the cost of a tangible asset over its useful life for accounting and tax purposes.
Derivative: A financial instrument whose value is derived from an underlying asset, such as a commodity, stock, or currency.
Discounting: The process of calculating the present value of future cash flows to determine their current value.
Equity: Ownership interest in a company, represented by shares.
Earnings Per Share (EPS): A company’s net earnings divided by its outstanding shares.
Financial Ratios: Measures used to assess a company’s financial health and performance.
Earnings Before Interest and Taxes (EBIT): A measure of a company’s operating profitability before considering interest and tax expenses.
Economies of Scale: Cost advantages that a company can achieve by increasing production and lowering per-unit costs.
Effective Yield: The actual rate of return on an investment after accounting for compounding or reinvestment of interest.
Employee Stock Ownership Plan (ESOP): A company-sponsored retirement plan that provides employees with ownership in the company through stock ownership.
Enterprise Value (EV): A measure of a company’s total value, including its market capitalization and debt, minus cash and cash equivalents.
Exchange Rate: The value of one currency relative to another in the foreign exchange market.
Exchange-Traded Fund (ETF): An investment fund that trades on stock exchanges, representing a portfolio of securities.
Expense: The costs incurred by a company in the course of its business operations.
Expense Ratio: The percentage of a mutual fund’s assets that are used to cover its operating expenses.
Fair Value: The estimated value of an asset or liability based on market conditions and assumptions.
Financial Accounting: The branch of accounting that focuses on the preparation and reporting of a company’s financial statements.
Financial Market: A marketplace where buyers and sellers trade financial assets such as stocks, bonds, currencies, and commodities.
Financial Modeling: Creating a mathematical representation of a company’s financial situation to analyze and forecast its performance.
Financial Performance: The evaluation of a company’s financial health and efficiency through various financial metrics and ratios.
Fixed Asset: A long-term tangible asset used in the production of goods or services, such as land, buildings, or machinery.
Flotation: The process of a company going public by issuing shares to the public for the first time.
Free Cash Flow (FCF): The cash generated by a company’s operations after deducting capital expenditures.
Free Cash Flow to Equity (FCFE): The cash available to a company’s shareholders after deducting necessary capital expenditures.
Free Cash Flow to the Firm (FCFF): The cash available to all stakeholders after deducting necessary capital expenditures.
Gamma: A measure of the rate of change in an option’s delta in response to changes in the underlying asset’s price.
Generally Accepted Accounting Principles (GAAP): A set of accounting standards and principles used to prepare and present financial statements, ensuring consistency and comparability in financial reporting.
Globalization: The process of increased interconnectivity and integration of economies, cultures, and societies worldwide.
Going Concern: An assumption in accounting that a business will continue to operate indefinitely and not face liquidation in the near future.
Goodwill: An intangible asset that represents the premium a company pays for acquiring another company above its book value.
Gross Profit: The revenue generated from sales minus the cost of goods sold.
Gross Profit Margin: A financial metric that calculates gross profit as a percentage of revenue, indicating a company’s ability to generate profits from its core operations.
Hedge: A financial strategy used to offset potential losses or risks in one investment with gains in another investment.
Hedge Fund: An investment fund that pools capital from accredited individuals or institutional investors and employs various strategies to generate high returns.
Historical Cost: An accounting method that records assets at their original cost, disregarding any changes in market value over time.
Holding Period: The duration for which an investment or asset is held by an individual or entity.
Holding Period Return (Yield): The total return earned on an investment over its holding period, expressed as a percentage.
Hostile Takeover: An acquisition of a company against the wishes of the target company’s management or board of directors.
Hyperinflation: A situation of extremely high and typically accelerating inflation, leading to a significant decrease in the purchasing power of a country’s currency.
Hypothesis Testing: A statistical method used to test a claim or hypothesis about a population based on sample data.
Initial Public Offering (IPO): The first sale of a company’s shares to the public.
Index: A measurement of the performance of a group of stocks representing a market or sector.
Institutional Investor: Large organizations that invest on behalf of their clients.
Illiquid: Refers to assets or securities that cannot be easily sold or converted into cash without significantly impacting their market value.
Impairment: A reduction in the value of a company’s asset, often recorded as an expense on the financial statements.
Implied Rate: The interest rate derived from the price of a financial instrument or derivative.
Implied Volatility (IV): A measure of the market’s expectations for the future volatility of an underlying asset based on the price of its options.
Income: The money received by an individual or business as a result of their economic activities.
Income Statement: A financial statement that shows a company’s revenues, expenses, and profits over a specific period.
Indemnity Insurance: An insurance policy that protects against financial losses arising from specified events or liabilities.
Indenture: A legal contract or agreement, often associated with bonds, outlining the terms and conditions of the debt.
Insider Trading: The illegal practice of buying or selling securities based on non-public information, giving an unfair advantage to the trader.
Intrinsic Value: The perceived or calculated value of an asset based on its fundamental characteristics and cash flow potential.
Inventory: The goods and materials a company holds for the purpose of resale or production.
J-Curve: In economics, a graphical representation of the initial decrease followed by a subsequent increase in a country’s trade balance after a currency depreciation.
Joint Account: An account held by two or more individuals or entities who share equal rights and responsibilities over its use.
Journal: A record of financial transactions, where business events are initially recorded before being posted to the general ledger.
Junk Bond: A high-yield, high-risk bond typically issued by companies with a lower credit rating.
Key Rate Duration: A measure of the sensitivity of a bond’s price to changes in specific key interest rates.
Keynesian Economics: An economic theory emphasizing the role of government intervention to address economic fluctuations and promote economic stability.
Kurtosis: A statistical measure that indicates the shape of a probability distribution, particularly the tails and peaks relative to a normal distribution.
Law of Supply and Demand: An economic principle stating that the price of goods and services is determined by the balance between supply and demand.
Leverage: The use of borrowed funds or debt to increase the potential return of an investment.
Leveraged Buyout (LBO): The acquisition of a company using a significant amount of borrowed money to fund the purchase.
Liability: A company’s legal debts or obligations that arise from past transactions and must be settled by providing assets, goods, or services.
Line of Credit (LOC): A flexible, pre-approved credit facility that allows borrowers to access funds up to a specific limit.
Loan-to-Value (LTV): The ratio of the loan amount to the appraised value of the asset being purchased or financed.
Long-Term Assets: Assets that are not expected to be converted into cash or used up within a company’s normal operating cycle or one year.
Limit Order: An instruction to buy or sell a stock at a specified price or better.
Liquidity: The ease of buying or selling a stock without significantly affecting its price.
Long Position: Owning a stock with the expectation of its price increasing.
Margin: Borrowed money used to buy stocks.
Market: A platform where securities, including stocks, are bought and sold.
Market Capitalization: The total value of a company’s outstanding shares.
Market Capitalization Weighting: A method of calculating index components based on their market caps.
Market Maker: A firm that provides liquidity by quoting buy and sell prices for a stock.
Market Maker Spread: The difference between the bid and ask prices set by a market maker.
Market Order: An instruction to buy or sell a stock at the current market price.
Market Order Execution: The speed and certainty with which a market order is filled.
Market Sentiment: The overall attitude of investors towards the market or a particular stock.
Margin Call: A demand from a broker for additional funds to cover potential losses.
Mutual Fund: An investment vehicle that pools money from multiple investors to invest in a diversified portfolio of stocks and other securities.
Management Discussion and Analysis (MD&A): A section of a company’s financial statements that provides management’s analysis and insights into the financial performance and future prospects.
Market Depth: A measure of the supply and demand for a particular security in the market, indicating the number of buyers and sellers at different price levels.
Merger: The combination of two or more companies to form a single entity, typically to achieve strategic and financial objectives.
Negotiable Instrument: A written document, such as a check or promissory note, that can be transferred to another party as a form of payment or security.
Net Exposure: The difference between a portfolio’s long and short positions, reflecting the overall directional exposure to the market.
New York Stock Exchange (NYSE): One of the largest and oldest stock exchanges in the world, located in New York City.
Nominal Interest Rate: The stated interest rate on a loan or investment without accounting for inflation.
Nominal Rate of Return: The actual rate of return on an investment before adjusting for inflation or taxes.
Non-Operating Asset: An asset that does not generate revenue directly related to a company’s core operations.
Non-Operating Expense: An expense that does not arise from a company’s primary business activities.
Non-Operating Income: Income that does not come from a company’s main business operations.
OTC (Over-the-Counter): A decentralized market where securities are traded directly between parties, not on a centralized exchange.
Options: Financial derivatives that give the holder the right, but not the obligation, to buy or sell an asset at a predetermined price.
Order Book: A real-time list of buy and sell orders for a particular security.
Obligation: A legal or moral duty or responsibility to perform an action or fulfill a commitment.
Open-End Fund: A mutual fund that continually issues and redeems shares based on investor demand, ensuring liquidity.
Open Interest: The total number of open futures or options contracts held by market participants.
Operating Cost: The expenses incurred in running a business, directly tied to its core operations.
Option Chain: A list of all available options for a particular security, showing various strike prices and expiration dates.
Overhead: The indirect costs incurred by a business to support its operations, such as administrative expenses and utilities.
Overvalued: Refers to an asset or security whose market price is considered higher than its intrinsic value.
Overweight: An investment portfolio’s allocation that favors a particular asset or sector more than the benchmark index.
Penny Stocks: Low-priced, speculative stocks with small market capitalization.
Portfolio: A collection of investments, including stocks and other assets.
Primary Market: Where new securities are issued and sold to the public.
Publicly Traded Company: A company whose shares are available for purchase by the public.
P/E Ratio (Price-to-Earnings Ratio): A measure of a stock’s valuation relative to its earnings.
Passive Income: Income earned from investments or business activities in which the individual is not actively involved.
Payout Ratio: The proportion of earnings that a company distributes to its shareholders as dividends.
Perpetual Bond: A bond with no maturity date, meaning it pays interest indefinitely until the issuer decides to redeem it.
Pitchbook: A presentation or document used by investment bankers to showcase the key features of a potential deal or investment opportunity.
Preference Shares: Shares of a company that have special rights and privileges, such as fixed dividends, but may not carry voting rights.
Preferred Dividend: The fixed dividend paid to holders of preference shares before paying dividends to common shareholders.
Prepaid Expense: An expense paid in advance but not yet incurred, which is recorded as an asset until it is consumed.
Quick Ratio: A measure of a company’s ability to meet short-term obligations using its most liquid assets.
Qualified Trust: A trust that meets specific legal requirements, making it eligible for certain tax benefits.
Qualitative Analysis: An assessment of non-quantifiable factors, such as management quality or brand reputation, to evaluate an investment or business decision.
Quantitative Analysis: An analysis of measurable data and financial metrics to assess performance, risk, or investment opportunities.
Quote-Driven Market: A market where prices are determined by competitive quotes from market makers or dealers.
Rally: A period of significant and sustained upward movement in stock prices.
Real-Time Quote: The most current market price of a security, updated instantly.
Reinvestment: Using dividends or capital gains to purchase additional shares of the same stock.
Resistance Level: A price point at which a stock has historically had difficulty rising above.
Return on Equity (ROE): A measure of a company’s profitability relative to shareholders’ equity.
Return on Investment (ROI): A measure of the return on an investment relative to its cost.
Revenue: The total income generated by a company’s business activities.
Risk: The possibility of losing money or failing to achieve an expected return on investment.
Range: The difference between the highest and lowest prices of a security or asset over a specific period.
Refinance: The process of obtaining a new loan to replace an existing loan, often with better terms or interest rates.
Required Rate of Return (RRR): The minimum return an investor expects to achieve for taking on a specific level of risk.
Retained Earnings: The portion of a company’s profits that is reinvested in the business rather than distributed to shareholders as dividends.
Secondary Market: Where existing securities are bought and sold among investors.
Sector: A group of related companies operating in the same industry.
Sell-Off: A rapid decline in stock prices due to selling pressure.
Short Position: Owning a stock with the expectation of its price decreasing.
Short Selling: Selling borrowed stocks with the hope of buying them back at a lower price.
Stock: A share in the ownership of a company.
Stock Exchange: A marketplace where stocks are bought and sold.
Stock Split: Dividing existing shares into multiple shares, often to make them more affordable.
Stock Watchlist: A list of stocks an investor is monitoring for potential investment.
Stop-Loss Order: An instruction to sell a stock if its price falls to a specific level, limiting potential losses.
Support Level: A price point at which a stock has historically had difficulty falling below.
Systemic Risk: The risk of a widespread and severe impact on the entire financial system, typically caused by interconnectedness among institutions.
Sunk Cost: A cost that has already been incurred and cannot be recovered, regardless of future decisions.
Stagflation: An economic condition characterized by stagnant growth, high unemployment, and high inflation.
Ticker Symbol: A unique combination of letters representing a publicly traded company’s stock on an exchange.
Trading Volume: The number of shares or contracts traded in a given period.
Treasury Stock: Shares of a company’s own stock that it has repurchased from the public.
Tax Evasion: Illegally avoiding or evading payment of taxes.
Taxable Income: The portion of income subject to taxation after accounting for deductions and exemptions.
Technical Analysis: An evaluation of securities or assets based on historical price and trading volume patterns to predict future price movements.
Term Loan: A loan with a fixed repayment schedule over a specific term.
Theta: A measure of the time decay of an option’s value as the expiration date approaches.
Time Value of Money (TVM): The concept that money available today is worth more than the same amount in the future due to its earning potential.
Undervalued: When an asset’s current price is considered lower than its intrinsic or fair value.
Underwriter: A financial institution that assesses risk and guarantees the issuance of securities, often during an initial public offering (IPO).
Unit Linked Insurance Plan (ULIP): An insurance product that combines life insurance coverage with investment options.
Uptrend: A price movement characterized by higher highs and higher lows, indicating a bullish market trend.
Value Investing: An investment strategy based on buying undervalued stocks and holding them for the long term.
Volatility: The degree of variation in a stock’s price over time.
Volatility Index (VIX): A measure of market volatility, often referred to as the “fear gauge.”
Voluntary Delisting: A company’s decision to remove its shares from a stock exchange.
Valuation: The process of determining the worth or fair value of an asset or a company.
Value at Risk (VaR): A measure of potential losses that may occur in a portfolio of investments over a specified time frame and confidence level.
Variable Cost: A cost that varies proportionally with the level of production or sales.
Vega: A measure of an option’s sensitivity to changes in volatility.
Volume: The number of shares or contracts traded in a security or market during a given period.
Voting Shares: Shares of a company that carry voting rights, allowing shareholders to influence corporate decisions.
Wall Street: A metonym for the financial markets and institutions of the United States.
Weighted Average Cost of Capital (WACC): The average cost of financing a company’s operations, considering both debt and equity.
Wholesale Price Index (WPI): A measure of inflation that tracks the average change in prices received by wholesalers for goods.
Window Dressing: The practice of manipulating financial statements to present a more favorable picture of a company’s financial health.
Write-Off: The process of removing an asset or liability from the books when it is determined to have no recoverable value.
Yield: The income generated from an investment, usually expressed as a percentage.
Yield Curve: A graphical representation of the interest rates on bonds with different maturities, showing the relationship between interest rates and time to maturity.
Yield to Maturity (YTM): The total return anticipated on a bond if it is held until it matures.
Zero-Coupon Bond: A bond that pays no periodic interest but is sold at a discount and redeemed at face value at maturity.