Financial Dictionary

Accounting Rate of Return (ARR)

This is a budgeting metric that is used to quickly determine the expected rate of return of an investment, acquisition or a project.

Acid-Test Ratio

Also known as the quick ratio, it helps to quickly assess a company’s capacity to pay off its current liabilities without having to get supplementary financing.

Acquisition

This is when a company procures a significant number of shares in another company, just enough to gain control of that company.

Adverse Selection

This is a phenomenon that occurs when there is unequal information between buyers and sellers of a particular financial instrument or security.

After-Hours Trading

This is the time frame outside trading hours within which an investor buys and sells securities.

Analysis of Variance (ANOVA)

This is a statistical tool used to predict price movements of securities and to determine the cause of stock price variability.

Angel Investor

This is an individual who invests a set sum in a startup in exchange for equity in that company.

Annuity

This is a long-term investment provided by an insurance company that helps you stem the risk of outlasting your income.

Applicable Federal Rate (AFR)

This is the smallest possible interest rate allowed by the Internal Revenue Service for private loans.

Artificial Intelligence (AI)

This is the adaptation or mimicking of how the human mind works into a system of machines primarily to increase efficiency of certain financial processes.

Asset

This is a financial resource owned with expectations of growing returns over time.

Asset Management

This is the partial or total overseeing of a client’s portfolio by a financial service institution.

Asset Turnover Ratio

This is an instrument that measures the value of a company’s sales or revenue against the value of its assets.

Automated Teller Machine (ATM)

This is an electronic, computer-controlled money dispensing machine where customers make self-serviced transactions via their bank card.

Average True Range (ATR)

This is a technical analysis tool used to measure the volatility of an asset price within a set period.

Balanced Scorecard

This is a management metric that assesses an organization’s goals and helps to outline actionable steps to reach those goals.

Balance Sheet

This is a financial overview or a statement that reports a company’s financial performance over a set period of time.

Bank Identification Numbers

These are the first four to six digits on your card used to process and match transactions.

Bankruptcy

This is the inability of a financial institution or an individual to fulfill their financial debts and/or obligations.

Baye’s Theorem

This is a phenomenon used to determine the probability of an uncertain event.

Bear Market

This is a market situation where prices decline for an extended time period.

Bond

This is simply a financial contract made between two companies.

Break-Even Analysis

This is an assessment done to determine at what probable period a new product or business will start to yield profits.

Bucket-shop

This is an exploitative brokerage firm that partakes in unregulated, fraudulent sales tactics.

Budget

This is a projection of financial revenue over a stated period of time.

Budget Deficit

This is a shortfall that occurs when income or revenue is less than expenses.

Business Cycle

This is the changing course of economic activity over a stipulated length of time.

Business Ethics

This is the sum of appropriate business guidelines, policies and practices.

Business Model

This is an overview of a company’s structure, practices and overall performance.

Business-to-Consumer

This is a direct sales chain between a business and its intended consumer.

Business Valuation

This is an estimation done to determine the financial worth of a business.

Callable Bond

Type of bond where the issuer can return investor’s capital before maturity.

Capital Asset Pricing Model (CAPM)

Model used to ascertain the expected rate of return of an asset.

Capital Expenditure

Expenses made by an organization to cover and maintain its physical and fixed assets.

Capitalism

System whereby all means of production are privately controlled.

Central Limit Theorem (CLT)

Phenomenon used to evaluate data from various distribution patterns.

Chartered Financial Analyst (CFA)

A professional distinction regulating the integrity of a financial analyst.

Code of Ethics

Collection of stated guidelines intended to guide business professionals.

Coefficient of Variation (CV)

Measures the relative distribution of data set around a mean.

Collateral

This is an asset accepted as security of a loan.

Command Economy

A centrally planned economy that determines production and price.

Comparative Advantage

Assesses an economy’s ability to produce a competitive good at lower cost.

Compound Interest

Additional interest to the principal sum of a loan or deposit.

Conflict Theory

Society will perpetually be in conflict due to limited resources.

Consumer Price Index (CPI)

Statistical estimate of the change in price of goods and services.

Contribution Margin

Amount of revenue available after variable costs for fixed expenses.

Convertible Securities

Debt stocks that can be converted into common stocks.

Convexity of a Bond

Relationship between price and yield for a non-callable bond.

Correlation

Measures the changes between two securities in relation to each other.

Debenture

A collateral-free instrument used to borrow money at fixed rates.

Debt Ratio

Measures the extent to which a company’s assets are backed by debt.

Debt-Service Coverage Ratio (DSCR)

Instrument used to quantify a company’s liquid ability to offset debt.

Debt-to-Equity Ratio (D/E)

Indicates what portion of shareholder equity funds the company.

Delisted stock

A stock that has been removed from the stock exchange market.

Derivative

A contract that derives its value from an existing asset.

Dilution

Reduction in the number of shares controlled when more are issued.

Disbursement

The activity of paying money to run a crucial aspect of business.

Discount Rate

The interest rate charged on a loan investors/banks pay.

Distressed securities

A drop in company’s stock value due to rocky financials.

Diversification

Having a wide mix of instruments rather than a single type.

Dividend

A reward given to shareholders by the company.

Dividend Payout Ratio

Ratio of dividends paid out against net income.

Dividend Yield

Ratio that shows dividends in relation to stock price.

Dollar Cost-Averaging

Investing fixed sums over time regardless of price changes.

Due Diligence

Investigative scrutiny of a business and audit of its standing.

DuPont Analysis

Assessment of the component part of a company’s ROE.

Earnings Before Interest and Taxes (EBIT)

Assessment including all income except taxes and interest.

Earnings Per Share (EPS)

Ratio of net income against total number of outstanding shares.

Economics

Assesses mechanisms through which goods are distributed.

Economies of Scale

Cost advantages that come about as a result of efficient production.

Endowment Fund

Fund to manage and sustain a pool of financial investments.

Enterprise Value (EV)

An economic indicator of the market value of a business.

Entrepreneur

Individual who sets out a new business taking profits and risks.

Equity

Entire ownership of assets with the liabilities they come with.

Ex-dividend

Date specified for a company to allocate dividends.

Exchange Rate

Comparative value of one currency in relation to another.

Externality

Cost or benefit of transactions incurred by non-participants.

FAANG Stocks

Acronym for Facebook, Amazon, Apple, Netflix and Google.

Feasibility Study

Research into outcomes and likelihood of a project success.

Fiduciary

A person who acts in the best interest of their beneficiary.

Financial Institution (FI)

Organization dealing with logistics of money and financials.

Fiat Money

Legal tender currency that has no real intrinsic value.

Finance

Umbrella term for money flow, securities, and investments.

Fixed Income

Asset class that pays fixed interest/dividends at maturity.

Fixed-Income Security

Government-issued debt instrument to expand operations.

Float

The number of available, tradable shares.

Front-End Loan

A loan paid at the point of your first investment.

Four Ps

Product, Price, Place, and Promotion.

Free Market

Supply and demand environment with no government interference.

Futures

Binding contracts to buy/sell at a predetermined price in future.

Free Carrier (FCA)

Seller is responsible until goods reach a buyer's destination.

Free on Board (FOB)

Shipment insurance covering cargo up until destination.

Free Trade

Diplomatic agreement to reduce import/export barriers.

Fundamentals

Detailed info about company financials and economic factors.

Gross Income

Total amount of income earned in one year before tax.

Gross Domestic Product (GDP)

Value of goods produced within a country's boundaries in a year.

Gross Margin

Net sales revenue after deducting cost of goods sold.

Gross National Product (GNP)

Income earned by domestic firms in overseas countries.

Gross Profit

Profit realized after deductions for cost of goods sold.

Guarantor

Person who stands in for a borrower in case of default.

Hammering

Panic-selling situation on the advent of bad financial news.

Hard Skills

Skills learned in educational institutions like college.

Harmonic Mean

Reciprocal mean derived from arithmetic mean of reciprocals.

Head And Shoulders Pattern

Chart pattern heralding a bullish to bearish reversal.

HMOs

Insurance organization providing health coverage for a fee.

Health Savings Account (HSA)

Pretax savings for medical expenses.

Hedge

Investment that reduces risk from adverse price movements.

Hedge Fund

Company that stacks client assets into varied investments.

High-Low Method

Helps set apart fixed and variable parts of combined costs.

High-Net-Worth Individual (HNWI)

Person/family with liquid assets above a stated amount.

Hold Harmless Clause

Exempts individuals from liabilities caused by either party.

Home Equity Loan

Loan allowing homeowners to finance large expenditures.

Homestead Exemption

Prevents selling a home to pay off specific debts.

Horizontal Integration

Procurement of business in a similar niche and industry.

Income

Money received in exchange for products or services.

Income Statement

Record of financial standing over an accounting period.

Indemnity

Comprehensive insurance for damages/loss within an agreement.

Index Fund

Collection of securities grouped to mimic a market segment.

Inventory Turnover

Shows how many times inventory was replaced in a timeframe.

Inverted Yield Curve

When short-term interest rates exceed long-term rates.

Invisible Hand

Unseen force making market reach equilibrium.

Irrevocable Trust

Trust terms that cannot be modified without permission.

Joint and Several Liability

Financial responsibility shared among participants.

Joint Probability

Likelihood of two events happening together.

Joint-Stock Company

Business entity where shares can be exchanged by shareholders.

Joint Venture (JV)

Business formed as a result of a merger with a common goal.

Junk Bond

Bond issued by a company with very unreliable strength.

Jumbo Loan

Mortgage exceeding limits set by government agency.

Jurisdiction Risk

Risk associated with doing business in a foreign company.

KPI

Measurement used to assess performance over time.

Key Person Insurance

Safeguards the lives of key executives in a company.

Know Your Client (KYC)

Industry requirement for due diligence on clients.

Knowledge Economy

Utilization of knowledge to create goods and services.

Kiddie Tax

Tax on a child’s unearned income (dividends, interest).

Kamikaze pricing

Loans offered at ridiculously low interest rates.

Leverage

Use of borrowed money to increase potential return.

Leverage Ratio

Ratio of a company’s debt to its equity.

Liability

Sum total of money owed by a company or individual.

Limit Order

Order to buy/sell a stock at a specific price point.

Liquidation

Dissolving a business and assets into distributable cash.

Liquidity

How easily you can convert an asset to cash.

Liquidity Ratio

Quantity of liquid assets put away for obligations.

Monetarism

Proposes money as the major determinant of economic activity.

Monetary Policy

Decisions taken by a nation’s financial experts.

Money Laundering

Illegal activity to conceal origin of ill-gotten money.

Moore’s Law

Number of transistors on a chip doubles every two years.

Mutual Fund

Pool of money from investors used to buy securities.

Net Worth

Valuation of person’s worth (assets minus liabilities).

NYSE

Largest securities exchange in the world by market cap.

Net Asset Value (NAV)

Value of fund’s asset after deducting liabilities.

Net Income (NI)

Entity’s income after deducting cost of goods sold.

Oligopoly

Market structure with very few players but many buyers.

Online Banking

Bank transactions carried out via the internet.

Outsourcing

Hiring an outdoor company to perform designated tasks.

Overdraft

Credit extension after account balance hits zero.

Profit and Loss (P&L)

Summary of profits, revenue and expenses over time.

Promissory Note

Written promise to pay a sum on demand or future date.

Public Limited Company (PLC)

Entity that trades its shares publicly on the exchange.

Personal Finance

Budgeting, saving, and retirement planning for an individual.

Quick Ratio

Assessment of ability to pay off current liabilities.

Quota

Government trade restriction limiting number of goods.

Quantitative Analysis (QA)

Pooling data to gain accurate financial insight.

Rate of Return

Net gain or loss of an investment over time.

Real Estate

Collection of lands, buildings, and properties.

REIT

Company that sells income-generating properties.

Short Selling

Borrowing and selling high with hopes of buying back low.

Spread

Difference between the ask and bid price of an instrument.

SEC

Agency responsible for regulating securities transactions.

Technical Analysis

Using charts and patterns to identify trading opportunities.

Trust Fund

Legal entity to manage assets on behalf of a third party.

Turnover

How quickly a business can sell off its inventory.

Underwriting

Institution bearing financial risk of a party for a fee.

Unemployment Rate

Proportion of country’s workforce that is jobless.

Unicorn

Private startup with valuation over $1 billion.

Variable Cost

Expenses that vary according to inventory volume.

Value Investing

Strategy of picking stocks trading lower than book value.

VAT

Tax payable on purchasing a product.

White-Collar Crime

Fraudulent crime committed by a professional for gain.

Working Capital (NWC)

Difference between short-term assets and liabilities.

WTO

International body that oversees global trade rules.

XD

Symbol used to denote an ex-dividend security.

Xenocurrency

Currency that trades outside of its country borders.

Yield

Amount of monetary gain realized over a period.

YTM

Total expected return on a bond if held to maturity.

Yuppie

Informal lingua for a young urban professional.

Z-Score

Relationship of a value to the mean of a group.

Zero-Sum Game

One person’s total loss is another person’s total gain.

Zeta Model

Estimates probability of a company going bankrupt.

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