Finance Glossary
-A-
Abnormal Losses
It refers to unexpected or extraordinary losses incurred by a business or investment beyond what…
Abnormal Returns
Abnormal returns are the extra profits or losses of an investment compared to what was…
Accounting
Accounting is the systematic process of recording, summarizing, analyzing, and interpreting financial transactions of a…
Accounting Equation
The accounting equation articulates that the total assets of a business are equivalent to the…
Accounts Payable
Accounts payable (AP) refers to the amounts of money that a business owes to its…
Accounts Receivable
Accounts receivable (AR) refers to the amounts of money that a business is entitled to…
Accrued Interest
The interest that has been earned on a loan or investment but has not yet…
Accumulated Depreciation
The entire amount of recorded depreciation on an asset since the asset’s acquisition is known…
Acid Test Ratio
The acid test ratio is calculated by dividing a company’s current assets minus its inventory…
Acquisition
When one company purchases another, gaining control over its assets, liabilities, and operations.
Acquisition of Assets
The process of buying assets from another company. Acquisitions can be done for a variety…
Amortization
Amortization of intangible assets refers to the gradual process of spreading out the cost of…
Annual Percentage Rate
The annual percentage rate that represents the cost of borrowing money. APR is a useful…
Annual Percentage Yield
The interest rate that a depositor will receive over the course of a year, compound…
Annual Report
A report that a firm releases each year to its shareholders. The annual report comprises…
Annuity
A series of equal payments paid at regular periods. Annuities can be utilized to provide…
Asset
An asset is defined as a valuable resource owned or controlled by an individual, business,…
-b-
Bad Debt
Bad debt refers to an amount that is unlikely to be recovered by a lender…
Balance Sheet
A financial statement that lists a company’s assets, liabilities, and shareholder equity as of a…
Bank Reconciliation
Bank reconciliation is the process of aligning a company’s cash account records with the corresponding…
Bankruptcy
Bankruptcy occurs when an individual or entity is incapable of settling outstanding debts.
Bills of Exchange
A bill of exchange is a short-term, negotiable financial instrument that is a written order…
Bond
The investor receives interest on their investment, and the borrower utilizes the funds to fund…
Book Value
An asset’s original cost less total depreciation is its book value. As the net worth…
Bookkeeping
Bookkeeping is the systematic recording, organizing, and categorizing of financial transactions within a business.
Brokerage
Brokerage refers to a financial service facilitating the buying and selling of financial instruments, such…
Budget
A budget is a financial plan outlining an organization’s or individual’s expected income and expenses…
-C-
Call Option
A call option is a financial contract that gives the holder the right, but not…
Capital
Capital refers to financial assets or resources available for investment or use in business operations.…
Capital Budgeting
Capital budgeting is the process of planning and managing long-term investments or projects by evaluating…
Capital Gain
Capital gain refers to the profit realized from the sale of a capital asset, such…
Capital Loss
A capital loss occurs when the sale price of an asset is lower than its…
Capitalism
Capitalism is an economic system characterized by private ownership of the means of production and…
Cash
Cash refers to physical currency or its equivalent in the form of liquid assets, readily…
Cash and Cash Equivalents
Cash and cash equivalents refer to highly liquid assets that can be quickly converted into…
Cash Flow
The net amount of cash and cash equivalents moving into and out of a business,…
Certificate of Deposits
Financial instruments issued by banks with fixed interest rates and maturity dates, providing a secure…
Claim
A claim is a legal right to seek payment or compensation from another party, often…
Collateral
Collateral refers to assets pledged by a borrower to secure a loan, providing the lender…
Commercial Paper
Short-term debt issued by corporations or financial institutions, typically with maturities ranging from a few…
Commission
Commission refers to the fee paid to brokers or agents for facilitating financial transactions, typically…
Common Stock
Common stock is a type of equity ownership in a corporation, entitling shareholders to voting…
Competitive Advantage
A unique attribute, capability, or advantage that sets a company apart from its competitors and…
Compound Interest
Interest calculated on the initial principal amount and also on the accumulated interest of previous…
Consumer Price Index
A measure of the average change in prices paid by consumers for a basket of…
Convertible Bonds
Corporate bonds that can be exchanged for a predetermined number of the issuing company’s common…
Cost
The amount of money or resources expended to produce or acquire goods or services, including…
Cost of Goods Sold
The direct expenses incurred by a company in producing goods or services sold to customers,…
Credit
The ability of a borrower to obtain goods or services before payment, based on a…
Credit Score
A numerical representation of an individual’s creditworthiness, based on their credit history and financial behavior,…
Current Assets
Assets that are expected to be converted into cash or consumed within one year, such…
Current Liability
Obligations that are due within one year, such as accounts payable, short-term loans, and accrued…
Current Ratio
A financial metric used to assess a company’s liquidity by comparing its current assets to…
Current Yield
The annual income generated by an investment, typically expressed as a percentage of the current…
-D-
Debit
An accounting entry that represents an increase in assets or a decrease in liabilities or…
Debt
Money borrowed by an individual or entity, typically repaid with interest over time according to…
Deferred Tax
Taxes that are due in the future, often resulting from temporary differences between accounting and…
Deflation
A sustained decrease in the general price level of goods and services in an economy,…
Demand Draft
A method of payment where one party instructs a bank to pay a specific sum…
Deposits
Funds placed into a bank account for safekeeping or investment purposes, providing liquidity and potential…
Depreciation
The gradual decrease in the value of an asset over time, reflecting wear and tear,…
Derivatives
Financial instruments whose value is derived from the value of an underlying asset, index, or…
Direct Tax
Taxes imposed directly on individuals or entities, such as income tax or property tax, collected…
Discount Rate
The interest rate used to calculate the present value of future cash flows, often applied…
Diversification
Spreading investments across different assets or asset classes to reduce risk by avoiding overreliance on…
Dividend
A portion of a company’s earnings distributed to its shareholders as a return on their…
Drawings
Withdrawals of cash or assets from a business by its owners for personal use, distinct…
Due Date
The date by which a payment or obligation must be fulfilled, serving as a deadline…
-E-
Earned Income
Income generated from active participation in business activities or employment, including wages, salaries, tips, and…
Earnings Before Interest and Tax (EBIT)
A measure of a company’s operating profitability, calculated by subtracting operating expenses from revenue before…
Earnings per Share
A financial metric indicating the portion of a company’s profit allocated to each outstanding share…
Efficient Market Hypothesis
A theory suggesting that asset prices reflect all available information and that it is impossible…
Employee Stock Ownership Plans (ESOPs)
Retirement plans allowing employees to become partial owners of the company through stock ownership, providing…
Endowment Fund
A pool of invested assets managed to provide ongoing financial support for an organization or…
Entrisic Value
The perceived or calculated value of an asset based on its fundamental characteristics and underlying…
Equity
The ownership interest in a company, representing shareholders’ residual claim on assets after deducting liabilities.
Exchange Rate
The price at which one currency can be exchanged for another in the foreign exchange…
Extraordinary Items
Unusual and infrequent events or transactions not considered part of a company’s regular business operations,…
-F-
Finance
Finance involves the management of money and investments, including activities such as borrowing, lending, and…
Finance charge
In simple terms, a finance charge is the extra money you have to pay when…
Financial Leverage
Financial leverage means using borrowed money to increase potential profits. It allows individuals or companies…
Financial Market
A financial market is a marketplace where individuals, businesses, and governments buy and sell financial…
Financial Risk
Financial risk refers to the possibility of financial loss or uncertainty arising from factors such…
Financial Statements
A financial statement is a formal record summarizing the financial activities and position of a…
Fiscal Policy
Fiscal policy refers to government policies concerning taxation, spending, and borrowing aimed at influencing economic…
Float
Float refers to the number of shares of a company’s stock available for trading by…
Foreclosure
Foreclosure is a legal process where a lender takes possession of a property from a…
Forward Contract
A forward contract is a financial agreement between two parties to buy or sell an…
Fundamental Analysis
Fundamental analysis is a method of evaluating securities by analyzing fundamental factors such as earnings,…
-g-
GDP (Gross Domestic Product)
The total value of all goods and services produced within a country’s borders over a…
Gearing Ratio
Also known as leverage ratio, it measures the proportion of a company’s debt to its…
Going Concern
A business assumption that a company will continue its normal operations and remain solvent in…
Goodwill
In accounting, goodwill represents the premium paid for acquiring another company above its fair market…
Government Bond
Debt securities issued by a government to raise funds for public spending, with fixed interest…
Grant
A financial award given by an organization, government, or institution to support a specific project,…
Gross Profit
The total revenue earned by a company minus the cost of goods sold, excluding other…
Growth Rate
The percentage change in a financial metric (such as revenue, earnings, or GDP) over a…
Growth Stock
A stock in a company that is expected to grow at an above-average rate compared…
Guarantor
An individual or entity that provides a promise or assurance to pay off a debt…
-h-
Haircut
The collateral, over and above the market value of the security, required by the lender…
Harzard Rate
Measures probability of default in a short period of time conditional on no earlier default
Hedge
Hedging means making investments in two or more things that usually move in opposite directions.…
Hedge Fund
Hedge funds are a type of investment pool that solicits funds from (wealthy) individuals and…
High-Frequency Trading (HFT)
Trading strategy utilizing advanced algorithms and high-speed computer programs to execute trades rapidly.
Historical Cost
The value for certain balance sheet items reflecting the original cost or amortized cost.
Historical Volatility
The standard deviation of the continuously compounded return on an asset, measured using historical prices.
Home Banking
Actions involving the conduct of banking business taking place in customer’s homes, including telephone and…
Home Debit
A check drawn on a bank that is presented to the same bank for deposit…
Horizon Analysis
Interest rate forecasting that uses a forecast yield curve to predict bond prices. Yield curve…
Hot Debit
Funds that move between institutions quickly in search of higher yields or greater safety.
-i-
Immunization
A strategy that matches durations of assets and liabilities so as to make net worth…
Income Statement
Financial statement that summarizes a company’s revenues, expenses, and net income over a specific period,…
Index
A statistical measure representing a group of securities or market sectors used to track the…
Inflation
The rate at which the general level of prices for goods and services is rising,…
Initial Public Offering (IPO)
The first sale of stock by a private company to the public, marking its transition…
Insolvency
The inability of a company or individual to meet its financial obligations as they come…
Interest
The cost of borrowing money, usually expressed as a percentage of the loan amount
Investment
The act of putting money into financial schemes, shares, property, or a commercial venture with…
Investment Portfolio
A collection of investments owned by an individual or institution, including stocks, bonds, real estate,…
Issuer
A legal entity, such as a corporation or government, that issues securities like stocks, bonds,…
-j-
Jeopardy Bond
A type of bond issued by a corporation facing financial distress or bankruptcy, often offering…
Jobber
A professional trader who buys and sells securities, commodities, or currencies for their own account,…
Joint Account
A bank or investment account owned by two or more individuals who share equal access…
Joint and Several Liability
A legal principle where each party involved in a contract or debt agreement is individually…
Joint Venture
A business arrangement where two or more parties agree to pool their resources for a…
Journal Entry
A record of a financial transaction in the accounting system, showing the debits and credits…
Junior Debt
Debt obligations that have a lower priority of repayment compared to senior debt in the…
Junk Bond
A high-yield, high-risk bond issued by companies or governments with lower credit ratings, offering higher…
Jurisdiction
The geographical area or legal authority within which a court or regulatory body has the…
Just-In-Time (JIT) Inventory
An inventory management system where goods are produced or ordered only when needed, minimizing inventory…
-k-
K-Shaped Recovery
A type of economic recovery where different sectors or segments of the economy recover at…
Kaizen
A Japanese business philosophy focused on continuous improvement in all aspects of operations, including processes,…
Key Performance Indicator (KPI)
A quantifiable measure used to evaluate the success or performance of a company, department, project,…
Kickback
A form of bribery or illegal payment made to someone in exchange for favorable treatment,…
Kicker
An additional feature or clause added to a financial instrument, such as a loan or…
Killer Bees
In finance, “killer bees” refers to mutual funds that invest in bonds rated below investment-grade…
Kiosk Banking
A banking service that allows customers to perform various banking transactions, such as deposits, withdrawals,…
Kiting
A fraudulent practice where an individual or company manipulates the timing of funds transfers between…
Know Your Customer (KYC)
Regulatory requirements imposed on financial institutions to verify the identity of their customers and assess…
Kosher Loan
A loan that complies with Islamic Shariah principles, prohibiting the payment or receipt of interest…
-l-
Leverage
The use of borrowed funds to increase the potential return on investment, often amplifying both…
Liability
A financial obligation or debt owed by an individual or entity, including loans, mortgages, accounts…
Lien
A legal right or claim against a property or asset used as collateral to secure…
Line of Credit
A flexible borrowing arrangement that allows a borrower to access funds up to a predetermined…
Liquidity
The ease with which an asset can be converted into cash without significantly affecting its…
Liquidity Ratio:
A financial metric used to evaluate a company’s ability to meet its short-term obligations by…
Loan
A financial arrangement where one party (the lender) provides money or assets to another party…
Lock-Up Period
A specified period of time during which shareholders or investors are prohibited from selling or…
Loss Aversion
A psychological bias where individuals prefer to avoid losses rather than acquire equivalent gains, leading…
Lump Sum
A single, one-time payment of money, often used in the context of retirement plans or…
-m-
Margin
The difference between the selling price and the cost of production or acquisition of a…
Margin Call
A demand by a broker or lender for additional funds to be deposited into a…
Margin Trading
The practice of buying securities using borrowed funds from a broker, with the securities themselves…
Market
A place or mechanism where buyers and sellers come together to trade goods, services, or…
Market Capitalization (Market Cap)
The total value of a company’s outstanding shares, calculated by multiplying the current market price…
Merger
The combination of two or more companies into a single entity, often aimed at achieving…
Monetary Policy
The actions taken by a central bank to regulate the money supply, interest rates, and…
Money
A medium of exchange used to facilitate transactions, consisting of coins and banknotes issued by…
Mortgage
A loan used to finance the purchase of real estate, typically secured by the property…
Mutual Fund
An investment vehicle that pools money from multiple investors to invest in a diversified portfolio…
-n-
Nascent
Refers to an emerging or early stage of development, often used to describe a new…
Net Asset Value (NAV)
The per-share value of a mutual fund or investment company, calculated by dividing the total…
Net Income
The total earnings or profit of a company after deducting all expenses, taxes, and other…
Net Present Value (NPV)
A financial metric used to evaluate the profitability of an investment by calculating the present…
Net Worth
The total assets minus total liabilities of an individual or company, representing their overall financial…
Niche Market
A specialized segment of the market focused on a specific product, service, or customer demographic,…
Nominal Interest Rate
The stated rate of interest on a loan or investment, without adjusting for inflation.
Nominal value
The face value or stated value of a financial instrument, such as a bond or…
Non-Performing Asset (NPA)
A loan that is in default or close to default, where the borrower has failed…
Nondisclosure Agreement (NDA)
A legal contract between two or more parties that outlines confidential information that the parties…
-o-
Offshore
Relating to financial activities or investments conducted in a foreign country, often for tax benefits…
Open Market Operations
The buying and selling of government securities by a central bank to control the money…
Operating Income
Also known as operating profit, it is a company’s profit from its core business operations,…
Options
Financial contracts that give the buyer the right, but not the obligation, to buy or…
Outlier
A data point that is significantly different from other observations in a dataset, often used…
Outstanding Shares
The total number of shares of a company’s stock that are held by investors and…
Over-the-Counter (OTC)
Refers to securities traded directly between two parties, typically outside of a formal exchange such…
Overbought
Refers to a situation in the financial markets where the price of a security or…
Overdraft
A financial facility that allows an account holder to withdraw more money from their bank…
Overhead
The ongoing expenses of operating a business that are not directly attributable to producing goods…
Overvalued
Describes a security or asset that is trading at a price higher than its perceived…
-p-
Pivot
A strategic change in a company’s business model, product line, or marketing strategy in response…
Portfolio
A collection of financial investments, such as stocks, bonds, mutual funds, and other assets, held…
Portfolio Diversification
The strategy of spreading investments across different asset classes, industries, and geographic regions to reduce…
Price-Earnings Ratio (P/E Ratio)
A valuation metric calculated by dividing a company’s current stock price by its earnings per…
Principal
The original amount of money invested or borrowed, excluding interest or returns, in a loan,…
Private Equity
Investments made in privately held companies by private equity firms or institutional investors, often with…
Profit
The financial gain or benefit obtained from a business operation after deducting all expenses and…
Proxy
A document that authorizes one person to act on behalf of another, often used in…
Public Offering
The process by which a company sells its shares to the public for the first…
Put Option
A financial derivative that gives the holder the right, but not the obligation, to sell…
-q-
Qualified Dividend
A type of dividend that qualifies for favorable tax treatment based on specific criteria set…
Qualified Institutional Buyer (QIB)
An institution, such as a pension fund or investment bank, that meets specific regulatory criteria…
Quality of Earnings
The assessment of the sustainability and reliability of a company’s reported earnings, considering factors such…
Quantitative Easing (QE)
A monetary policy tool used by central banks to stimulate the economy by buying government…
Quarterly Earnings
The financial results reported by a company every three months, providing information on its revenue,…
Quasi-public Corporation
A company that operates like a private corporation but has some government involvement or regulation,…
Quick Ratio
A financial ratio that measures a company’s ability to cover its short-term liabilities with its…
Quid Pro Quo
A Latin term meaning “something for something,” referring to an exchange of goods, services, or…
Quiet Period
A period of time before a company’s initial public offering (IPO) or major announcement during…
Quotation
The price at which a security or commodity is bought or sold in the market.
-r-
Rate of Return
The percentage change in the value of an investment over a specified period, typically calculated…
Real Estate Investment Trust (REIT)
A company that owns, operates, or finances income-generating real estate assets, typically structured as a…
Rebalancing
The process of adjusting the allocation of assets in an investment portfolio to maintain desired…
Recession
A period of economic decline characterized by a contraction in economic activity, declining GDP, rising…
Residual Value
The estimated value of an asset at the end of its useful life, used in…
Return on Equity (ROE)
A financial ratio that measures a company’s profitability by calculating the return generated on shareholders’…
Return on Investment (ROI)
A financial metric used to evaluate the profitability of an investment by measuring the ratio…
Revenue
The total income generated by a business from its sales of goods or services before…
Risk
The potential for loss or variability in investment returns, often associated with uncertainty and volatility…
Risk Management
The process of identifying, assessing, and mitigating potential risks to a business or investment portfolio…
-s-
Salary
A fixed regular payment, typically paid on a monthly basis, for work done as an…
Savings
Money set aside by individuals or households for future use, typically deposited in a savings…
Securities
Financial assets that can be traded, such as stocks, bonds, and options.
Securities Exchange
A marketplace where securities are bought and sold, such as the Bombay Stock Exchange or…
Settlement
The process of finalizing a financial transaction, including the transfer of funds and ownership of…
Solvency
The ability of an individual, company, or government to meet its long-term financial obligations.
Speculation
The act of buying and selling financial assets with the aim of profiting from short-term…
Spread
The difference between the buying and selling prices of a financial asset, such as a…
Supply
The total amount of a specific good or service that is available to consumers.
Surplus
The amount by which income or resources exceed expenditures or liabilities.
Swap
A financial agreement between two parties to exchange cash flows or other financial instruments.
-t-
Takeover
The acquisition of control or ownership of a company by another through the purchase of…
Tax
A mandatory financial charge imposed by a government on individuals or businesses to fund public…
Tender
An offer or bid to purchase a financial asset or contract, typically made in response…
Term
The length of time for which a financial instrument, such as a loan or bond,…
Term Sheet
A non-binding document outlining the terms and conditions of a potential financial transaction, such as…
Trade
The buying and selling of goods and services, often involving monetary transactions
Trade Balance
The difference between the value of a country’s exports and imports of goods and services.
Trading Floor
The physical or virtual location where financial securities are bought and sold by traders and…
Tranche
A portion of a financial instrument, such as a bond or loan, that is divided…
Transaction
An exchange or transfer of goods, services, or financial assets between two or more parties.
Treasury Bond
A long-term debt instrument issued by a government, typically with a maturity of 10 years…
Trust
A legal arrangement in which a person or entity holds property or assets on behalf…
Turnover
The total value of goods or services sold by a company within a specific period…
-u-
Undercapitalized
A company or financial institution that has insufficient capital to cover its liabilities or support…
Underlying Asset
The financial instrument or asset upon which a derivative contract is based.
Underwriter
An individual or institution that assesses and assumes the risk of another party’s financial obligations,…
Unit Trust
A type of investment fund where investors’ money is pooled together to invest in a…
Unitholder
An investor or shareholder who owns units or shares in a collective investment scheme, such…
Unrealized Gain/Loss
The potential profit or loss on an investment that has not yet been realized by…
Usury
The illegal practice of charging excessive interest rates on loans, typically considered exploitative or predatory.
Utility
A measure of the satisfaction or benefit derived from consuming a good or service.
-v-
Valuation
The process of determining the current worth of an asset or company based on various…
Venture
A risky or speculative business or investment opportunity, often involving a new or innovative product…
Venture Capital
Funding provided by investors to startup or early-stage companies in exchange for equity ownership.
Venture Capitalist
An individual or firm that invests capital in startup or early-stage companies in exchange for…
Vesting
The process by which an employee earns the right to receive benefits, such as stock…
Volatility
The degree of variation or fluctuation in the price or value of a financial instrument…
Volume
The total number of shares or contracts traded in a financial market within a specific…
Voluntary Liquidation
The process by which a company chooses to wind up its affairs and distribute its…
Voting Rights
The privilege of shareholders or equity owners to participate in corporate decision-making processes, typically through…
-w-
Wage
A fixed regular payment earned by employees for work done, typically calculated on an hourly,…
Warranty
A guarantee or assurance provided by a seller or manufacturer regarding the quality, performance, or…
Wealth
The abundance of valuable resources or assets owned by an individual, organization, or society.
Wealth Management
The professional management of an individual’s or family’s financial assets and investments to achieve specific…
Wholesale
The sale of goods or merchandise in large quantities at lower prices to retailers or…
Windfall
A sudden and unexpected financial gain or profit, often resulting from luck, inheritance, or a…
Wire Transfer
A method of electronically transferring funds from one bank account to another, typically used for…
Withdrawal
The act of taking money or funds out of a bank account, investment account, or…
Working Capital
The difference between a company’s current assets and current liabilities, representing its liquidity and ability…
Write-off
The removal of an asset or liability from a company’s balance sheet, typically due to…
-x-
Xenocurrency
Currency used in international transactions or foreign exchange markets.
Xenology
The study of foreign exchange markets, including currencies and their fluctuations.
XIRR (Extended Internal Rate of Return)
A method used to calculate the internal rate of return for investments where there are…
-y-
Yield
The income earned from an investment, typically expressed as a percentage of the investment’s value.
Yield On Cost (YOC)
The annual dividend income received from an investment, expressed as a percentage of the original…
Yield Spread
The difference between the yields of two different fixed-income securities, often used as a measure…
Yield to Maturity (YTM)
The total return anticipated on a bond if it is held until it matures, including…
Yieldco
A publicly traded company formed to own and operate assets that produce a predictable cash…
-z-
Zero Coupon Bond
A bond that pays no periodic interest but is sold at a discount to its…
Zero-Based Budgeting
A budgeting technique where all expenses must be justified for each new period, regardless of…
Zero-Based Indexing
An investment strategy that involves constructing a portfolio with weights assigned to assets based on…
Zombie Bank
A financial institution that continues to operate even though it is insolvent or near bankruptcy,…
Zombie Company
A firm that is able to generate enough revenue to cover its operating expenses but…