Financial Glossary
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Acceleration Clause. Clause causing repayment of a debt, if specified events occur or are not met.
Accounts Payable. Debts the company must pay off within the year; that is, they are a current liability. Typically, these debts are to the company's suppliers. The accounts payable amount is subtracted from the sales or revenue amount on a balance sheet when net income and net worth are calculated.
Accounts Receivable. Money owed to the company by its customers; it is called a current asset because the company expects the money to be paid to it within the year. Investors often look at this number to see whether accounts receivable is an unusually large number in comparison to the company's sales. If it is, it may mean that the company is low on cash.
Accredited Investor. An SEC requirement for individuals and entities participating in Regulation D private placements. The designation for individual high net worth investors (not entities) generally requires one of the following: - An individual net worth (or joint net worth with their spouse) of $1 million or more - An individual income in excess of $200,000 (or $300,000 with spouse) in each of the two most recent years and a reasonably expected current year income of $200,000 (or $300,000 with spouse).
Accrual. An accounting procedure that records (recognizes) income or expense on a company's financial statement at the time the income or liability event happens (i.e., the exchange of goods or services) rather than when income is received or expenses are paid in cash.
Accrued Interest. Interest that has been earned but not yet received. It is normally applicable to bonds or debentures.
Accrued Taxes. Taxes that the company owes and hasn't paid yet. They are listed on a company's balance sheet.
Accrued Wages. Wages that the company owes to its employees and hasn't paid yet. They are listed on a company's balance sheet.
Accumulated Dividend. A dividend that is not currently paid but may be payable on a class of securities under certain circumstances. Dividends frequently accumulate for a fixed period to permit a company to retain cash to grow the business. Dividends may also be payable in full only in the event of a liquidity event (e.g., sale, IPO, or redemption) and accumulate until such time.
Acquisition. Acquisition is the process through which one company takes over the controlling interest of another company.
Acquisition Loans. Debt instruments used to finance the purchase of a business, a Merger or other acquisition transaction.
Adjusted Cost Basis. (Usually) the cost of your property plus any expenses you incurred to acquire it. These expenses may include commissions and legal fees. The cost of a capital property is its actual or deemed cost depending on the type of property and how you acquired it.
Advisors. Individuals, or a group of individuals, who have experience and expertise greater than your own, and who help you to make financial decisions. Examples: a lawyer, chartered accountant, banker, a stock broker, or a financial planner.
Affiliated Company. A company with less than 50 per cent of its shares owned by another corporation, or one whose stock, with that of another corporation, is owned by the same controlling interests.
After-tax Cost. The final cost of an investment to an investor in a particular tax bracket, after calculating the effect of income tax.
Agreement in Principle. An outline of the understanding among the parties which includes the price and major terms of a proposed transaction and is usually put into writing as a Letter of Intent.
Aggressive Investment. A volatile, difficult-to-predict investment, this is subject to rapid gain or loss. This type of investment is generally appropriate for long-term holdings (10 or more years) and for investors willing to accept fluctuations in the value of their investments.
All or None Offering. A securities offering that does not close unless all, but not less than all, of the securities offered are actually purchased. This compares with a Best Efforts Offering, in which no guaranteed minimum sale of securities must occur before the offering closes.
Alternative Minimum Tax. A required tax calculation which ensures that high income earners will be required to pay.
Amortize. To liquidate on an installment basis; an amortized loan is one on which the principal amount of the loan is repaid in installments during the life of the loan.
Amortization. The number of years required to repay a mortgage or loan. This period assumes the payment schedule as set out in the original mortgage or loan contract.
Amortization Schedule. A schedule that shows precisely how a loan will be repaid. The schedule gives the required payment on each specific date and shows how much of it constitutes interest and how much constitutes repayments of principal.
Angel or Angel Investor. This is an individual who provides capital to one or more startup companies. Unlike a partner, the angel investor is rarely involved in management. Angel investors can usually add value through their contacts and expertise.
Annual Economic Output or Gross Domestic Product (GDP). The total value of all goods and services produced within the US during a given year. Also referred to as annual economic output or just output. To avoid counting the same output more than once, GDP includes only final goods and services -- not those which are used to make another product. For example, GDP would not include the wheat that is used to make bread, but would include the bread itself. Put another way, The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
Annual Report (10-K). A report that all public companies must file annually with the Security and Exchange Commission in a specified format. Companies may also issue a seperate annual report to shareholders containing much of the same information. This report must be audited by independent auditors.
Annualized Rate. A percentage rate of change for a period of less than one year, calculated to show what the change would be if it continued for a full year. For example, if economic growth in the first quarter (three months) of a year were one per cent, the annualized rate would be about four per cent. (It would slightly exceed four per cent because of compounding.) Whether the annualized growth rate for a short period would really be indicative of average growth over the coming year depends on how much the variable in question is subject to short-term changes, such as seasonal factors or special developments.
Antidilution Provisions. A clause in a shareholders agreement preventing a company from issuing additional shares, without allowing the current shareholders the opportunity to participate in the offering to avoid dilution of their percentage ownership. Put another way, it is contractual provisions that protect an investor from certain consequences when a dilution event occurs, such as a subsequent sale by the company of additional equity securities. These contractual provisions usually provide either price protection or maintenance of proportionate ownership protection. The most frequent antidilution provisions are full ratchet or weighted average.
Appraisal. A professional opinion of the value of a business or other property. See also Valuation.
Appreciate. To increase, or grow in value.
Arbitrage. The practice of buying and selling an interlisted stock on different exchanges in order to profit from minute differences in price between the two markets.
Articles of Incorporation. See Certificate of Incorporation.
Ask (Offer). The price at which a seller offers his security or property for sale.
Ask Price. A proposal to sell a specific quantity of securities at a named price.
Ask Size. The number of shares being offered for sale at the ask price. The figure is often expressed in terms of hundreds of shares.
Asset. An asset is an item of value owned by or due to company, including tangible assets (i.e., physical assets or obligations) such as cash in a bank, receivables, inventory, land, buildings, or equipment, and intangible assets (i.e., things a company has a legal right or claim to) such as patents or other intellectual property rights.
Asset Allocation. The planned percentage distribution of your investment assets into various categories such as reserves, fixed income, and equities.
Asset-Based Analysis. A valuation methodology utilizing the fair market value, rather than book value, of items on a company's balance sheet. This method is frequently used for asset-intensive companies.
Asset-Based Financing. Loans granted usually by a financial institution where the asset being financed constitutes the sole security given to the lender.
Asset-Backed Securities. Bond or note secured by assets of company.
Asset Class. Typically refers to securities that have similar features. For example, stocks and bonds are the two main classes. They may be subdivided into other classes such as mortgages, common stock and preferred stock. Asset classes are used in the process of asset allocation to control the risk and return characteristics of a portfolio. The predictions for asset class performance are based on historical performance characteristics, which include the expected future return, the expected future volatility (risk) of the return, and how the returns of assets classes perform relative to each other. In the long run, with a diversified portfolio, over 90 per cent of your returns as an investor are determined by the class of assets you decide to hold. The remaining 10 per cent of your return depends on which specific stock, bond or mutual fund you buy and when you buy it.
Asset Coverage. Extent to which a company's net assets cover a particular debt obligation, class of preferred stock, or equity position.
Asset Purchase. A type of transaction in which the buyer purchases assets from a company, rather than a Stock Purchase in which the buyer purchases the shares of a company. The existing ownership of the company itself is not transferred in an asset purchase.
Asset Utilization Ratios. Ratios, such as the inventory turnover ratio, that measure the speed at which a company is utilizing (or turning over) its assets.
Asset Value. The monetary value of holdings; sometimes expressed as asset value per share by dividing a total asset figure by the number of shares outstanding.
At-The-Money. Descriptive term for an option with a strike price equal to (or almost equal to) the underlying security's market value.
Attribution Rules. A set of rules whereby income realized from an asset is credited to the person who previously owned the asset.
Auction. A sale that is to be accomplished by a process of requesting Bids for a business by a specified date.
Audit. An examination or verification of financial records or accounts.
Audited Statement. A financial statement on which, based on an audit, an independent auditor has expressed an opinion. An audit is designed to obtain reasonable assurance that the financial statements are free of material misstatements. It includes among other things: examining, on a test basis, evidence supporting the financial statement amounts and disclosures; assessing the accounting principles used and management's significant estimates; and evaluating the overall financial statement presentation. U.S. audits are conducted according to Generally Accepted Accounting Practices (GAAP). An audited statement represents a greater level of accountant involvement than a reviewed or compiled statement. Investors, banks and acquirers frequently require audited statements.
Average or Index. For stocks, indicators of broad market performance. The Dow Jones Industrial Average includes the shares of 30 large companies. Derived from statistical data that measure the state of the stock market or the economy, based on the performance of stocks or other meaningful components, such as the Consumer-Price Index.
Average Annual Return. The percent profit your portfolio is making on a yearly basis. If the report period is shorter or longer than a year, the average annual return is converted to an annual rate.
Average Tax Rate. The ratio of taxes paid to the tax base. Accordingly, the average income tax rate is the ratio of income tax paid to income. For example, someone who pays $10,000 in income tax on a taxable income of $50,000 would have an average tax rate of 20 per cent.
