Financial Glossary


C

C Corporation. A company whose federal income tax status is based on the company's income as an entity and the taxes are paid by the company.

CPA. A certified public accountant.

Call. In options trading, a call is the right to buy a specified number of shares at a set price by a specific date. Investors buy call options when they think the price of a stock is going up and want to lock in the strike price.

Callable. Preferred shares or bonds that give the issuing corporation an option to repurchase, or "call" those securities at a stated price. These are also known as redeemable securities.

Capital. The total of financial assets that an investor has invested insecurities, real estate, and other fixed assets, as well as cash.

Capital Assets. Tangible items used in the operation of a business but not consumed in the course of those operations. These are also known as "fixed assets." Some examples of capital assets are the company's buildings or the machinery with which a product is made. For tax purposes, capital assets may also include the security investments ("securities") of a business.

Capital Cost Allowance. A taxation term, equivalent to depreciation, that makes allowance for the wearing away of a fixed asset.

Capital Gain. A profit made on the sale of an asset when the market price rises above the purchase price. Profit that is made from the sale of real estate, stocks, bonds, or other capital assets.

Capital Gain Exemption. An exemption from tax arising from a capital gain on qualified small business and farm property.

Capital Lease. One where substantially all of the benefits and risks of ownership are transferred to the lessee. It must be reflected on the company's balance sheet as an asset and corresponding liability.

Capital Loss. Loss that is incurred from the sale of capital assets at a price below the purchase price.

Capital Markets. The markets used by Governments and Corporations to raise money, e.g. by issuing bonds. 

Capital Property. Securities or physical property such as real estate, that may increase or decrease in value and on which a gain or loss may be realized on deposition.

Capital Stock. All ownership shares of a company, both common and preferred.

Capital Structure. The mix of the various types of debt and equity capital maintained by a firm. The more debt capital a firm has in its capital structure, the more highly leveraged the firm is considered to be.

Capital Take-down. The schedule by which the general partner of a fund draws down capital from the limited partners to be used for investments. Most general partners today call down capital only as they require it, rather than in pre-set amounts according to a rigid timetable.

Capital Under Management.  The term describes the amount of capital available to a management team for private equity or venture investments.

Capitalize. In Finance: to find the present value of a stream of cash flows. In Accounting: to reflect costs of the balance sheet rather than charge them off through the income statement, as to capitalize major repairs to a fixed asset.

Capitalization. The total amount of all securities, including long-term debt, common and preferred stock, issued by a company.

Capitalization Rate. A discount rate used to find the present value of a series of future cash receipts. Sometimes called discount rate.

Capitalization Table. A Cap Table (or capitalization table) is the document that shows who owns the company and what they paid to attain that ownership. In other words this is a table showing the total amount of the various securities issued by a firm. This typically includes the amount of investment obtained from each source and the securities distributed -- e.g. common and preferred shares, options, warrants, etc. -- and respective capitalization ratios.

Carried Interest. The general partner’s share of the profits generated through a private equity fund. The carried interest, rather than the management fee, is designed to be the general partner’s chief incentive to strong performance. A 20 percent carried interest – meaning that the remaining 80 percent reverts to the limited partners – has been the industry norm, although some firms now take 25 percent or even 30 percent, based on very strong performance on past funds.

Cash. In an investment portfolio, cash means relatively stable investments that can be easily changed into currency, such as checking accounts, Treasury bills, money market accounts or short-term bond funds.

Cash Collateral.The proceeds of cash collected from the sale of liquid assets while in bankruptcy.

Cash equivalent. Assets that can be quickly converted to cash. These include receivables, Treasury bills, short-term commercial paper and short-term municipal and corporate bonds and notes.

Cash Flow. Income from all sources less expenses over a stated period of time. A shortfall or surplus is determined.

Cash Flow Forecast. An estimate of the timing and amount of a company's inflows and outflows of money measured over a specific period of time typically monthly for one to two years then annually for an additional one to three years.

Cash Ratio. Ratio of cash and cash equivalents to liabilities; in the case of a bank, the ratio of cash to total deposit liabilities.

Certificate. A document providing evidence of ownership of a security such as a stock or bond.

Certificate of Deposit (CD). A time deposit with a specified maturity date.

Certificate of Incorporation (also Articles of Incorporations). A company's organizational document required to be filed with the Secretary of State in the state in which it is incorporated. The certificate generally notes the name, location and company's purpose; the number, rights, and preferences of it's capital stock; and voting authority of the directors including rights related to redemptions, acquisitions and mergers.

Certified. To confirm formally. To guarantee (on a cheque) that there are sufficient funds on deposit for payment.

Chapter 11. A reorganization bankruptcy, usually involving a corporation or partnership. (A Chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in Chapter 11.)

Chartered Financial Analyst (CFA). A designation conferred by the Association for investment Management and Research, Charlottesville, Virginia. Consists of three courses in which you must write three rigorous and comprehensive six-hour exams.The courses take three years to complete and teaches how to analyze investments and design investment portfolios.

Class. Different classifications of a company's capital stock. Each separate class (i.e., common or preferred) will have specified rights designated in the company's certificate of incorporation and may also be divided into series.

Clawback. Previously given monies or benefits that are taken back due to specially arising circumstances.

Closed Mortgage. A convertible mortgage where the lending rate is fixed for a set period of time, and there is no allowance to repay the loan in advance. Also known as a closed-end mortgage.

Closed-end Fund. A fund company that issues a fixed number of shares. Its shares are not redeemable, but are bought and sold on stock exchanges or the over-the-counter market.

Closing. This is the final event to complete the investment, at which time all the legal documents are signed and the funds are transferred. 

Closing costs. Expenses incurred when real estate is transferred from a seller to a buyer.

Co-Sale Right, Tag Along Rights or Come Along Rights. An investor's right to sell the investor's own securities at the same time, at the same price, and on the same terms and conditions as another stockholder (generally the controlling stockholder or key management). These rights are usually are eliminated in connection with a qualifying initial public offering (IPO).

Cold Comfort Letter. A letter, generally requested by the underwriter, from a company's independent accountants confirming financial information in the offering memorandum and detailing the accountants' procedures.

Collateral.  Collateral Security given by a borrower to a lender in connection with a loan. Lenders frequently take collateral in a company's tangible and intangible assets and may require an owner's guarantee. In an asset backed loan, the amount of the loan is often based on the value the lenders place on the collateral, with greater value usually given to inventory, accounts receivable, real property, or buildings and other tangible assets. If the borrower cannot repay the loan when due, or for other reasons there may be an event of default, the lender, after complying with the loan agreement and applicable law, has the right to take possession of the collateral, sell it, and apply the net proceeds to repay the loan. In short, it is assets pledged by a borrower as security for the repayment of a loan.

Commercial paper. A negotiable corporate promissory note with a term of a few days to a year. It is generally not secured by company assets.

Commission. The broker's or agent's fee for buying or selling securities for a client. The fee is usually based on a percentage of the transaction's market value.

Commodity. A product used for commerce that is traded on an organized exchange. A commodity could be an agricultural product such as canola or wheat, or a natural resource such as oil or gold. A commodity can be the basis for a futures contract.

Common Share. A class of stock that represents ownership or equity in a company. Common shares sometimes carry a voting privilege and entitles the holder to a share in the company's profits, usually issued in the form of dividends.

Common Stock.  The security of a company that represents the residual economic and ownership interest in a company after payment of all other claim. Preferred stock, subordinated debt, secured debt, and general trade obligations (i.e., trade payables) get paid prior to any proceeds to common stockholders. Each share of common stock represents a proportionate interest in the company. There can be different classes or series of common stock with different voting, dividend or other rights. In short, it is a security representing ownership of a corporation's assets. Voting rights are normally accorded to holders of common stock.

Company Acquisitions. Assets acquired to create money. May include plant, machinery and equipment, shares of another company etc

Competitive Advantage. The strategies, skills, knowledge, resources or competencies that differentiate a business from its competitors.

Compilation Statement. The minimum level of financial statement preparation by an independent accountant. Compilation statements lack footnotes and other disclosures found in an audited or review statement. A compilation statement verifies only the mathematical accuracy of the financial information that management presents to the accountant and involves no testing of receivables, inventory, or other assets or verification by the accountant.

Composite price. When a security is traded on more than one exchange, the price may vary among exchanges. The composite price includes all the prices for all transactions of the security on any exchanges where it is traded; as a result, you have a better idea of the security's true price.

Compounding. Reinvesting interest as capital to earn additional capital.

Compound Interest. Interest earned on the initial investment as well as in interest previously earned. Interest may be compounded daily, weekly, monthly, quarterly, semi-annually, or annually for compounding purposes.

Conditional Buyer. One of two parties to a conditional sale agreement, the other being the conditional seller.

Conditional Sale. A type of agreement to sell whereby a seller retains title to goods sold and delivered to a purchaser until full payment has been made.

Conditional Sale Agreement. An agreement entered into between a conditional buyer and a conditional seller setting out the terms under which goods change hands.

Conditional Seller. One of two parties to a conditional sale agreement, the other being the conditional buyer.

Confidentiality Agreement. A legal document whereby the one party, usually the prospective investor, pledges to keep strictly confidential, and return on request, any and all information provided by the entrepreneur seeking funding.

Consent. Permission from different individuals or entities. Often a company must obtain the consent (or waiver) from a specified percentage of those stockholders who are contractually protected by a covenant to take certain actions otherwise restricted by a covenant.

Consolidation. Also called a leveraged rollup, this is an investment strategy in which an LBO firm acquires a series of companies in the same or complementary fields, with the goal of becoming a dominant regional or nationwide player in that industry. In some cases, a holding company will be created, into which the various acquisitions will be folded. In other cases, an initial acquisitions may serve as the platform through which the other acquisitions will be made.

Consumer Debt. The term applied to debt incurred for consumable or depreciating assets that aren't considered investments. You should include credit card debt, store-financed consumer purchases, car loans, family loans that will be repaid, etc. Don't include routine bills paid monthly such as water, phone, and electricity, and don't include mortgages, home or business equity loans, home or business equity lines of credit, or stock margin accounts.

Consumer Price Index (CPI). A statistical device that measures the increase in the cost of living for consumers. It is used sometimes to illustrate the extent that price sin general have risen or the amount of inflation that has taken place.

Consumption Taxes. Taxes on consumption -- purchases of goods and services -- levied by both the federal and provincial governments.

Contingency. An existing situation the result of which is unknown, this may be positive or negative.

Contract. A formal written statement of the rights and obligations of each party to a transaction.

Contractual Plan. An arrangement whereby an investor contracts to purchase a given amount of a security by a certain date and agrees to make partial payments at specified intervals.

Conversion Price. The price at which a convertible security (debt or equity) can be converted (exchanged) into another security. If a $100 convertible note has a conversion price of $10, then the holder of the convertible note can exchange the note for 10 shares of common stock (i.e., the amount of the debt divided by the conversion price).

Convertible. A condition attached to a security, such as a bond, debenture, or preferred share which may be exchanged by the owner, usually for the common stock of the same corporation, in accordance with the terms of the conversion privilege.

Convertible Debt. Debt that can be converted from debt to equity. In Lieu of repayment of the debt, it is usually advantageous to the holder to convert to common stock if the value of the common stock on conversion exceeds the principal and interest owed on the convertible debt. Convertible debt is similar to convertible preferred stock, but is to be repaid prior to preferred or common stock in the event of a sale or liquidation, thereby providing more senior protection until converted.

Convertible Mortgage. A mortgage that allows the borrower to switch from a short-term mortgage to a longer-term one.

Convertible Preferred Stock. A form of preferred stock that grants the holder the right (but not the obligation) to convert the preferred stock into common stock. Convertible preferred stock generally has a liquidation preference in an amount equal to the original purchase price plus any accumulated dividends. Dividends on convertible preferred stock may be paid currently or accumulated depending on the particular company. Convertible preferred stock in a privately-held company often automatically converts to common stock, on a qualifying Initial Public Offering. When a company goes public, the preferred stockholder has generally achieved a major private equity investment goal of liquidity and no longer needs the economic and contractual protection provided by preferred stock.

Convertible Security. Securities that permit the holder to acquire an equity interest by converting (i.e., exchanging) the original security into common stock. Options, warrants, convertible preferred stock or convertible debt are examples of convertible securities. Convertible preferred stock usually permits the stockholder to choose between receiving a liquidation preference on the preferred stock and converting the preferred stock into common stock. Conversion usually occurs at the election of the holder if the value of the common stock obtained on conversion exceeds the liquidation preference.

Convertible Term. Term life insurance which can be converted to any permanent or whole life policy without evidence of insurability subject to time limitations.

Corporate Actions. Changes in companies that affect their listings on stock changes. Examples of corporate actions are new issues, defunct issues, mergers and name changes.

Corporate Bonds. Bonds issued by private corporations. They have a par value of $1,000 and are due all at once. They are traded on major exchanges.

Corporate Tax. Tax on corporate income in the US.

Corporation. A legal business entity created under federal or provincial statutes. Because the corporation is a separate entity from its owners, shareholders have nolegal liability for its debts.

Cost basis. The cost basis of an investment is how much you paid for it when you originally purchased it.

Cost of Capital. The discount rate that should be used in the capital budgeting process.

Cost Performance or Unit Labor Costs. A method of measuring competitiveness -- national cost performance -- that compares the total wages of a country (or an industry or individual firm) relative to its total output. To measure the unit labor costs of the US economy, one would divide the US total labor income by its real GDP. Whereas labor productivity shows us how much output our economy gets per worker, unit labor costs show us how much output our economy gets relative to how much workers are paid. If wages are rising but productivity is rising faster, unit labor costs are actually falling. In this way, we can see the combined effect of changes in productivity and in wages on the cost of production. The higher our unit labor costs in comparison to those of other countries, the harder it is for us to compete with them.

Cost of Goods Sold (COGS). This amount represents the cost of buying raw materials and producing the goods that a company sells. It also includes the cost of the company's labor force. You can find this amount on a company's income statement.

Coupon rate. The annual interest rate of a bond.

Covariance. A measure that reflects both the variance (volatility) of a stock's returns and the tendency of those returns to move up or down at the same time relative to other stocks (their correlation). This is a way to see if two stocks tend to move up or down together and also see the size of those movements.

Covenants. Covenants are the negative or affirmative contractual agreements of a company in favor of specified investors (i.e., a particular class of preferred stock or subordinated debt-holders). Affirmative covenants mandate positive actions that a company will perform, such as providing specific financial information to investors. Negative covenants specify actions that a company will not take without consent, such as incurring additional funded debt. An example of a covenant may include the promise not to issue any more debt.

Crammed Down. Described as: 1.) A situation in which venture capitalists refuse to invest in a new project unless the preceding investors of the company lower the value of their original investment. If the earlier investors of the company don't pony up new cash for the next round of financing, then their interest in the company is "crammed down."  2.) A bankruptcy procedure that allows a bankruptcy court to initiate a reorganization plan for a company despite objections from creditors. The creditors will still maintain collateral on the company as long as the firm offers repayment of the "secured portion" or fair market value of the collateral in their repayment plan. Creditors usually don't like this because they would rather liquidate the company's assets and get back some of the money owed to them.

Credit. Funds advanced and/or available to be borrowed as required.

Credit Rating. A rating assigned to an individual based on their credit history.

Credit Loss. A loan receivable that has proven uncollectible and is written off.

Credit Risk. Financial and moral risk that an obligation will not be paid and a loss will result.

Credit Terms. Conditions under which credit is extended by a lender to a borrower.

Creditor. Person or business that is owed money.

Critical Growth Periods. Times in a company's history when growth is essential and without which survival of the business might be in jeopardy.

Cum Dividend or Rights. It means with a dividend or with rights. For instance, if you buy a stock cum dividend or cum rights, you receive forthcoming already-declared dividends or rights.

Cumulative Voting. Rather than casting the same number of votes for each director, cumulative voting allows a stockholder to aggregate all of the stockholder's votes. Thus, if a stockholder owns 20 shares, and three directors are being elected, the stockholder has a total of 60 votes (i.e., the number of shares times the number of directors being elected) which can all be voted for one or more directors. Cumulative voting increases the ability of minority investors to obtain board representation. 

Curb. Temporary trading restrictions designed to reduce dramatic price movements.

Current Assets. An asset that could be converted into cash within 12 months. Put another way, appearing on a company's balance sheet, it represents cash, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that can be converted to cash within one year. Note: Current assets are important because it is from current assets that a company funds its ongoing, day-to-day operations.

Current Liability. A liability that has to be paid within 12 months. Put another way, usually appearing on a company's balance sheet, it represents the amount owed for interest, accounts payable, short-term loans, expenses incurred but unpaid, and other debts due within one year. Note: Essentially this is the bills that are due very shortly, usually less than one year.

Current Ratio. Simply, a company's current assets divided by its current liabilities. From this ratio, you can determine whether a company could pay off its debts with its current assets if it needed to.

Current Yield. The annual rate of return that an investor purchasing a security at its market price would realize. This is the annual income from a security divided by the current price of the security. It is also known as the return on investment.

Cyclical Stock. A stock of a company in an industry that is particularly sensitive to swings in economic conditions.

Cyclical unemployment. Occurs when the economy enters a temporary downturn. The most recognizable form of cyclical unemployment occurs when workers are temporarily laid off. Structural unemployment occurs when workers are unable to fill available jobs because they lack the skills, do not live where jobs are available, or are unwilling to work at the wage rate offered in the market.