Financial Glossary


F

Face Value. The value of a bond or debenture that appears on its face. Usually this is the amount that is due on maturity. Also known as the par value or denomination.

Fair Market Value. The price a willing buyer would pay a willing seller if neither was under any compulsion to buy or sell. The standard at which property is valued for a deemed disposition.

Fast Markets. Generally characterized by the combination of high volatility and heavy trading, usually as a result of an imbalance of trade orders (all buys, no sells).

Federal Funds Rate. The interest rate that is charged by banks on overnight loans to other banks. 

Federal National Mortgage Association ("Fannie Mae"). A government-sponsored private corporation authorized to purchase and sell mortgages, which increases the affordability and availability of mortgages. Also charged by the federal government with facilitating the orderly operation of a secondary market for home mortgages.

Federal Reserve. The central bank of the United States. The Federal Reserve (or "Fed") oversees money supply, interest rates, and credit. The Federal Reserve System is governed by a seven-member board. There are 12 regional Federal Reserve Banks and 25 branches in the system.

Fiduciary. An individual or institution occupying a position of trust. An executor, administrator, or board of directors. Hence, "fiduciary" duties.

Financial Disclosure. The financial information a company presents to outside parties.

Financial Leverage. The use of debt to increase the expected Return on Equity.

Financial Planning. Planning one's finances in order to achieve financial security and independence. Planning areas include. tax, retirement, risk protection,estate, investment, and cash management.

Financial Ratios. The result of dividing one financial statement item by another. Ratios are used to help interpret financial statements by focusing on specific relationships.

Financing Contingencies. Usually a buyer's right to avoid closing a transaction due to the inability to obtain financing.

First In, First Out Inventory Method (FIFO). An accounting method for valuing the Cost of Goods Sold which assumes the oldest item in inventory is used first. Generally, if the cost of acquiring inventory is rising, companies using FIFO will report lower Cost of Goods Sold and therefore higher gross profit. See LIFO for an alternative method.

First-round Financing. This is the first investment in a company made by external investors. 

First Stage Capital. This is the money provided to an entrepreneur who has a proven product, to start commercial production and marketing, not covering market expansion, de-risking, acquisition costs.  

Fiscal Policy. The policy pursued by government to manage the economy through its spending and taxation powers.

Fiscal Year. The financial or accounting year of an organization, which may or may not coincide with the calendar year. A business may, for example, find it convenient to end its accounting year at a time when inventory stocks are down.

Fixed Assets. Assets of a long-term nature, such as land and buildings.

Fixed Costs. Expenses that are fixed for a given period of time or do not directly vary with production levels such as rent and management salaries.

Fixed Expenses. Expenses related to basic lifestyle needs (such as shelter and food), debt payments, and income tax.

Fixed Income Investments. Investments that generate a fixed amount of income that does not vary over the life of the investment.

Fixed Liability. Any corporate liability that will not mature within the following fiscal period. For example, long-term mortgages or outstanding bonds.

Flat Tax. A tax levied at the same rate on all income for all individual taxpayers, usually on a broadly-defined income base with only a limited number of deductions.

Flipping. The sale of a security or a company shortly after its purchase. In a securities offering this may lead to downward pressure on the stock price.

Float. The difference between the cash balance recorded on the company's books and the amount credited to the company by the bank. Also see Public Float.

Follow-On. This is a subsequent investment made by an investor who has made a previous investment in the company, generally a later stage investment in comparison to the initial investment.

Force Majeure. A form of legal protection used when unforeseen events such as natural disasters or war impede a company's ability to continue with normal development and operation of a project.

Forward. A forward contract is similar to a futures contract but trades over the counter, as opposed to on an exchange. The seller agrees to deliver a specified commodity or financial instrument at a specified price in the future. Terms are negotiated, not standardized.

Founders. The individuals who started a company.

Free Cash Flow. The cash that's left over after everything -- bills from suppliers, salaries, expenses for the annual holiday bash, new equipment to expand the business -- is said and done. Theoretically, free cash flow is the amount of cash a business could issue to shareholders in the form of a dividend check. Put another way, generally, the cash available to distribution to a company's investors or lenders (equity and debt), defined as net income from operations plus non-cash charges (such as depreciation) plus or minus the cash used by or freed by the business as indicated in balance sheet changes (such as capital expenditures and increases in working capital).

Full Ratchet. This is an investor protection provision which specifies that options and convertible securities may be exercised relative to the lowest price at which securities were issued since the issuance of the option or convertible security. The full ratchet guarantee prevents dilution, since the proportionate ownership would stay the same as when the investment was initially made.

Full Ratchet Anti-dilution. A contractual downward adjustment in the conversion price (or exercise price) of a convertible security that is often based on either performance or a later investment in the company at a lower price per share. Based on this clause, during the applicable period, if any subsequent security of the issuer is sold at a lower price regardless of the amount sold, (other stock sold pursuant to an employee option plan), the conversion price of the convertible security is reduced to that exact price.

Full-Service Brokerage. The most traditional type of brokerage. It offers advice on building portfolios, on the types of securities to buy and sell, and asset allocation. In general, full-service brokerages charge higher commissions in exchange for this advice.

Fully-Diluted. A company's fully diluted shares assumes the company's issued and outstanding common stock are increased by the exercise of all potential options and warrants and the conversion of all of its convertible securities.

Fully-Diluted Earnings Per Share. Earnings per common share calculated on the assumption that all convertible securities are converted into common shares and all outstanding warrants, rights and options are exercised.

Fund of Funds. A private equity fund that, instead of being used to make direct investments in companies, is distributed among a number of other private equity fund managers, who in turn invest the capital directly. Funds of funds often give individual limited partners access to funds from which they would otherwise be excluded. Also, by spreading the capital more widely, the risk to limited partners is reduced.

Fundamental Analysis. A method of evaluating the future prospects of a company by analyzing its financial statements. It may also involve interviewing the management of the company.

Future Value. The amount that an investment will be worth at some future time if invested at a constant rate of interest.

Futures. Exchange-traded contracts that give the holder the right to buy or sell a certain commodity, currency, or financial instrument at a specified price at a specified period of time.