Financial Terms Main Page

This site contains comprehensive definitions for a wide range of terms that cover topics such as financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit...

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Ethics

Standards of conduct or moral judgement.

Merchant bank

A British term for a bank that specializes not in lending out its own funds, but in providing
various financial services such as accepting bills arising out of trade, underwriting new issues, and providing
advice on acquisitions, mergers, foreign exchange, portfolio management, etc.

Notional principal amount

In an interest rate swap, the predetermined dollar principal on which the
exchanged interest payments are based.

Shirking

The tendency to do less work when the return is smaller. Owners may have more incentive to shirk
if they issue equity as opposed to debt, because they retain less ownership interest in the company and
therefore may receive a smaller return. Thus, shirking is considered an agency cost of equity.

Capital Budgeting

The process of ranking and selecting investment alternatives and
capital expenditures

Cost of Debt

The cost of debt (bonds, loans, etc.) that a company is charged for
borrowing funds. A component of the cost of capital.

Current Ratio

A measure of the ability of a company to use its current assets to
pay its current liabilities. It is calculated by dividing the total current
assets by the total current liabilities.

Par yield curve

The yield curve of bonds selling at par, or face, value.

Paid-in capital

Any payment received from investors for stock that exceeds the par
value of the stock.

dividend payout ratio

Percentage of earnings paid out as dividends.

GNP

See gross national product.

Flexible Spending Account

A form of cafeteria plan allowing employees to pay
for some medical or dependent care expenses with pretax pay deductions.

Special Charges

Nonrecurring losses or expenses resulting from transactions or events which,
in the view of management, are not representative of normal business activities of the period and
which affect comparability of earnings.

Earnings

In general, refers to a company's total sales less cost of sales and operating expenses, including interest and income tax.

Quick Ratio

The simple ratio of a company's liquid assets to current liabilities. Such assets include cash, marketable securities, and accounts receivable.