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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Discrete compounding

Compounding the time value of money for discrete time intervals.

Odd lot dealer

A broker who combines odd lots of securities from multiple buy or sell orders into round lots
and executes transactions in those round lots.

Operating profit margin

The ratio of operating margin to net sales.

Price-specie-flow mechanism

Adjustment mechanism under the classical gold standard whereby
disturbances in the price level in one country would be wholly or partly offset by a countervailing flow of
specie (gold coins) that would act to equalize prices across countries and automatically bring international
payments back in balance.

Reverse stock split

A proportionate decrease in the number of shares, but not the value of shares of stock
held by shareholders. Shareholders maintain the same percentage of equity as before the split. For example, a
1-for-3 split would result in stockholders owning 1 share for every 3 shares owned before the split. After the
reverse split, the firm's stock price is, in this example, worth three times the pre-reverse split price. A firm
generally institutes a reverse split to boost its stock's market price and attract investors.

Strike index

For a stock index option, the index value at which the buyer of the option can buy or sell the
underlying stock index. The strike index is converted to a dollar value by multiplying by the option's contract multiple.
Related: strike price

Payback

A method of investment appraisal that calculates the number of years taken for the cash flows from an investment to cover the initial capital outlay.

economic value added (EVA)

a measure of the extent to which income exceeds the dollar cost of capital; calculated
as income minus (invested capital times the cost of capital percentage)

expatriate

a parent company or third-country national assigned
to a foreign subsidiary or a foreign national assigned
to the parent company

zero-base budgeting

a comprehensive budgeting process
that systematically considers the priorities and alternatives
for current and proposed activities in relation to organization
objectives; it requires the rejustification of ongoing activities

dividend discount model

Computation of today’s stock price which states that share value equals the present value of all expected future dividends.

internal growth rate

Maximum rate of growth without external financing.

Recurring EBITDA

The standard EBITDA with the effects of nonrecurring items removed.
Comparable to adjusted EBITDA.

Backdating

A procedure for making the effective date of a policy earlier than the application date. Backdating is often used to make the age of the consumer at policy issue lower than it actually was in order to get a lower premium.

Insurer

The party in an insurance contract that promises to pay a benefit if a specified loss occurs. Usually an insurance company.

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