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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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Monthly Financial Term Picks:

Economic risk

In project financing, the risk that the project's output will not be salable at a price that will
cover the project's operating and maintenance costs and its debt service requirements.


Integer programming

Variant of linear programming whereby the solution values must be integers.


Kiretsu

A network of Japanese companies organized around a major bank.


Multiples

Another name for price/earnings ratios.


Opportunity set

The possible expected return and standard deviation pairs of all portfolios that can be
constructed from a given set of assets.


Option

Gives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a
given date. Investors, not companies, issue options. Investors who purchase call options bet the stock will be
worth more than the price set by the option (the strike price), plus the price they paid for the option itself.
Buyers of put options bet the stock's price will go down below the price set by the option. An option is part of
a class of securities called derivatives, so named because these securities derive their value from the worth of
an underlying investment.



Safety cushion

In a contingent immunization strategy, the difference between the initially available
immunization level and the safety-net return.


conversion cost

the total of direct labor and overhead cost;
the cost necessary to transform direct material into a finished good or service


tax deferral

postponing taxation of an amount until a future date


Just-in-time manufacturing

The term for several manufacturing innovations that
result in a “pull” method of production, in which each manufacturing workstation
creates just enough product for the immediate needs of the next workstation in the
production process.


Obsolescence

The reduction in utility of an inventory item or fixed asset. If it is an
inventory item, then a reserve is created to reduce the value of the inventory by the
estimated amount of obsolescence. If it is a fixed asset, the depreciation method and
timing will be set to approximate the rate and amount of obsolescence.


Creative Accounting Practices

Any and all steps used to play the financial numbers game, including
the aggressive choice and application of accounting principles, both within and beyond
the boundaries of generally accepted accounting principles, and fraudulent financial reporting.
Also included are steps taken toward earnings management and income smoothing. See Financial
Numbers Game.


Tontine

A type of life insurance or annuity first introduced by Lorenzo Tonti, a Neopolitan banker, in France in the 17th century. It consisted of a fund to which a group of persons contribute, the benefits ultimately accruing to the last survivor or to those surviving after a specified time, in equal shares. The only insurance plans available today which we are aware of that display characteristics of a tontine are some children's Registered Educational Savings Plans (RESP's). These plans generally stipulate that if the child who is covered under the plan does not use the accumulated savings to attend an accredited university, then only the principal invested is returned. All growth in the plan is held to be distributed to other plan holders who do go on to attend university.


Fair Market Value

The highest price available, expressed in terms of cash, in an open and unrestricted market between informed, prudent parties acting at arm's length and under no compulsion to transact.


COLA

Cost of living adjustment.


 

 

 

 

 



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