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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:

Corporate tax view

The argument that double (corporate and individual) taxation of equity returns makes
debt a cheaper financing method.


Foreign bond

A bond issued on the domestic capital market of anther company.


Forward contract

A cash market transaction in which delivery of the commodity is deferred until after the
contract has been made. It is not standardized and is not traded on organized exchanges. Although the
delivery is made in the future, the price is determined at the initial trade date.


Institutional investors

Organizations that invest, including insurance companies, depository institutions,
pension funds, investment companies, mutual funds, and endowment funds.


Interest rate risk

The risk that a security's value changes due to a change in interest rates. For example, a
bond's price drops as interest rates rise. For a depository institution, also called funding risk, the risk that
spread income will suffer because of a change in interest rates.


Vertical merger

A merger in which one firm acquires another firm that is in the same industry but at another
stage in the production cycle. For example, the firm being acquired serves as a supplier to the firm doing the acquiring.



Accrued expenses payable

Expenses that have to be recorded in order for the financial statements to be accurate. Accrued expenses usually do not involve the receipt of an invoice from the company providing the goods or services.


current ratio

Calculated to assess the short-term solvency, or debt-paying
ability of a business, it equals total current assets divided by total current
liabilities. Some businesses remain solvent with a relatively low current
ratio; others could be in trouble with an apparently good current ratio.
The general rule is that the current ratio should be 2:1 or higher, but
please take this with a grain of salt, because current ratios vary widely
from industry to industry.


Internal rate of return

a. The average annual yield earned by an investment during the period held.
b. The effective rate of interest on a loan.
c. The discount rate in discounted cash flow analysis.
d. The rate that adjusts the value of future cash receipts earned by an investment so that interest earned equals the original cost.
See Yield to maturity.


payment float

Checks written by a company that have not yet cleared.


Bear Market

A prolonged period of falling stock market prices.


Disposable Income

Income less income tax.


Rules-versus-Discretion Debate

Argument about whether policy authorities should be allowed to undertake discretionary policy action as they see fit or should be replaced by robots programmed to set policy by following specific formulas. See discretionary policy, policy rule.


Aggressive Capitalization Policies

Capitalizing and reporting as assets significant portions of
expenditures, the realization of which require unduly optimistic assumptions.


Inventory Days

The number of days it would take to sell the ending balance in inventory at the
average rate of cost of goods sold per day. Calculated by dividing inventory by cost of goods sold
per day, which is cost of goods sold divided by 365.


 

 

 

 

 



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