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Glossary
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Accountant

One who records and/or examines the finances of individuals or businesses. Someone who comes in very handy at tax time.

Accounting earnings

A company's earnings as reported on its income statement.

Accounting insolvency

A situation in which total liabilities exceed total assets. A company with a negative net worth is insolvent on the books.

Accounting liquidity

The ease and speed at which assets can be converted to cash.

Accounts payable

Money owed by a company to suppliers.

Accounts receivable

Money owed to a company by customers that have purchased goods and/or services on credit. Accounts receivable is listed as an asset on the balance sheet, as it is a number that will (presumably) be turned into cash by the company as the receivables are paid off.

Accounts receivable turnover

A measure of how quickly customers pay their bills. Accounts receivable turnover is sales for the period divided by the average accounts receivable. Also called receivables turnover.

Accredited investor

Someone who is supposed to know a lot about investing, and who meets certain income and net worth criteria. Being an "accredited investor" is sometimes a requirement for certain limited partnership investments, and Hedge funds.

Accrual basis

An accounting method where income is reported when earned and expenses are reported when incurred. This is in contrast to cash-basis accounting, which reports income when it is actually received and expenses when they're actually paid.

Accrual bond

See Zero coupon bond.

Accrued expenses

Expenses incurred during a given accounting period for which payment has not yet been made.

Accrued interest

Interest that has accumulated on a bond since the last interest payment was made.

Accumulated dividend

A dividend that is due and owed to a preferred stockholder, but has not yet been paid.

Accumulated earnings

Retained earnings.

Accumulated earnings tax

A tax on earnings retained by a business to avoid paying the higher income taxes that would be due if the earnings were paid out to the owners as dividends. Also known as an accumulated profits tax.

Accumulation

Buying shares over a period of time. For an individual investor, this just means buying additional shares of a stock you already own. For an institution, however, it may mean making a series of purchases rather than one large purchase that could drive up the market price.

Accumulation period

In retirement terminology, the years when one is making regular contributions to a retirement plan/pension/superannuation or deferred annuity. The period is considered to end when the income payments begin

Accumulation unit

A share of participation in a variable annuity. In the U.K this can be the units with lower management charges, that you accumulate after the 'initial unit' period.

Acid-test ratio

See Quick ratio.

Acquisition cost

The cost of equipment or property after it has been adjusted for any incentives, discounts, or closing costs, but before sales tax.

Acquisition of assets

A merger or consolidation in which an acquirer buys a company's assets.

Acquisition of stock

A merger or consolidation in which an acquirer buys a company's stock.

Active management

Any investment strategy that involves picking individual securities with the goal of either beating the market's returns, or lessening the risk of following the market. In the context of Unit Trusts/mutual funds, active management refers to any non-index funds.

Adjusted gross income

The amount on which an individual pays income tax.

ADR

See American Depositary Receipt.

Aggressive growth fund

A collective fund that seeks long-term capital growth by investing primarily in stocks of fast growing smaller companies or narrow market segments, such as "the Biotech sector" or "the Internet sector." Sometimes called a capital appreciation fund.

AIM

Alternative investment market (U.K) Opened in 1995, for listing small growth companies.Higher risk than those listed on LSE.

Allowance for bad debt

Money reserved to cover the possibility of a nonpaying customer. A company may be forced to convert a portion of accounts receivable into a loan if one of its big customers gets in financial trouble.

American Depositary Receipt (ADR)

A receipt for the shares of a foreign-based company held by a U.S. bank that entitles the shareholder to all dividends and capital gains of the underlying stock. ADRs trade similar to stocks on U.S. and foreign exchanges, and provide a way for investors to invest in foreign-based companies but without the local currency risks.

American Stock Exchange (or Amex or AMEX)

Founded in 1842 in New York City, the American Stock Exchange is one of the three major stock exchanges in the U.S. along with the New York Stock Exchange and the Nasdaq. It was acquired by the Nasdaq in 1998, but still operates as separate exchange.

Amortised value

The value of a security as determined by the process of amortisation.

Amortization

The systematic repayment (e.g., monthly, quarterly, or yearly) of a debt or loan, such as a bond or mortgage, over a specific time period.

Amount recognised

The amount of a capital gain that is reportable and subject to tax.

Analyst

A financial professional who analyses securities to determine their investment merits, including possibly a "fair" or "intrinsic" value for them. The term is generally applied to almost any professional investor who does research of some kind. There are "sell-side" and "buy-side" analysts. "Sell-side" analysts typically work for investment banks and brokerages and sell or publish their analysis. "Buy-side" analysts typically work for the mutual fund companies or institutions that use the analysis to make investment decisions for the funds they manage.

Annual effective yield

The measure of the actual annual rate of return on an account after interest is compounded.

Annual report

The corporate financial statement that shareholders eagerly await each year. These reports are required by the relevant regulatory bodies. They should give a snap shot of the company's activities.

Annualise

To make a period of less than a year apply to a full year to facilitate comparative analysis. For example, to annualise quarterly results, you multiply them by four. This can lead to incorrect assumptions when employed for analysing companies in industries with strong seasonal or cyclical sales trends.

Annuity

A contract between an insurance company and a person that provides for periodic payments to the individual or designated beneficiary in return for a lump sum investment. Typically, an annuity agrees to provide payments to the purchaser of the contract (annuitant) beginning at some point in the future.

Appreciation

An increase in the price or value of an asset. Appreciation is one component of total return.

Arms length

A transaction in which the buyers and sellers of a product act independently and have no relationship to each other. The concept of an arm's length transaction is to ensure that both parties in the deal are acting in their own self interest and are not subject to any pressure or duress from the other party. The concept of an arm's length transaction commonly comes into play in the real estate market. When determining the fair market value of a piece of property, the price for the property must be obtained through a potential buyer and seller operating through an arm's length transaction, otherwise, the agreed-upon price will likely differ from the actual fair market value of the property.

Ask

The price at which a prospective seller is willing to sell a security.

Asset

Anything that has monetary value. Typical personal assets include stocks, real estate, jewelry, art, cars, and bank accounts. Corporate assets are found on the company's balance sheet and include cash, accounts receivable, short- and long-term investments, inventories, and prepaid expenses.

Asset allocation

Dividing investments among various asset classes, typically among cash, bonds, and stocks. Investment houses frequently change their "model asset allocation" portfolios. Ostensibly to show that they have recalculated the best method for balancing the risks involved in holding various investments.

Asset allocation fund

A Unit Trust/mutual fund that, as market conditions change, consistently rebalances its investments among the major asset classes. (stocks, cash, and bonds)

Asset classes

The three major asset classes are cash, bonds, and stocks/shares.

Asset test

The assessed value of a set of assets, investments or income streams that is subject to taxation, or the assessed value of a single asset that is subject to taxation.

ASX

The Australian stock exchange.

Audit

An unbiased examination and evaluation of the financial statements of an organization. It can be done internally ( by employees of the organization) or externally (by an outside company of auditors). An audit can also be an examination of a taxpayer's return or other transactions. The tax office performs this examination to verify the accuracy of the tax return.

Automatic reinvestment

A method in which the dividends or other earnings from an investment are used to buy additional shares in the investment vehicle. Dividend Reinvestment Plans (Drips) are one example.

AVC

Additional voluntary contribution (U.K). Contributions made by an employee to their occupational pension scheme that are over and above the required contribution. A tax and cost efficient way of boosting eventual pension benefits.

Average maturity

The average of all maturity dates for securities in a money market or bond fund. The longer the average maturity, the more volatile a fund's share price will be, moving up or down as interest rates change, which they do every day.


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Disclaimer: All the information above is provided as a service for individuals and institutions. It should in no way be construed as a recommendation as an investment. Investment decisions should be based on the risk tolerance and planning horizon of the investor. Market participants must understand that past performance is also not a guarantee or predictor of future results.