Definitions Starting with "A"

A Priori Probability

A priori probability is a method to determine the likelihood an asset's price will behave a certain way based on odds, not history. A priori is Latin for "deductive" or "presumptive. Read more

A Shares

A shares are a type of mutual fund share. They are distinguished from B Shares and C Shares by their load (fee) structure. Read more

A Ton of Money

"A ton of money" is a slang term for "a lot of money" For example, if something is very expensive, you might say, "It costs a ton of money. " If you're optimistic about a new investment, you might say, "This stock is going to make me a ton of money. Read more

A+/A1

A+ and A1 are actually two ratings from different ratings agencies: Standard & Poor's uses the A+ rating, and Moody's uses the A1 rating. Both ratings indicate a relatively high level of creditworthiness. Read more

A-/A3

A- and A3 are actually two ratings from different ratings agencies: Standard & Poor's uses the A- rating, and Moody's uses the A3 rating. Both ratings indicate a relatively high level of creditworthiness. Read more

A. Michael Spence

A. Michael Spence is an economist who won the 2001 Nobel Prize for his work in market-signaling theory. Read more

AARP (American Association of Retired Persons)

AARP stands for the American Association of Retired Persons. It is a nonprofit organization that advocates and promotes the well-being of Americans 50 years of age or older. Read more

ABA Bank Index

The ABA Bank Index is a composite market index comprised of small retail and community banks. Traded on the Nasdaq, the ABA Bank Index is made up of 440 small banking institutions nationwide. Read more

ABA Transit Number

An ABA transit number is a unique identifier assigned to banking institutions by the American Bankers Association (ABA). For those banks and banking institutions that qualify as account holders with the Federal Reserve, the ABA grants an identification number called an ABA transit number. Read more

Abacus

An abacus is a counting device that performs basic mathematical functions. Developed in the ancient Near East in the third millennium BCE, the abacus has been used continuously by mankind for thousands of years. Read more

Abandonment

In the business world, abandonment refers to the purposeful surrender of ownership of an asset. For example, let's assume that Company XYZ owns an oil processing facility in Nigeria. Read more

Abandonment and Salvage

Abandonment and salvage is a term that refers to one party's relinquishment of an asset and another party's subsequent claim to the asset. Abandonment and salvage frequently appears in insurance contracts. Read more

Abandonment Clause

An abandonment clause is a provision in an insurance contract that ensures full compensation in the event of abandonment. For example, suppose a company has an insurance policy on a machine, and the machine is damaged to such an extent that it is not worthwhile to pay for the repairs. Read more

Abandonment Option

An abandonment option is a clause in a contract that permits either party to leave the contract before obligations have been fulfilled. An abandonment option gives either party participating in a contract the right to leave without having to fulfill obligations. Read more

Abandonment Value

Abandonment value refers to the value of a project or investment were it to be liquidated presently. Also called liquidation value, the abandonment value of a project or investment is the immediate value in cash that would be generated from liquidating a project or selling an investment. Read more

Abatement

An abatement is a reduction in a tax rate or tax liability. Property taxes are a common subject of abatement (though the term is often used when discussing overdue debt). Read more

Abatement Cost

An abatement cost refers to the cost associated with the voluntary or compulsory removal of an undesirable result of a production process. In many instances, companies produce goods or services that directly or indirectly result in a byproduct that may be medically or environmentally dangerous. Read more

ABC Agreement

An ABC agreement is a contractual agreement between an investment house and its broker which allows the firm to purchase a seat (membership) on the New York Stock Exchange (NYSE). So called for its three standard conditions, an ABC agreement is entered into by a stock broker and his employing investment house. Read more

Abeyance

In the strictest terms, abeyance means temporary inactivity. In the finance world, the term generally refers to unknown ownership. Read more

Ability to Pay

Ability to pay refers to a borrower’s capacity to make good on his loan obligations. In banking, ability to pay is often called “financial capacity. Read more

Ability-to-Pay Taxation

Ability-to-pay taxation is a tax that's assessed based on the taxpayer's ability to pay the tax. John Doe earns $40,000 a year. Read more

Abnormal Earnings Valuation

Also called the residual income model, the abnormal earnings valuation model is a method for predicting stock prices. In this theory, every stock is worth the company's book value per share if investors expect the company to earn a "normal" rate of return in the future. Read more

Abnormal Rate of Return

Abnormal rate of return, also known as "alpha" or "excess return," is the fraction of a security's or portfolio's return not explained by the rate of return of the market. Rather, it is produced from the expertise of the investor or portfolio manager, and is one of the most common measures of risk-adjusted performance. Read more

Abnormal Return

Abnormal return, also known as "alpha" or "excess return," is the fraction of a security's or portfolio's return not explained by the rate of return of the market. Instead, it is a result of the expertise of the investor. Read more

Abnormal Spoilage

In the business world, abnormal spoilage refers to the unusual loss of goods or work in progress. Company XYZ is a restaurant chain that orders a lot of produce, which it keeps in walk-in refrigerators. Read more

Above Full-Employment Equilibrium

Above full-employment equilibrium occurs when a country's gross domestic product (GDP) is higher than normal. For example, let's say Country X's normal rate of GDP growth is 2% per year. Read more

Above Par

When a bond's price is above par, the bond is selling at a premium above face value. In the bond world, par is the face value of a bond. Read more

Above the Market

Above the market describes the price at which a person wants to buy or sell a security. Let's say John Doe owns 100 shares of Company XYZ stock that he bought at $10 a share. Read more

Above Water

Above water is a term to describe being financially stable. In accounting, the term often refers to assets whose market value is higher than book value. Read more

Above-the-Line Deduction

An above-the-line deduction is a tax deduction that reduces adjusted gross income.   For example, let's assume that John Doe had $100,000 of total income for 2012. Read more

Absenteeism

In the business world, absenteeism refers to the rate at which employees do not arrive for work as scheduled. Company XYZ is a health care provider. Read more

Absolute Advantage

Absolute advantage exists when a business can produce a good or service more efficiently than any other business. Famed economist David Ricardo coined the term in the early 1800s. Read more

Absolute Rate

In an interest rate swap, the absolute rate is the sum of the fixed rate component and the variable bank rate. If two counterparties exchange a fixed interest rate and a variable interest rate as part of an interest rate swap based on a theoretical amount of principal, the absolute rate is the total of the fixed interest, or premium piece on top of the variable bank lending rate, or reference piece. Read more

Abstract of Title

An abstract of title is a history of a piece of property. For example, let's say John Doe wants to buy the house at 123 Main St. Read more

Abusive Tax Shelter

An abusive tax shelter is an investment strategy that illegally shields assets from tax liability.   For example, let’s say John Doe and his wife have a child who begins college this year. Read more

Accelerated Cost Recovery System (ACRS)

The Accelerated Cost Recovery System (ACRS) is a depreciation method that assigns assets periods of cost recovery based on specific IRS criteria. Since 1986, the Modified Accelerated Cost Recovery System (MACRS) has been far more prevalent. Read more

Accelerated Death Benefit

An accelerated death benefit is a portion of a life insurance policy that allows policyholders to receive their death benefits before they actually die. For example, let's say Jane Doe bought a life insurance policy with an accelerated death benefit. Read more

Accelerated Depreciation

Accelerated depreciation is a depreciation method whereby an asset loses book value at a faster rate than the traditional straight-line method. Generally, this method allows greater deductions in the earlier years of an asset and is used to minimize taxable income. Read more

Accelerated Vesting

Accelerated vesting occurs when a stock option becomes exercisable earlier than originally scheduled. For example, let's assume that John Doe receives options to buy 2,000 shares of Company XYZ, his employer, for $10 a share. Read more

Accident and Health Benefits

Accident and health benefits are a package of benefits offered by companies to employees and their families covering illness and providing income benefits in the event of accidental death or injury. Companies that offer accident and health benefits provide employees and their families with insurance that covers unanticipated health-related events resulting from either accident or illness. Read more

Accidental Death and Dismemberment Insurance (AD&D)

Accidental death and dismemberment insurance (AD&D) is coverage for accidental death or injury to the insured. “Dismemberment” usually covers the loss of a limb, paralysis, or the loss of hearing or eyesight. Read more

Accord and Satisfaction

Accord and satisfaction is a legal term that denotes accepting compensation in lieu of some contractual obligation from another party. An accord is an agreement with conditions. Read more

Account Balance

An account balance is a statement of how much money is in an account. For example, let's say John Doe deposits $100 into a new bank account. Read more

Account Executive

An account executive is a person responsible for managing a relationship with a customer. For example, let's say John Doe works for an advertising agency. Read more

Account Freeze

Also called an account hold, an account freeze occurs when a bank or other financial institution prevents any transactions from hitting an account. For example, let's say John Doe is selling drugs for a living. Read more

Account History

An account history is a statement of all the activity that has occurred in an account for a given period of time. Monthly bank statements for common checking accounts often are account histories. Read more

Account Hold

Also called an account freeze, an account hold occurs when a bank or other financial institution prevents any transactions from hitting an account. For example, let's say John Doe is selling drugs for a living. Read more

Accountant

An accountant is trained to compile, inspect, interpret, and/or report financial statements and tax returns that comply with governmental and regulatory authority requirements. Accountants often work in a company's accounting department, at an auditing firm, or in a private practice. Read more

Accountant's Letter

An accountant's letter, also called an auditor opinion, is a written statement describing an auditor’s independent, unbiased and qualified evaluation of the accuracy and completeness of a company’s financial statements and practices, as well as an evaluation of a company’s compliance with Generally Accepted Accounting Standards (GAAP). When an auditor feels that a company’s financial statements are fair and accurate, it issues an unqualified opinion and does so using a standard reporting template (this is why many opinions read the same way). Read more

Accountant's Opinion

An accountant's opinion is a concise written statement by a certified accountant concerning the accuracy of a company's financial records. An accountant's opinion is the first document in a company's financial report. Read more

Accounting

One can define accounting as the process of systematic recording, measuring, and communicating information about financial transactions. It’s a system that provides quantitative information about a business or a person’s financial position. Read more

Accounting Conservatism

Accounting conservatism is one of the four accounting conventions, which are standards, customs or guidelines regarding the application of accounting rules. There are four widely recognized accounting conventions that guide accountants: Be conservative. Read more

Accounting Convention

Accounting conventions are standards, customs or guidelines regarding the application of accounting rules. There are four widely recognized accounting conventions that guide accountants:1. Read more

Accounting Earnings

Accounting earnings, or net income, represent the amount of money gained or lost after all costs, depreciation, interest , taxes and expenses have been deducted from a company's total sales. A simple formula for calculating accounting earnings is: Accounting Earnings = Revenue - Cost of Goods Sold (COGS) - General & Administrative Expenses - Depreciation - Interest Expense + Internet Income - Taxes - Preferred Dividends Let's assume that Company XYZ delivered the following financial results last year:   Revenue $1,000,000 Cost of Goods Sold $500,000 General Expenses $300,000 Depreciation $100,000 Interest Expense $5,000 Interest Income $1,000 Taxes $10,000 Preferred Dividends $10,000   Using the formula and the example information above, we can calculate Company XYZ's accounting earnings as follows: $1,000,000 -$500,000-$300,000-$100,000-$5,000+$1,000-$10,000-$10,000 = $76,000 In general, negative or low earnings might suggest a myriad of problems, ranging from insufficient gross profit margins to inadequacies in customer or expense management to unfavorable accounting methods. Read more

Accounting Error

An accounting error is an error in the process of systematically recording, measuring and communicating information about financial transactions. Mary is an accountant at Company XYZ. Read more

Accounting Period

An accounting period is the time interval reflected by the data in a financial statement. Firms prepare financial statements for publication and tax reporting based on an accounting period. Read more

Accounting Principles

Accounting principles govern the rules of accounting and reflect the latest accounting methodologies.   Accounting principles govern how accountants calculate and present the details of a company's financial operations, such as net earnings, gross income, and net cash provided by operating activities. Read more

Accounting Rate of Return (ARR)

The accounting rate of return (ARR) is a simple estimate of a project's or investment's profitability that subtracts money invested from returns without regard to interest accrual or applicable taxes. Also called the "simple rate of return," the accounting rate of return (ARR) allows companies to evaluate the basic viability and profitability of a project based on projected revenue less any money invested. Read more

Accounting Research Bulletins (ARB)

Accounting research bulletins (ARBs) are publications from the Accounting Principles Board of the American Institute of Chartered Public Accountants. ARBs recommend accounting procedures. Read more

Accounts Payable

Accounts payable (A/P) are amounts owed to suppliers and other creditors for goods and services bought on credit. Let's assume that Company XYZ orders $1,000,000 in widget parts from its supplier and has 60 days to pay for those parts. Read more

Accounts Payable Turnover Ratio

The accounts payable turnover ratio is a company's purchases made on credit as a percentage of average accounts payable. The formula for accounts payable turnover ratio is: Accounts Payable Turnover = Net Credit Purchases/Average Accounts Payable Let's assume Company XYZ buys $10 million of widget parts this year. Read more

Accounts Receivable (AR)

Accounts receivable (AR) are the amounts owed by customers for goods or services purchased on credit. The money owed to the company is called “accounts receivable” and is tracked as an account in the general ledger, and then reported as a line on the balance sheet. Read more

Accounts Receivable Aging

Accounts receivable aging is a report showing the various amounts customers owe a company and the length of time the amounts have been outstanding. Here is sample of an aging report:   Notice that the report shows how much each customer owes in total ("Amount Receivable"), how much is owed for the current month, and how late any other previous months' payments are. Read more

Accounts Receivable Financing

Accounts receivable financing, also called factoring, is a method of selling receivables in order to obtain cash for company operations. Accounts receivable (A/R) are amounts owed by customers for goods and services a company has sold to those customers. Read more

Accounts Uncollectible

Accounts uncollectible, also called allowance for doubtful accounts (ADA), is a reduction in a company's accounts receivable. Accounts uncollectible equals the amount of those receivables that the company's management does not expect to actually collect. Read more

Accredited Investor

An accredited investor is an individual or organization allowed to participate in higher risk investments such as hedge funds, angel investor networks, and some limited partnerships. Generally, for U. Read more

Accreting Principal Swap

An accreting principal swap is a swap in which the two parties to the contract agree to pay interest on a growing principal amount. In a swap, one party is reducing its exposure to risk while the other party is increasing its exposure to risk in the hopes of getting a higher return. Read more

Accretion

Accretion is growth, typically in earnings, usually after an acquisition or other significant event. In the bond world, accretion refers to the capital gains earned on a bond purchased at a discount. Read more

Accretive

To be accretive is to increase earnings per share. This term is most often used in the context of acquisitions. Read more

Accretive Acquisition

An accretive acquisition is an acquisition that increases the acquirer's earnings per share. Let's assume Company XYZ has EPS of 25 cents this year. Read more

Accrual Accounting

Accrual accounting is an accounting method whereby revenue and expenses are recorded in the periods in which they are incurred. Accrual accounting is the opposite of cash accounting, which recognizes economic events only when cash is exchanged. Read more

Accruals

Accruals are records of revenue and expenses in the periods in which they are incurred. They are a key component of the accrual method of accounting. Read more

Accrue

To accrue is to record revenue and expenses in the periods in which they are incurred. Accruals, the result of accruing, are key components of the accrual method of accounting. Read more

Accrued Expense

An accrued expense refers to any expense incurred and reported during an accounting period, but for which payment has not yet been made. There are certain expenses which a company may incur over the course of an accounting period (usually a quarter), but which may not actually be paid until a later time. Read more

Accrued Interest

Accrued interest refers to interest that builds up on a company's outstanding payables and receivables.  This interest has been accounted for, but not yet transacted. Read more

Accrued Liability

Accrued liabilities are records of revenue and expenses in the periods in which they are incurred. They are a key component of the accrual method of accounting. Read more

Accrued Market Discount

Accrued market discount refers to the steady increase in value of a discounted bond from the time of purchase until maturity. The accrued market discount is a discount bond's increase in value resulting from the approach of its maturity date rather than a drop in interest rates. Read more

Accrued Revenue

Accrued revenue is revenue recorded in the periods in which it is incurred. Let's assume Company XYZ is a widget consultancy that bills $100 an hour. Read more

Accumulated Depreciation

Accumulated depreciation is the sum total of the depreciation recorded for certain assets. Let's assume Company XYZ bought a MegaWidget for $100,000 three years ago. Read more

Accumulated Earnings

Accumulated earnings is the sum of a company's profits, after dividend payments, since the company's inception. It can also be called retained earnings, earned surplus, or retained capital. Read more

Accumulated Earnings Tax

The accumulated earnings tax is a charge levied on a company's retained earnings. Also called the accumulated profits tax, it is applied when tax authorities determine the cash on hand to be an excessively high amount. Read more

Accumulation Phase

Accumulation phase refers to the period of time (often several years or even decades) during which an annuitant (annuity policyholder) is making cash contributions to an annuity account. After the accumulation phase ends, the annuitization phase typically begins, whereby the annuitant receives payments for a certain period. Read more

Acid-Test Ratio

The acid-test ratio is a measure of how well a company can meet its short-term financial liabilities.   Also known as the quick ratio, the acid-test ratio can be calculated as follows: Acid-Test Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities A common alternative formula is: Acid-Test Ratio = (Current assets – Inventory) / Current Liabilities The  acid-test ratio  is a more conservative version of another well-known liquidity metric -- the current ratio. Read more

Acquiree

An acquiree, also called a target, is a company that is purchased by an acquirer. Company XYZ has developed a powerful, new search-engine widget. Read more

Acquirer

An acquirer is a person or company that purchases all or a portion of an asset or company. Company XYZ wants to acquire Company ABC. Read more

Acquisition

An acquisition is the purchase of all or a portion of a corporate asset or target company. An acquisition is commonly mistaken with a merger – which occurs when the purchaser and the target both cease to exist and instead form a new, combined company. Read more

Acquisition Debt

Acquisition debt is money that is borrowed in order to purchase a company or asset. A leveraged buyout (LBO) is a method of acquiring a company with money that is nearly all borrowed. Read more

Acquisition Loan

An acquisition loan is money borrowed specifically to purchase a company or asset. The basic idea behind acquisition loans is that the acquirer purchases the target with a loan collateralized by the target’s own assets. Read more

Acquisition Premium

An acquisition premium is the difference between the actual price paid to acquire a company and the estimated real value of the acquired company before the acquisition. It is often recorded as "goodwill" on the balance sheet. Read more

Active Bond

An active bond is a corporate bond that is traded actively on the New York Stock Exchange (NYSE). Companies participating on the NYSE often choose to offer their bonds to investors in the same venue. Read more

Active Bond Crowd

Active bond crowd refers to the group of bond traders of the New York Stock Exchange (NYSE) that trades the highest volume of active bonds. Members of the NYSE's active bond crowd include those traders whose trading volumes in active bonds are disproportionately larger than those of other traders in the bond market called the cabinet crowd. Read more

Active Investing

The opposite of passive investing, active investing is an investment strategy that advocates significant trading and a short-term horizon. Active investment strategies generally dismiss long-term trends and focus on short-term profits, whereas passive investors maintain that long-term price movements are important and often predictable. Read more

Active Management

Active management is an investment strategy that tries to create excess returns through the recognition, anticipation, and exploitation of short-term investment trends. Active management is the opposite of passive management (also known as buy-and-hold investing). Read more

Active Risk

Also called tracking error, active risk is the difference between a portfolio’s returns and the benchmark or index it was meant to mimic or beat. There are two ways to measure active risk. Read more

Activist Investor

An activist investor invests in a company for the purpose of changing or influencing the company's decisions. Carl Icahn, known as a corporate "raider" in the 1980s, is one of the most famous activist investors. Read more

Activity Based Management (ABM)

Activity based management (ABM) is an administrative method which examines how a company incurs costs from the standpoint of its activities rather than its final products. Companies have ordinarily managed costs from the perspective of the labor and capital which go into their final products. Read more

Activity Ratio

An activity ratio is a metric which determines the ability of a company to convert its balance sheet accounts into revenue. Activity ratios assess how effectively a company is able to generate revenue in the form of cash and sales based on its asset, liability and capital share accounts. Read more

Actual Return

Actual return refers to the nominal return made on an investment during a given period.  The actual return on an investment is the actual amount of money gained or lost during a period of time (e. Read more

Actuary

An actuary is a person who evaluates the likelihood of certain events and creates plans to deal with those events. Actuaries must understand business, have good analytical skills, and be aware of how human behavior affects risk. Read more

Ad Valorem Tax

An ad valorem tax is a property tax levied based on the value of the property in question. Ad valorem (Latin for "according to the value") taxes are levied solely as a percentage of a property's market value without regard to quantity or intrinsic value. Read more

Adam Smith

Adam Smith is one of the world's most famous economists. Modern capitalism owes its roots to Adam Smith and his Wealth of Nations, which many consider the single most important economic work in history. Read more

Additional Paid In Capital

Additional paid-in capital (APIC), also called capital in excess of par value, is a measure of how much money investors have pumped into the company since inception in return for equity. The line item appears on the balance sheet. Read more

Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage (ARM) is a type of mortgage using a varying interest rate calculated by adding a premium to a specific benchmark rate. These loans are also called variable-rate mortgages or floating-rate mortgages. Read more

Adjusted Balance Method

The adjusted balance method determines the finance charges on an account once all credits and debits for the accounting period have been posted. The adjusted balance method is used to determine the periodic finance charges on an account, such as a bank or credit card account. Read more

Adjusted Basis

Adjusted basis refers to the increase or decrease in an asset's value due to depreciation or capital enhancements. From the time an asset is acquired until the time it is sold, an asset experiences a number of events which affect its value. Read more

Adjusted Cost Base (ACB)

Adjusted cost base (ACB) is an income tax term that refers to an adjustment in an asset's book value resulting from the cost of improvements, payouts, and similar improvements or dispositions. Let's assume Company XYZ buys a factory building for $1,000,000. Read more

Adjusted Gross Income (AGI)

Adjusted gross income (AGI) is the figure used by the Internal Revenue Service to determine a taxpayer's eligibility for certain tax benefits. AGI is calculated by adding together all qualified income and subtracting all qualified deductions. Read more

Adjusted Present Value (APV)

Adjusted present value (APV) refers to the net present value (NPV) or investment adjusted for the interest and tax advantages of leveraging debt provided that equity is the only source of financing. A company may finance a project or investment using shareholders' equity alone (i. Read more

Advance Refunding

Advance refunding occurs when a bond issuer, usually a municipality, invests the proceeds from the sale of new bonds in U. S. Read more

Adverse Opinion

An adverse opinion refers to the conclusion by an auditor that a company's financial statements inaccurately characterize the company's financial standing. An adverse opinion is an internal or independent auditor's official written statement of no-confidence in a company's financial statements insofar as it reflects the company's true financial status and adherence to generally accepted accounting principles (GAAP) and disclosure of information. Read more

Adverse Selection

Adverse selection refers to an insurance company's coverage of life insurance applicants whose risk as policyholders, due to their way of life, is significantly higher than the company perceives. Insurance companies grant life insurance coverage to applicants on the basis of such factors as age, health condition, and occupation. Read more

Advisor

In the finance world, an advisor (also spelled adviser) is an educated investment professional who helps people and businesses set and meet long-term financial goals. An advisor is similar to an investment advisor, financial planner, investment manager or investment consultant. Read more

Affirmative Obligation

An affirmative obligation is a responsibility incumbent upon New York Stock Exchange (NYSE) specialists to ensure that a market for a stock still exists in the absence of sufficient supply or demand. In certain instances, there may be high demand for a stock accompanied by a short supply of shares. Read more

Affordable Care Act (ACA)

The Affordable Care Act (ACA), typically referred to as "Obamacare" but formally known as the Patient Protection and Affordable Care Act (PPACA), is a bill signed into law on March 23, 2010, by President Barack Obama. The Affordable Care Act works in conjunction with the Health Care and Education Reconciliation Act of 2010, which also reforms many aspects of the student loan industry. Read more

After Hours Trading

After hours trading is the trading that occurs on electronic market exchanges after regular stock market trading hours have ended. In the United States, pre-market trading occurs between 8:00 a. Read more

After Market Trading

After market trading occurs on an electronic market exchange after regular trading hours have ended. In the United States, after market trading typically occurs between 4:00 p. Read more

After the Bell

After the bell is a phrase referring to the end of an exchange's daily trading session. Let's say that Company XYZ wants to announce the sudden departure of its CEO and the appointment of the CFO to take her place. Read more

After-Tax Operating Income (ATOI)

After-tax operating income (ATOI) is a company's operating income after taxes. ATOI is very similar to net operating profit after tax (NOPAT) The formula for ATOI is: ATOI = Gross Revenue - Operating Expenses - Depreciation - Taxes Let's assume Company XYZ reported the following information for the fiscal year: Using the formula and the information above, we can calculate that Company XYZ's ATOI was: $1,000,000 - $500,000 - $300,000 - $100,000 - $10,000 = $90,000 ATOI is a non-GAAP measure, meaning that what is included and excluded differs by company and industry. Read more

After-Tax Profit Margin

After-tax profit margin is the percentage of revenue remaining after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue.  The formula for after-tax profit margin is:(Total Revenue – Total Expenses)/Total Revenue = Net Profit/Total Revenue = After-Tax Profit MarginBy dividing net profit by total revenue, we can see what percentage of revenue made it all the way to the bottom line, which is good for investors. Read more

Agency Bond

Agency bonds are bonds issued by agencies of the U. S. Read more

Agency Costs

Agency costs usually refers to the conflicts between shareholders and their company's managers. A shareholder wants the manager to make decisions which will increase the share value. Read more

Aggressive Accounting

Aggressive accounting refers to an accounting department's deliberate and purposeful tampering with its company's financials in order to outwardly characterize its revenues as higher than they truly are. The practice of aggressive accounting seeks to report a company's revenues as higher than they truly are in order to increase the market value of company stock by presenting attractive figures to current and prospective investors. Read more

Aggressive Growth Fund

An aggressive growth fund is a mutual fund which invests exclusively in high-risk/high-return stocks in an attempt to benefit from the potentially high returns on start-up companies and IPOs. An aggressive growth fund brings together a number of equity securities issued by start-up companies believed to have a high growth potential combined with shares of initial public offerings (IPOs) issued by existing companies intending to expand. Read more

Aggressive Investment Strategy

An aggressive investment strategy emphasizes a substantially higher portfolio allocation of high-return equity over debt in order to generate high returns through exposure to high risk. An aggressive investment strategy weights a portfolio's composition primarily on a combination of moderate- to high-growth stocks with much smaller portions of bonds and commercial paper. Read more

Air Pocket Stock

An air pocket stock is one that experiences an abrupt and severe price decline. Named for the dropping action of an aircraft flying through a random low-pressure air pocket, an air pocket stock experiences a sharp price drop when the issuer announces negative news and panic selling ensues. Read more

Alan Greenspan

Alan Greenspan was the chairman of the Federal Reserve Board of Governors from 1987 to 2006. Alan Greenspan was born in 1926 in New York. Read more

Alimony

Alimony is a series of payments made to an ex-spouse or separated spouse according to a divorce decree or separation agreement. Also known as "spousal support," the idea behind alimony is to provide a spouse with lower income or lower income potential with financial support. Read more

All or Nothing Order (AON)

All or nothing (AON), also known as an "all or none" order, is a condition used on a buy or sell order which instructs a broker to execute the order in its entirety or to do nothing. For example, if you wanted to purchase 1,000 shares of Company XYZ at $5 per share "all or nothing," the broker would have to find all 1,000 shares at $5 in order to complete the transaction. Read more

All Weather Fund

An all weather fund is a mutual fund that performs well regardless of market conditions. The performance of an all weather fund is largely unaffected by market climate. Read more

Allowance for Bad Debt

An allowance for bad debt is essentially a reduction in a bank's accounts receivable. The allowance for bad debt equals the amount of the banks loans that it does not expect to collect. Read more

Allowance for Doubtful Accounts (ADA)

An allowance for doubtful accounts (ADA) is a reduction in a company's accounts receivable. The ADA equals the amount of those receivables that the company's management does not expect to actually collect. Read more

Alpha

Alpha, also known as "excess return" or "abnormal rate of return," is one of the most widely used measures of risk-adjusted performance. The number shows how much better or worse a fund performed relative to a benchmark. Read more

Alternative Asset

An alternative asset is an item that has intrinsic value, but is not traditionally considered a financial asset. Alternative assets are best defined by their absence from the capital markets. Read more

Alternative Minimum Tax

The alternative minimum tax (AMT) is income tax owed using a parallel tax code designed to ensure that every taxpayer, particularly rich ones and corporations, pay at least some income tax each year. Congress created the AMT in 1969 as a way to ensure that people with high incomes and corporations could not avoid taxes by using various tax shelters. Read more

Alternative Order

An alternative order is a group of limit orders linked together within a brokerage account. If one order is executed, all other linked orders are automatically canceled. Read more

Altman Z-Score

The Altman Z-Score (named after Edward Altman, the New York University professor who devised it) is a statistical tool used to measure the likelihood that a company will go bankrupt. Though Altman devised the Z-Score in the 1960s, the notion of trying to predict which companies would fail was far from new at that time. Read more

Altman's Z-Score

Altman's Z-score is a financial statistic that is used to measure the probability of bankruptcy. Altman's Z-score is used to determine the likelihood of a company going bankrupt. Read more

Amended Return

An amended return is a Form 1040X filed by a taxpayer to correct mistakes made on a Form 1040, Form 1040A, Form 1040EX, Form 1040NR or Form 1040NR-EZ (U. S. Read more

American Depositary Receipt (ADR)

An American Depositary Receipt (ADR) is a certificate that represents shares of a foreign stock owned and issued by a U. S. Read more

American Income Trust

An American Income Trust is a type of royalty trust. A royalty trust is a type of corporation created to act as the owner of the mineral rights to wells, mines and similar properties. Read more

American National Standards Institute (ANSI)

The American National Standards Institute (ANSI) is a private, non-profit organization that oversees the development and enforcement of standards for products, services and personnel in both the United States and around the world. Let’s say company XYZ produces headphones. Read more

American Opportunity Tax Credit

The American Opportunity Tax Credit (formerly known as the Hope Tax Credit) is a tax credit available to college students or their parents to help pay for college expenses. Eligible taxpayers can qualify for up to $2,500 under the American Opportunity Tax Credit. Read more

American Option

An American option is a put option or call option that can be exercised at any time on or before its expiration date.  For example, an investor holding an American option that expires on the last Friday in March has the right to exercise that option at any time on or before that date. Read more

American Rule

The American Rule, in law, is a rule by which each party pays its legal fees resulting from litigation.   This contrasts with the English Rule, which is the global norm, where the losing party pays the legal fees of the winning party. Read more

American Stock Exchange (AMEX)

The American Stock Exchange (AMEX), sometimes referred to as the "Little Board," is a stock and options exchange in New York.   Though not as large as the New York Stock Exchange (NYSE), the AMEX is a large exchange that serves as a market for equities, a variety of options and other derivatives, American Depository Receipts (ADRs), exchange-traded funds (ETFs), and other financial instruments. Read more

AMEX Biotech Index

The AMEX Biotech Index is the benchmark index for the Biotechnology industry. This index was started on October 18, 1991 with a value of 200. Read more

Amortization

Amortization calculates how loans (like fixed-rate mortgages) are allocated towards principal and interest payments over the loan term.   It may also refer to an accounting method that expenses the cost of an intangible asset over time on a company’s financial statements. Read more

Amortization Schedule

An amortization schedule is a chart that shows the amounts of principal and interest due for each loan payment of an amortizing loan. An amortizing loan is a loan that requires regular payments, where each payment is the same total amount. Read more

Analyst

An analyst gathers and interprets data about securities, companies, corporate strategies, economies or financial markets. Analysts are sometimes called financial analysts, securities analysts, equity analysts or investment analysts (although there is a distinction among these titles). Read more

Analyst Expectation

An analyst expectation is typically a prediction of a company's quarterly or annual earnings per share. Securities analysts are tasked with the job of making earnings estimates for the companies they cover. Read more

Angel Investor

An angel investor is a person who invests in highly risky companies, typically before those companies have any revenue or profits. Usually these companies are start-ups and/or small businesses that typically have little or no access to capital markets. Read more

Annual Equivalent Rate (AER)

Same as the effective annual interest rate, the annual equivalent (AER) rate is the rate of interest an investor earns in a year after accounting for the effects of compounding. The formula for AER is: (1 + i/n)n - 1 Where: i = the stated annual interest rate n = the number of compounding periods in one year For example, let’s assume you buy a certificate deposit with a 12% stated annual interest rate. Read more

Annual General Meeting (AGM)

An annual general meeting (AGM) is an SEC-mandated gathering of a public company's senior management and shareholders for the purpose of exchanging important information. The Securities and Exchange Commission (SEC) mandates that publicly-traded companies keep their investors informed by way of an annual general meeting. Read more

Annual Percentage Rate (APR)

Annual Percentage Rate (APR) is the interest rate that reflects all the costs of the loan during a one year time period. The annual percentage rate includes loan fees and the compound interest rate during the year. Read more

Annual Percentage Yield (APY)

Annual percentage yield (APY) is the rate of interest an investor earns in a year after accounting for the effects of compounding. APY is not the same as annual percentage rate (APR). Read more

Annual Report

An annual report is an audited corporate document that details the business activity and financial status of a publicly-held company over the previous year.  The Securities and Exchange Commission (SEC) requires all public companies to distribute an annual report to shareholders at the end of each fiscal year. Read more

Annualize

Annualize means to express a rate in terms of its annual equivalent. The concept is best illustrated with an example: Assume a portfolio generates a 1% return in one month. Read more

Annuitant

An annuitant is the person whose age and life expectancy affect the size of the monthly payments to the owner of an annuity. An annuity is similar to a life insurance product, but there are important differences between the two. Read more

Annuitization

Annuitization is the act of triggering a series of payments, usually from an annuity. An annuity is a contract whereby an investor makes a lump-sum payment to an insurance company, bank or other financial institution that in return agrees to give the investor either a higher lump-sum payment in the future or a series of guaranteed payments. Read more

Annuitize

To annuitize is to choose to receive a series of payments, usually from an annuity. An annuity is a contract whereby an investor makes a lump-sum payment to an insurance company, bank, or other financial institution that in return agrees to give the investor either a higher lump-sum payment in the future or a series of guaranteed payments. Read more

Annuity

An annuity is a financial contract written by an insurance company that provides for a series of guaranteed payments, either for a specific period of time or for the lifetime of one or more individuals. An annuity is similar to a life insurance product, but there are important differences between the two. Read more

Anti-Dilution Provision

An anti-dilution provision is a clause in an option, security, or merger agreement that gives the investor the right to maintain his or her percentage ownership of a company by buying a proportionate number of shares of any future issue of the security. Anti-dilution provisions are sometimes called "subscription rights," "preemptive rights," or "subscription privileges. Read more

Anti-Greenmail Provision

An anti-greenmail provision is a clause in a corporation's charter that deters the corporation's board from conducting a stock buyback. To understand an anti-greenmail provision, one must first understand what greenmail is. Read more

Anti-Martingale System

The anti-Martingale system is an investment strategy that doubles the position sizes of securities that experience gains. By using this method, investors will overweight their winning investments in hopes that they continue to rise. Read more

Anti-Takeover Measure

An anti-takeover measure is a precautionary strategy used by companies to avoid being bought by another company. For a myriad of reasons, a company may not want to be taken over. Read more

Anti-Takeover Statute

An anti-takeover statute is a law designed to deter companies from launching hostile takeovers of other companies. Anti-takeover statutes exist in some places in order to protect the autonomy and interests of companies incorporated in those states. Read more

Antitrust

Antitrust refers to federal laws disallowing companies from monopolizing markets, engaging in price discrimination or price fixing, or otherwise restraining free trade. Antitrust laws apply universally to companies seeking profits, whether they're public or privately held. Read more

Any-and-All Bid

An any-and-all bid is an offer to acquire a company whereby the potential buyer offers to purchase any and all of the shareholders' shares at a specific price by a certain deadline. Let's assume Company XYZ wants to buy Company ABC, which is a public company. Read more

Appraisal

An appraisal is an estimate of the market value of an item by a certified professional. Appraisals can be assigned to nearly any item, including real estate. Read more

Appraisal Ratio

An appraisal ratio is the ratio of a mutual fund's alpha to its risk. The formula for the appraisal ratio is: Appraisal Ratio = Alpha / Fund's Unsystematic Risk Let's assume Mutual Fund XYZ has an alpha of 0. Read more

Appraiser

An appraiser is a person capable of providing an appraisal. An appraisal is a document that formally describes the value of a piece of property, usually exceeding $5,000. Read more

Appreciation

Appreciation is an increase in the value of an investment. Let's assume you purchased one share of Company XYZ stock for $5. Read more

Arbitrage

Arbitrage is the process of exploiting differences in the price of an asset by simultaneously buying and selling it. In the process the arbitrageur pockets a risk-free return. Read more

Arbitrage Pricing Theory (APT)

Arbitrage pricing theory (APT) is a well-known method of estimating the price of an asset. The theory assumes an asset's return is dependent on various macroeconomic, market and security-specific factors. Read more

Arbitrage Trading Program

An arbitrage trading program is a software program that attempts to take advantage of very small price differences between securities, such as index futures and the underlying stocks represented. The program automatically scans for opportunities and places appropriate trades. Read more

Arbitrageur

An arbitrageur is a person who exploits the differences in the price of a given security by simultaneously purchasing and selling that security. For example, if Company XYZ's stock trades at $5 per share on the New York Stock Exchange and the equivalent of $5. Read more

Arbitration

Arbitration is a process in which impartial parties (arbitrators) help disagreeing parties resolve a dispute. Contracts, particularly financial ones, with disputes often go to arbitration. Read more

Arithmetic Mean

The arithmetic mean is the average of a series of numbers. The formula for calculating the arithmetic mean is: Arithmetic mean = (X1 + X2 + X3 +. Read more

Arithmetic Mean Average

The arithmetic mean average is the average of a series of numbers. The formula for calculating the arithmetic mean average is: Arithmetic mean average = (X1 + X2 + X3 +. Read more

Arms Index (Trin)

The Arms Index (Trin) uses the ratio of advancing issues to declining issues to signal when the market is deeply overbought or oversold. The Arms Index is named after its designer, Richard Arms. Read more

Ascending Triangle

The ascending triangle is marked by two significant technical features. At its top, there is a line of resistance. Read more

Ask Price

The ask price is the lowest price a prospective seller is willing to accept in exchange for a specific security.  While the ask price is the lowest price a prospective seller is willing to accept, the bid price is the highest price that a prospective buyer is willing to pay for the security. Read more

Ask Size

The ask size is the number of shares that a seller is willing to sell at a given price. For instance, a seller is willing to part with 3,000 of their shares at a specific asking price. Read more

Assessed Value

Assessed value refers to the value of an asset -- usually real estate -- as determined by an assessor for tax purposes. The assessed value is often computed by incorporating the purchases and sales of similar properties in nearby areas. Read more

Asset

An asset is an economic resource that can be owned by an individual, company, or country. Assets are expected to provide future economic benefits like:  Increased value for a company or country Increased net worth for an individual  Assets accomplish this by providing cash flow, reducing expenses, and/or increasing sales. Read more

Asset Allocation

Similar to diversification, asset allocation refers to the portioning of a portfolio among various types of investment asset classes so as to maximize return for a given level of risk. Just as it is prudent to diversify a portfolio among a number of holdings to reduce volatility, it is also generally recommended that an investor spread out his or her investments among several asset classes. Read more

Asset Backed Securities (ABS)

Asset backed securities (ABS) are securities backed by the cash flows of a pool of assets. Home equity loans, auto loans, credit card receivables, and student loans commonly back this class of securities. Read more

Asset Class

An asset class is a group of investments that have similar characteristics, behave similarly and are subject to similar market forces, laws and regulations.  Typical asset classes include stocks, bonds, real estate, cash and commodities. Read more

Asset Management

Asset management has two general definitions, one relating to advisory services and the other relating to corporate finance. In the first instance, an advisor or financial services company provides asset management by coordinating and overseeing a client's financial portfolio -- e. Read more

Asset Turnover Ratio

The asset turnover ratio is a measure of how efficiently a company's assets generate revenue. It measures the number of dollars of revenue generated by one dollar of the company's assets. Read more

Asset-or-Nothing Call Option

An asset-or-nothing call option either pays the value equal to one unit of the underlying asset if that asset is above the strike price or pays nothing if the asset is below the strike price at expiration. An asset-or-nothing call option, also known as a binary option, specifies two possible outcomes. Read more

Asset-or-Nothing Put Option

An asset-or-nothing put option is an option with two possible outcomes: a fixed amount if the market value is below the strike price and no payment at all if it is higher than the strike price. A typical put option will have a market value based on the difference between the market price of the underlying asset and the strike price for that asset. Read more

Assets Under Management (AUM)

Assets under management (AUM) refers to the total market value of investments managed by a mutual fund, money management firm, hedge fund, portfolio manager, or other financial services company. AUM generally changes according to the flow of money into and out of a particular fund or company. Read more

Assignable Contract

An assignable contract allows a contract holder to assign his or her rights and obligations under the contract to a third party. The most common assignable contracts are futures contracts. Read more

Assumed Interest Rate

An assumed interest rate is used to calculate an annuity's periodic income payments. To understand how the assumed interest rate works, one must first remember how an annuity works. Read more

Asymmetric Digital Subscriber Line (ADSL)

An asymmetric digital subscriber line (ADSL) is a modem technology that enables information and video to be transmitted over regular telephone lines. Though the mechanics of Internet access is highly technical, intuitively, the concept of ADSL is relatively simple: the use of regular copper wire phone lines to transmit data as well as voice. Read more

Asymmetric Information

Asymmetric information occurs when information is held by one, but not all, of the parties to a transaction. For example, consider a potential buyer of Company XYZ shares and the seller of those shares. Read more

At Par

In the bond world, at par means "equal to face value. " Face value, also known as par value, is the amount the issuer promises to pay the bondholder when the bond matures. Read more

Auction Market

An auction market is a market in which buyers indicate the highest price they are willing to pay and sellers indicate the lowest price they are willing to accept. A trade occurs when the buyer and seller agree on a price. Read more

Audit

In the tax world, an audit refers to the review of a taxpayer's tax return for accuracy.   In the accounting world, an audit is the examination and verification of a company's financial statements and records, and in the United States, examination for their compliance with Generally Accepted Accounting Principles (GAAP). Read more

Audit Trail

An audit trail refers to the complete record of events that occurred in the execution of a transaction. When a transaction is executed (e. Read more

Auditor

In the accounting world, an auditor is a professional who examines and verifies a company's financial statements and records and in the United States examines a company's compliance with Generally Accepted Accounting Principles (GAAP). In conversation, when people refer to "the auditor," they are sometimes referring to the entire accounting firm for which an individual auditor works (rather than to the single person tasked with doing the audit). Read more

Auditor's Opinion

An auditor's opinion is a written statement describing an auditor's independent, unbiased and qualified evaluation of the accuracy and completeness of a company's financial statements and practices, as well as an evaluation of a company's compliance with Generally Accepted Accounting Principles (GAAP). When an auditor feels that a company's financial statements are fair and accurate, it issues an unqualified opinion and does so using a standard reporting template (this is why many opinions read the same way). Read more

Auditor's Report

An auditor's report is a statement included in a company's annual financial report that certifies the validity of a company's financial statements according to an outside auditor. By law, companies in the U. Read more

Auto Loan

An auto loan allows someone to borrow money to purchase a car or truck. Auto loans are usually simple-interest loans that are to be paid back over a period of typically three or five years. Read more

Automated Bond System (ABS)

The Automated Bond System (ABS) is a computerized platform that tracks the prices for inactive bonds on the New York Stock Exchange (NYSE). Many bonds on the NYSE do not experience much price movement due to exceptionally low volume levels. Read more

Automated Clearing House (ACH)

ACH, which stands for or Automated Clearing House, is a fund transfer system operated by NACHA, the National Automated Clearing House Association.   Launched in 1974, ACH is used for a wide range of financial transactions. Read more

Automatic Investment Plan (AIP)

An automatic investment plan (AIP) is a strategy whereby an investor can arrange for funds to transfer into an investment account automatically on a regular basis. Let's assume you want to save money for a down payment on a house. Read more

Average Annual Growth Rate (AAGR)

The average annual growth rate (AAGR) is the arithmetic mean of a series of growth rates. The average annual growth rate (AAGR) formula is:AAGR = (Growth Rate in Period A + Growth Rate in Period B + Growth Rate in Period C + [Other Periods]) / Number of PeriodsLet's look at an example. Read more

Average Annual Return (AAR)

The average annual return (AAR) is the arithmetic mean of a series of rates of return. The formula for AAR is: AAR = (Return in Period A + Return in Period B + Return in Period C +. Read more

Average Balance

Average balance is either the simple or the weighted average balance of a financial account during some period of time. A simple average balance is calculated by adding up the beginning balance and the ending balance and dividing the sum by 2. Read more

Average Daily Balance Method

The average daily balance method is a way of calculating interest by considering the balance owed or invested at the end of each day of the period rather than the balance owed or invested at the end of the week, month or year. The frequency of interest compounding affects how lenders and borrowers use the average daily balance method. Read more

Average Down

Average down (or averaging down) refers to the purchase of additional units of a stock already held by an investor after the price has dropped. Averaging down results in a decrease of the average price at which the investor purchased the stock. Read more

Average Revenue Per User (ARPU)

Average Revenue Per User (ARPU) is a measurement of profit in terms of customers. ARPU is generally applied for financial analysis at companies which offer subscriptions to customers. Read more

Average True Range (ATR)

Average true range (ATR) is a technical indicator that measures the volatility of an asset's average daily price movements. Average true range starts with the concept of "true range. Read more