Ability to pay refers to a financial criterion used in various contexts such as finance, taxation, industrial relations, municipal bonds, and public policy. It represents the capacity of an individual or entity to meet financial obligations based on their income or economic status.
An accommodation bill is a type of bill of exchange signed by an individual who acts as a guarantor, ensuring the bill’s payment in case the acceptor fails to pay at maturity. These bills are often called windbills or windmills.
An Account Statement is a detailed record of financial transactions for a specific period. It provides a summary of all activities within an account, showing the resulting balances and transactions.
The Accounting Reference Date (ARD), also known as the reporting date, signifies the end of an accounting reference period, such as a financial year, for a company. It is essential for preparing financial statements and other required reports.
An accrual is an accounting estimate of a liability for expenses not yet invoiced or requested for payment at the time the accounts are prepared, presenting a more accurate financial snapshot.
Actual Cash Value (ACV) is an insurance term referring to the amount equivalent to the replacement cost of damaged or lost property, minus depreciation. It is a measure sometimes used as a substitute for market value in insurance claims.
Add-On Interest refers to a loan interest calculation method where the interest is added to the principal amount at the start of the loan. The total loan repayment amount is then divided into equal installment payments.
The term 'after date' refers to the words used in a bill of exchange to indicate that the period of the bill should commence from the date inserted on the bill. This affects the calculation of the payable date.
Agency refers to the relationship between two parties where one, the agent, represents or acts on behalf of the other, the principal, in various contexts such as finance, government, investment, and personnel.
Amortization refers to the process of reducing debt through periodic payments or the systematic write-off of intangible asset costs over a set period.
In financial contexts, the term 'amount' refers to a specific sum represented numerically, often in dollar terms, used in transactions, budgeting, accounting, and various business contexts.
The amount of one per period refers to the compound amount that accumulates when one unit of currency is invested at the end of each period for a certain number of periods at a specific interest rate. This concept is critical in understanding the future value of annuities in finance.
An Annual Mortgage Constant is a measurement used in real estate to compare the annual debt service to the original loan principal amount. It is used to determine the efficiency of a mortgage from a borrower's perspective.
A mathematical figure showing the present value of an income stream that generates one dollar of income each period for a specified number of periods.
The arithmetic mean, commonly known as the average, is calculated by summing individual quantities and dividing by their total number. This measure is frequently used in various fields, although it can be misleading in the presence of outliers.
Arrearage refers to the amount of overdue payments that are owed and unpaid. This can apply to various financial obligations, including loans, mortgages, bond interests, and dividends on cumulative preferred stock.
Assessable capital stocks refer to shares where stockholders may become subject to additional liabilities beyond their initial investment, typical in specific sectors such as banking or scenarios involving unpaid capital calls.
AIAB stands for Associate of the International Association of Book-keepers, a professional designation representing advanced knowledge and expertise in bookkeeping and accounting practices.
The Association of Corporate Treasurers (ACT) is an organization established to encourage and promote the study and practice of treasury management in companies. Despite being relatively small compared to professional accounting bodies, it has made a significant impact in corporate treasury management.
A guarantee of payment by a third party, often a bank, on a bill of exchange or promissory note, ensuring the instrument is honored.
The term 'average' commonly refers to the arithmetic mean, which is a measure of central tendency. In finance, it refers to an appropriately weighted and adjusted arithmetic mean of selected securities designed to represent market behavior.
A Bachelor of Business Administration (BBA) is a four-year degree program that equips students with comprehensive knowledge of business principles, ethics, and practices. The program encompasses a variety of business-related disciplines and offers specializations in areas such as accounting, finance, marketing, management, business statistics, and real estate.
A balloon payment is the final payment on a loan when that payment is significantly greater than the preceding installment payments and pays off the loan in full.
A bar graph is a type of chart that displays information by representing quantities as rectangular bars of different lengths either vertically or horizontally. Bar graphs are widely used in statistics, finance, business, and other quantitative fields to visualize data distributions and comparisons.
A basis point is a unit of measure equal to one hundredth of one percent, used primarily in finance to denote changes in interest rates, bond yields, and other percentages that involves fine margins.
The bill rate, also known as the discount rate, is the rate applied in the discount market at which bills of exchange are purchased at a value less than their face value upon maturity. This rate considers the quality and associated risk of the bill being discounted.
The term 'billion' has historically had different definitions in the USA and the UK. It once meant one million million (10^12) in the UK and one thousand million (10^9) in the USA. However, it is now almost universally accepted to mean one thousand million (10^9).
A blank cheque is a negotiable instrument with the amount left unspecified by the drawer. It can be used when the drawer wishes to permit the bearer to fill in the amount of money they choose up to an authorized limit.
A bond premium refers to the amount the purchaser pays in buying a bond that exceeds the face or call value of the bond. This premium can be amortized, reflecting the true interest rate being less than the coupon rate.
Bootstrapping involves starting a company with minimal capital, expecting to fund the business operations through subsequent profits and revenues.
A term used in both Finance and Investment contexts, referring to points where pricing structures change due to volume discounts or significant drops in market prices, among other uses.
Breaking the Buck refers to a decline in the normally constant $1 net asset value (NAV) of a money market fund. This can occur if the fund suffers severe losses or if investment income falls below operating expenses.
A loan in which the whole of the principal is repaid in a single final payment known as a 'bullet', although interest may be paid in interim payments. Compare with an amortizing loan.
A modern method of transferring funds or other assets internationally in an expeditious manner. Typically involving electronic communication channels rather than physical wires.
A callable security can be redeemed by the issuer before its scheduled maturity date, usually triggering a necessity for extra payment to the holder, identified as a call premium.
A ceiling on a charge; for example, an interest-rate cap would set a maximum interest rate to be charged on a loan, regardless of prevailing general interest-rate levels.
In finance and accounting, 'capital' refers to various forms of assets, interests, or financial contributions that play a critical role in the functioning of an entity or the production process, enhancing productivity and enabling operations.
The CAPM is a formula used to determine the expected return on an investment by accounting for both the risk-free rate of return and the risk premium.
The Capital Asset Pricing Model (CAPM) is a cornerstone of modern financial theory, providing a framework used to determine the expected return on an investment for a given level of risk.
A measure of possible worst-case losses in excess of the average used in banking to calculate both capital adequacy requirements and certain performance measures, such as risk-adjusted return on capital (RAROC). It is usually based on the value-at-risk (VaR) methodology.
Capital distribution refers to the distribution of company’s funds to its shareholders. This usually happens in the form of dividend payments, share buybacks, or return of capital. It signifies how a company returns value to its shareholders.
Capital gain distributions refer to payments made by mutual funds or corporations to their investors, representing the gains earned from the sale of securities or liquidated assets. This distribution retains its character as capital gains when passed on to investors.
Capital gains refer to the profit realized from the sale of assets or investments, which exceeds the purchase price. They can apply to stocks, bonds, real estate, and other types of investments.
Capital requirement refers to the amount of capital a business needs to sustain its operations, including both long-term and working capital necessary for maintaining day-to-day functionality and growth.
The Certified Management Accountant (CMA) is a professional certification awarded by the Institute of Management Accountants (IMA) to individuals who have demonstrated expertise in management accounting through education, examination, and experience.
The Chartered Financial Analyst (CFA) designation is a professional credential offered by the CFA Institute. Widely regarded as the gold standard in the field of investment management, the CFA program covers a broad range of topics including equity analysis, fixed-income analysis, portfolio management, and ethical and professional standards.
The Chartered Global Management Accountant (CGMA) designation is a globally recognized accounting credential that signifies expertise in management accounting and finance. It is awarded by both the American Institute of CPAs (AICPA) and the Chartered Institute of Management Accountants (CIMA).
The Chartered Property and Casualty Underwriter (CPCU) is a professional designation that signifies expertise in various areas including insurance, risk management, economics, finance, management, accounting, and law. To earn this prestigious designation, candidates must complete 10 national examinations and have at least three years of work experience in the insurance industry or a related field.
A cheque is a preprinted form on which instructions are given to an account provider such as a bank or building society to pay a stated sum to a named recipient. It's a common method for paying debts of various kinds.
The term 'class' has versatile meanings across different fields such as education, finance, and law. It commonly refers to a group sharing common characteristics, whether in a school, investment category, or legal context.
A clawback is a provision in a law or contract that limits or reverses a payment or distribution for specified reasons.
In various financial contexts, the term 'clear' refers to the process of validating and finalizing transactions, whether in banking, finance, or securities markets. This ensures accurate and timely settlements.
A closed fund is a type of mutual fund that has stopped issuing shares because it has become too large. This typically occurs when the fund manager believes that accepting additional investments could hinder the fund's performance.
A collateralized mortgage obligation (CMO) is a type of mortgage-backed security that combines multiple mortgage loans and separates them into tranches based on maturity and risk.
The Committee on Uniform Securities Identification Procedures (CUSIP) assigns identifying numbers and codes for all securities. These CUSIP numbers and symbols are used when recording all buy and sell orders.
Compound interest refers to the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. It is a crucial concept in finance and investing, offering greater returns compared to simple interest.
The consolidated statement of financial position, often referred to as the consolidated balance sheet, provides a snapshot of a parent and its subsidiaries’ financial situation at a specific point in time.
The Consultative Committee of Accountancy Bodies (CCAB) is a body consisting of five accountancy institutes in the UK and Ireland, aimed at coordinating activities within the profession and maintaining high standards of practice and ethics.
The contract interest rate, also known as the face interest rate or nominal interest rate, is the stated annual interest rate on a loan or bond, before any adjustments for compounding or inflation.
The contract rate, also known as the face interest rate, refers to the interest rate stated on a financial instrument, such as a bond or loan, which dictates the amount of interest the issuer will pay periodically to the holder.
Conversion parity is a concept in finance that refers to the equivalence between the value of a convertible security, such as a convertible bond, and the value of the common stock into which it can be converted.
Convertibles are corporate securities, typically preferred shares or bonds, that are exchangeable for a set number of another form, commonly common shares, at a preset price.
The effective overall rate of interest that a company pays on its loans, bonds, and other debts, used in calculating the total cost of capital for that firm. This is usually calculated as an after-tax figure.
A credit card is a plastic card issued by a bank or finance organization allowing the holder to make purchases in shops, hotels, restaurants, petrol stations, etc., on credit.
A credit line, also known as a line of credit, refers to a pre-approved loan amount that a borrower can draw upon as needed and repay either immediately or over time. It is commonly used for short-term borrowing needs.
A creditor is an entity that is owed money, either for goods or services provided or as a result of a loan. Creditors have a legal right to claim the owed amount from the debtor.
A securities transaction in which the same broker acts as agent on both sides of the trade. The practice, called 'crossing,' is legal only if the broker first offers the securities publicly at a price higher than the bid.
A comprehensive look at cum dividend, cum rights, and cum warrant stock scenarios, covering the stipulations for buyers to be eligible for declared distributions upon purchasing stock. This article also addresses related terms such as the ex-dividend date.
A cumulative dividend is a feature often associated with preferred stock, entitling holders to receive dividends in arrears before any dividends can be paid to common stockholders.
Currency appreciation refers to an increase in the value of a currency relative to another currency, while currency depreciation refers to a decrease in the value of a currency relative to another currency. These concepts are pivotal in international trade, impacting everything from import/export prices to inflation rates.
The term 'current' is often used to denote anything that is not overdue or is occurring within the current period or time frame.
A current asset refers to cash, accounts receivable, inventory, and other assets that are likely to be converted into cash, sold, exchanged, or expensed in the normal course of business, usually within a year.
The date on which a corporation uses its list of stockholders to mail a dividend check. It is usually two days after the ex-dividend date. Also called record date.
DAX is a stock performance index that includes dividends and is composed of the 30 most actively traded German blue-chip stocks on the Frankfurt Stock Exchange.
Debt Discharge Income refers to the forgiven portion of outstanding debt that becomes taxable income to the borrower, subject to specific exemptions.
In various contexts, 'declare' means to announce formally or officially. It has distinct applications in finance, importation, and taxation.
A loan stock or government security issued on terms that make the redemption value significantly higher than the issue price, often with more than 15% discrepancy or ½% per completed year.
Interest that has not been paid on time. Implies a more serious state of delay than past-due or delinquent.
Deferred payments refer to payments that are extended over a period of time or put off to a future date. This arrangement allows the payer to delay full payment until an agreed-upon future date.
Delinquency refers to the state of being past due on a financial obligation but not yet in default. It is an important term in finance and can indicate the payment behavior of individuals or businesses.
In finance, denomination refers to the face value of currency units, coins, and securities. It is an important concept in the fields of accounting, taxation, and investment.
A deposit is a sum of money paid upfront for various purposes, such as reserving a purchase, saving in a bank, or as a security in trading.
Depreciable Life refers to the period over which the cost of an asset is spread for tax purposes, or the estimated useful life of an asset for appraisal purposes.
Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. It reflects the asset's usage, wear and tear, or obsolescence.
A discount bond is a bond sold for less than its face value or par value. When the bond matures, the investor receives the face value of the bond. Discount bonds can be treasury, municipal, corporate, etc. They offer a way for the issuer to raise capital by selling at a reduced price.
A discounted loan is a financial instrument that is offered or traded for less than its face value. It involves an initial discount from the loan's nominal amount, effectively making it cheaper for the borrower at inception.
Discounted Present Value (DPV) is a financial metric used to determine the current worth of a series of future cash flows, discounted back to their present value. It helps in evaluating the profitability and feasibility of investments and projects.
Discounting refers to the application of discount factors to cash flow projections in discounted cash flow analysis and the process of selling a bill of exchange before its maturity at a discounted price.
Dishonor refers to the refusal, whether rightly or wrongly, to make payment on a negotiable instrument when such an instrument is duly presented for payment.
Documentary credit, also known as a letter of credit, is a financial instrument commonly used in international trade transactions to reduce risk. It guarantees that a buyer's payment to a seller will be received on time and for the correct amount.
The term 'downstream' refers to the flow of corporate activity from a parent company to its subsidiary. In finance, it typically pertains to loans, while in management, it relates to instructions that come from the headquarters.
Drawdown refers to the drawing of funds against a bank loan or other credit facility. It involves disbursing the loan amount provided by the lender to the borrower in full or in parts over a specific period.
A crucial metric in assessing a company's core operating performance by excluding the effects of finance and tax expenses from operating profit calculations.
The total interest paid or earned in a year, expressed as a percentage of the principal amount at the beginning of the year. The Effective Annual Rate provides a clear picture of the actual annual cost or earnings, considering compounding periods during the year.
Effective Gross Income (EGI) represents the potential gross income generated from rental real estate, adjusted for a vacancy and collection allowance, plus any miscellaneous income.
Equity represents a beneficial interest in an asset, net asset value, or shareholders' interest in a company. It is a critical component in personal finance, corporate finance, and accounting.
A comprehensive guide to understanding Escrow, its mechanism, and relevance in various fields such as real estate, finance, and more.
An estoppel certificate is a legal document by which the mortgagor (borrower) certifies that the mortgage debt is a lien for the amount stated. Subsequently, the debtor is prevented from claiming that the balance due differs from the amount stated.
The likelihood of a specific occurrence affecting a given business or investment. Unlike market or systemic risk, which affects all entities within the same class, event risk is particular to an individual company or portfolio.
Ex Ante is a Latin term meaning 'before the event,' often used in finance and economics referring to predictions, forecasts, or estimations about future events.
