Investing

Security

A fungible, negotiable financial instrument that holds some type of monetary value. It represents an ownership position in a publicly-traded corporation (via stock), a creditor relationship with a governmental body or a corporation (represented by owning that entity's bond), or rights to ownership as represented by an option.

NASDAQ

A global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks.

Exchange-Traded Fund (ETF)

A marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors.

Enterprise Value (EV)

A measure of a company's total value, often used as a more comprehensive alternative to equity market capitalization. It is calculated as the market capitalization plus debt, minority interest and preferred shares, minus total cash and cash equivalents.

Capital Asset Pricing Model (CAPM)

A model that describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM is widely used throughout finance for the pricing of risky securities, generating expected returns for assets given the risk of those assets and calculating costs of capital.

Tax Credit

Amount of money that taxpayers can subtract from taxes owed to their government. The value of a tax credit depends on the nature of the credit; certain types of tax credits are granted to individuals or businesses in specific locations, classifications or industries. Unlike deductions and exemptions, which reduce the amount of taxable income, tax credits reduce the actual amount of tax owed.

Amortization

An accounting technique used to lower the cost value of a finite life or intangible asset incrementally through scheduled charges to income. Amortization is the paying off of debt with a fixed repayment schedule in regular installments over time like with a mortgage or a car loan. It also refers to the spreading out of capital expenses for intangible assets over a specific duration - usually over the asset's useful life -for accounting and tax purposes.

Quick Ratio

An indicator of a company's short-term liquidity position, and measures a company's ability to meet its short-term obligations with its most liquid assets. Since it indicates the company's financial position to instantly use its near cash assets (that is, liquid assets) to get rid of its current liabilities, it is also called as the acid test ratio.

Leverage Ratio

Any one of several financial measurements that look at how much capital comes in the form of debt (loans), or assesses the ability of a company to meet its financial obligations. It is important given that companies rely on a mixture of equity and debt to finance their operations, and knowing the amount of debt held by a company is useful in evaluating whether it can pay its debts off as they come due.

Book Value

Equal to its carrying value on the balance sheet, and companies calculate it netting the asset against its accumulated depreciation. It is also the net asset value of a company calculated as total assets minus intangible assets and liabilities.

Free Cash Flow (FCF)

Represents the cash a company can generate after required investment to maintain or expand its asset base. It is a measurement of a company's financial performance and health. There are two other types: free cash flow for the firm and free cash flow to equity.

Return on Equity (ROE)

The amount of net income returned as a percentage of shareholders' equity. Return on equity (also known as "return on net worth" [RONW]) measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

Working Capital

The difference between a company's current assets, like cash, accounts receivable (customers' unpaid bills) and inventories of raw materials and finished goods, and its current liabilities, like accounts payable.

Dividend

The distribution of reward from a portion of company's earnings, and is paid to a class of its shareholders. Dividends are decided and managed by the company's board of directors, though they must be approved by the shareholders through their voting rights. Dividends can be issued as cash payments, as shares of stock, or other property, though cash dividends are the most common.

Discount Rate

The interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve's discount window. It also refers to the interest rate used in discounted cash flow analysis to determine the present value of future cash flows.

Gross Domestic Product (GDP)

The monetary value of all the finished goods and services produced within a country's borders in a specific time period. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well (in the United States, for example, the government releases an annualized GDP estimate for each quarter and also for an entire year).

Cash Flow

The net amount of cash and cash-equivalents being transferred into and out of a business. At the most fundamental level, a company's ability to create value for shareholders is determined by its ability to generate positive cash flows, or more specifically, maximize long-term free cash flow.

Earnings Per Share (EPS)

The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.

Short Selling

The sale of a security that is not owned by the seller or that the seller has borrowed. It is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit. It may be prompted by speculation, or by the desire to hedge the downside risk of a long position in the same security or a related one.

Market Capitalization

The total dollar market value of a company's outstanding shares. Commonly referred to as "market cap," it is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to using sales or total asset figures.

Equity

The value of an asset less the amount of all liabilities on that asset. As an accounting equation, one can represent it as Assets - Liabilities = Equity.