Finance Glossary
25 essential terms — because precise language is the foundation of clear thinking in Finance.
Showing 25 of 25 terms
The gradual repayment of a debt through scheduled installments that include both principal and interest, or the systematic write-off of an intangible asset's cost over its useful life.
A series of equal payments made at regular intervals over a specified period, such as monthly mortgage payments or annual pension distributions.
The strategy of dividing an investment portfolio among different asset categories such as stocks, bonds, and cash to balance risk and reward according to an investor's goals and risk tolerance.
A measure of a security's systematic risk relative to the overall market. A beta greater than 1 indicates higher volatility than the market, while a beta less than 1 indicates lower volatility.
A fixed-income debt instrument in which an investor loans money to a borrower (typically a corporation or government) in exchange for periodic interest payments and the return of principal at maturity.
The profit realized when a capital asset such as a stock, bond, or real estate property is sold for a price higher than its original purchase price.
The specific combination of debt and equity a company uses to finance its overall operations and growth, influencing both risk and the weighted average cost of capital.
Interest calculated on both the initial principal and the accumulated interest from prior periods, causing an investment to grow at an accelerating rate over time.
A financial contract whose value is derived from the performance of an underlying asset, index, or rate, such as options, futures, and swaps.
The interest rate used to calculate the present value of future cash flows, reflecting the time value of money and the risk of those cash flows.
The practice of spreading investments across various assets, sectors, or geographies to reduce exposure to any single source of risk.
A distribution of a portion of a company's earnings to its shareholders, usually paid in cash on a quarterly basis, as determined by the board of directors.
Ownership interest in a company, represented by shares of stock. On a balance sheet, equity equals total assets minus total liabilities.
The use of borrowed funds to amplify potential returns on investment. While leverage can magnify gains, it equally magnifies losses and increases the risk of financial distress.
The rate at which the general level of prices for goods and services rises over time, eroding the purchasing power of money.
The percentage charged by a lender to a borrower for the use of money, or the percentage earned on deposited or invested funds, typically expressed as an annual rate.
The degree to which an asset can be quickly bought or sold in the market without significantly affecting its price. Cash and publicly traded stocks are highly liquid assets.
The total market value of a company's outstanding shares of stock, calculated by multiplying the current share price by the total number of shares outstanding.
The difference between the present value of cash inflows and cash outflows over a period of time, used as a primary method for evaluating the profitability of investments and projects.
A collection of financial assets such as stocks, bonds, cash equivalents, and other investments held by an individual or institution.
A profitability ratio calculated as net income divided by shareholders' equity, measuring how efficiently a company generates profit from the capital invested by shareholders.
A security that represents fractional ownership in a corporation, entitling the holder to a proportionate share of the company's assets, earnings, and voting rights.
The income return on an investment, such as interest or dividends received, expressed as an annual percentage based on the investment's cost or current market value.
A graph plotting the interest rates of bonds with equal credit quality but differing maturity dates, typically showing that longer maturities carry higher yields to compensate for time risk.