Financial Glossary

Financial Glossary

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A
Accounts Receivable Money which is owed to a company by a customer for products and services provided on credit. This is treated as a current asset on a balance sheet. A specific sale is generally only treated as an account receivable after the customer has been sent an invoice.

Accretive Growing in size by external addition. Often used to refer to an acquisition which is expected to increase earnings per share.

Allocation The systematic distribution of a limited quantity of resources over various time periods, products, operations or investments.

Amortization The gradual elimination of a liability, such as a mortgage, in regular payments over a specified period of time. Such payments must be sufficient to cover both principal and interest. When used in the area of assets, it means the expense allocation of the cost associated with the asset over its estimated useful life.

Auction Rate Securities refer to long-term investments that have a short-term twist: the interest rates or dividends they pay are reset at frequent intervals through auctions, which typically occur every 7, 14, 28, or 35 days. There generally are two types of ARS, bonds with long-term maturities (20 to 30 years) and preferred shares with a cash dividend.

Auction Rate Bonds are issued by municipalities, student-loan authorities, museums and many others. Some auction rate bonds, such as those issued by municipalities, may offer certain tax advantages.

Auction Rate Preferred Shares are issued by closed-end funds.

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B
Backlog Unfilled customer orders for products and product services.

Balance Sheet A quantitative summary of a company's financial condition at a specific point in time, including assets, liabilities and net worth. The first part of a balance sheet shows all the productive assets a company owns, and the second part shows all the financing methods (such as liabilities and shareholders' equity).

Bond A certificate issued by a public company promising to repay borrowed money at a fixed interest rate at a specific time.

Borrowing Financial liability (short or long-term) that obligates us to repay cash or another financial asset to another entity.

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C
Capital Spending Money spent to acquire or upgrade physical assets such as buildings and machinery. Also called capital expenditure or capital expense.

Cash Flow A measure of a company's financial health. Generally equals cash receipts minus cash payments over a given period of time.

Convertible Debt Debt that can be converted into stock at the option of the holder and/or the issuer.

Commercial Paper Short term financial instruments usually issued by Corporations to raise cash with a commitment to pay back in a specified period.

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D
Days of Inventory The average number of days of items in inventory.

Days Sales Outstanding (DSO) Accounts receivable divided by sales for a given quarter, divided by 91.

Depreciation The allocation of the cost of an asset over a period of time for accounting and tax purposes. Also, a decline in the value of a property due to general wear-and-tear or obsolescence.

Derivative Instrument A financial instrument or contract with another party (counterparty) that is structured to meet any of a variety of financial objectives, including those related to fluctuations in interest rates, currency exchange rates or commodity prices.

Discontinued Operations Certain businesses we have sold or committed to sell within the next year and which will no longer be part of our ongoing operations. The net earnings, assets and liabilities and cash flows of such businesses are separately classified on our Statement of Earnings, Statement of Financial Position, and Statement of Cash Flows, respectively, for all periods presented.

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E
Earnings Revenues minus cost of sales, operating expenses and taxes, over a given period of time. The reason corporations exist, and often the single-most important determinant of a stock's price.

Earnings Per Share Earnings divided by the number of total shares outstanding. The figure represents how much of earnings each share is entitled to and is important as the basis for various calculations an investor might make when assessing a stock's value.

EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. Used as an indicator of a company's cash flow.

EVA Economic Value Added For a company, after-tax earnings minus the opportunity cost of capital. As with any other entity, economic value added essentially measures how much more valuable a company has become during a given time period.

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F
Financial Leverage The relationship of debt to equity. Expressed for financial services businesses as borrowings divided by equity. Expressed for industrial businesses as borrowings divided by total capital.

Fiscal Year An accounting period of 365 days (366 in leap years), but not necessarily starting on January 1.

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G
GAAP Generally Accepted Accounting Principles. A widely accepted set of rules, conventions, standards, and procedures for reporting financial information, as established by the Financial Accounting Standards Board.

Goodwill The premium paid for acquisition of a business. Calculated as the purchase price less the fair value of net assets acquired. (Net assets are identified tangible and intangible assets, less liabilities assumed.)

Gross Margin Pre-tax net sales minus cost of sales. Also called gross profit. Gross margin can be expressed as a percentage. Gross margin tells you how much more a customer pays the company for its product than it costs the company to make it. Gross margin tells an investor how successful a company has been at the business of buying or manufacturing the products to be sold.

Gross Sales Total invoice value of sales, before deducting for customer discounts, allowances or returns.

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H
Hedge A technique designed to eliminate risk. Often refers to the use of derivative financial instruments to offset changes in interest rates, currency exchange rates or commodity prices, although many business positions are "naturally hedged" - for example, funding a U.S. fixed-rate investment with U.S. fixed-rate borrowings is a natural interest rate hedge.

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I
Impairment is a term used by the financial/accounting community to refer to the reduction of the carrying value of assets on the books.

Income Statement A document generated monthly and/or annually that reports the earnings of a company by stating all relevant income and all expenses that have been incurred to generate that income. Also referred to as a profit and loss statement.

Incremental Additional, marginal.

Intangible Asset A non-financial asset lacking physical substance, such as goodwill, patents, trademarks and licenses.

Interest Rate Swap Agreement under which two counterparties agree to exchange one type of interest rate cash flow for another. In a typical arrangement, one party periodically will pay a fixed amount of interest, in exchange for which that party will receive variable payments computed using a published index. See "Hedge."

Investment Securities Generally, an instrument that provides an ownership position in a corporation (a stock), a creditor relationship with a corporation or governmental body (a bond), or rights to ownership such as those represented by options, subscription rights and subscription warrants.

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M
Market Capitalization The market price of an entire company, calculated by multiplying the number of shares outstanding by the price per share.

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N
Net Income/Loss Net sales minus cost of sales, operating expenses, interest, and taxes. Also called net earnings, net profit or bottom line.

Net Sales Gross sales minus returns, discounts and allowances. Also referred to as sales or revenue.

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O
Operating Income/Loss A measure of a company's earning power from ongoing operations; equal to earnings before deduction of interest payments and income taxes. Also called operating profit or EBIT (earnings before interest and taxes).

Option The right, not the obligation, to execute a transaction at a designated price, generally involving equity interests, interest rates, currencies or commodities. See "Hedge."

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P
Productivity The rate of increased output for a given level of input, with both output and input measured in constant currency. A decline in output for a given level of input is "negative" productivity.

Pro Forma Financial Statements Financial statements that are adjusted to reflect projected or recently completed transactions. An example would be historical financial statements that are adjusted to reflect the ATI acquisition.

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R
Revenue/Sales Total dollar amount collected for goods and services provided. Same as net sales.

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S
Stock A share of ownership of a public company. Individuals or groups hold shares in companies as an investment; companies issue shares as a means of raising capital.

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T
Turnover Broadly based on the number of times that working capital is replaced during a year. Accounts receivable turnover is total sales divided by the five-point average balance of customer receivables from sales of goods and services (trade receivables). Inventory turnover is total sales divided by a five-point average balance of inventories. See "Working Capital."

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W
Working Capital Current assets minus current liabilities on a company’s balance sheet. Generally include cash, accounts receivables and inventory on the asset side and trade payables and accrued liabilities on the liabilities side. It is generally used as a measurement for a company’s financial liquidity.

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