Moneyterms home: A-B

ABC1: A demographic group defined by occupation that is commonly targeted by media and advertising companies.…
Abnormal return: The excess of actual return over the level of return that would be expected given the riskiness of a portfolio.…
Absolute return: An absolute return is the actual amount of money made by an investment ; the actual gain as a percentage of the amount invested.…
Acceptances: Agreements by the shareholders of a company subject to a bid to sell their shares to the bidder.…
Accepting house: A financial institution that accepts (guarantees) bills of exchange in return for a fee.…
Accounting Rate of Return: Average operating profit ÷ average book value of assets, as a percentage.…
Accounting Standards: Sets of rules governing how accounts are drawn up.…
Accounting Standards Board: The body that sets UK accounting standards. Its role has been reduced by IFRS.…
Accrual principle: The accounting principle of matching of costs to the revenues they generate.…
Accruals: A balance sheet item for expenses for which invoices have not been received at the end of an accounting period.…
Accrued interest: The amount of interest accumulated on a bond but not yet paid.…
Acid test ratio: (current assets - stocks) ÷ current liabilities. A measure of a company's ability to pay short term debt.…
Acquisition: The purchase, by a company, of another company, a business, product lines or brands.…
Acquisitive growth: Growth that is the result of takeovers, as opposed to organic growth.…
Active investing: Attempting to outperform the markets.…
Activist shareholder: Investors who intervene in the running of a company.…
Actuary: Actuaries assess financial risk, calculate insurance premiums and value pension funds.…
Ad driven media: The parts of the media that are dependent on advertising for their revenues, which therefore tend to be cyclical.…
Adjusted EPS: EPS adjusted for non-cash or one-off items such as amortisation and exceptional costs to give a better indication of underlying trends.…
Adjusted operating profit: Operating profit adjusted for non-cash or one-off items to give a better indication of underlying trends.…
Adjusted present value: An alternative to NPV. Cash flows are discounted using the cost of equity (instead of the WACC) and a separate adjustment is made for financing (i.e, the tax savings.…
Administrative receivership: The running of a company, or management of particular assets, is handed over to a receiver appointed by creditors in order to recover debts.…
ADR: A security issued in the US which bundles together a number of shares in a non-US company.…
Adverse opinion: An auditor's warning that a company's reported accounts do not show a true and fair view.…
Adverse selection: The tendency for those most at risk to be those most likely to buy insurance.…
Advertising elasticity: The change in sales that results from a change in ad spend.…
Advisory broking: Stockbroking services that offer investors advice from a stockbroker but where trades are only made on the client's instructions.…
AER: Annual effective rate; a number that can be used to compare different fixed interest investments taking into account the effects of compounding.…
Affinity fraud: A fraud targeting members of a particular group who are likely to trust each other.…
Agency cross: A trade that a broker matches directly between two of its clients, bypassing the market.…
Agency theory: The economic analysis of the conflicts of interest between owners and managers of assets.…
Aggressive accounting: Manipulation of financial numbers, usually within the letter of accounting rules.…
AGM (annual general meeting): A annual meeting at which shareholders vote on the appointment of directors and other important decisions.…
Agreed takeover bid: A take-over bid backed by the directors of the target company.…
AIM: A market run by the London Stock Exchange for trading in companies too small to list on their main market.…
Algorithmic trading: Automated trading used to find the best prices and to disguise buying or selling interest.…
All or nothing order: An all or nothing order is either executed in full or not at all.…
Allotment: The allocation of a new issue of securities to applicants.…
Alpha: The alpha of a security or fund is its out-performance over the risk adjusted return, with risk measured by beta.…
Alpha fund: Usually simply a label for funds that attempt to significantly out-perform their benchmark.…
Alternative investments: Investments other than conventional investments in equities, bonds and cash.…
Altman Z-score: The Altman z-score is a measure of a company's financial strength that uses a weighted sum of several factors.…
American Depositary Receipt: A security issued in the US which bundles together a number of shares in a non-US company.…
American option: An option which can be exercised at the strike price at anytime before the expiry date.…
Amortisation: Amortisation is the equivalent of depreciation for intangible assets.…
Angel investor: An individual investor who invests in a start-up that is unable to raise venture capital.…
Annual effective rate: A number that can be used to compare different fixed interest investments taking into account the effects of compounding.…
Annual premium equivalent: A measure that allows the calculation of new business numbers for an insurer that combines single premium and regular premium business.…
Annual report: The most important single regular release of information from the to investors.…
Annuity: A stream of regular fixed payments, or a financial product that offers them.…
AON order: An all or nothing order is either executed in full or not at all.…
API gravity: A measure of the density of crude oil.…
APT: Arbitrage pricing theory; a valuation method which is theoretically sound but which is difficult to apply in practice.…
APV: Adjusted present value; an alternative to NPV. Cash flows are discounted using the cost of equity with a separate adjustment for financing.…
Arbitrage: Making a gain through trading securities without committing or risking money.…
Arbitrage pricing theory: A valuation method which is theoretically sound but which is difficult to apply in practice.…
Arbitrageur: A securities trader who specialises in arbitrage and arbitrage like strategies.…
Argus Sour Crude Index: An index of the price of high sulphur crude oil produced in the Gulf of Mexico.…
Arithmetic mean: The total divided by the number of numbers summed.…
ARPU: The revenues from the services divided by the number of clients buying those services.…
ARR: Accounting rate of return: average operating profit ÷average book value of assets, as a percentage.…
ASB: The body that sets UK accounting standards. Its role has been reduced by IFRS.…
Asian option: An option that has an exercise price that is based on the average price of the underlying security over a period.…
ASK (Available Seat Kilometres): A measure of airline capacity: seats available ×distance flown.…
Asset allocation: Deciding the proportion of a portfolio that should be invested in each security type, market and sector.…
Asset backed securities: Debt securities secured against specific cash flows.…
Asset stripping: The purchase of a company, followed by its breakup.…
Assets under management: The amount of clients’ funds a fund manager manages. A measure of size and used for valuation.…
Asset turnover: Sales ÷ assets. Measures how effectively the assets invested in a business are at generating sales.…
Associate company: A company in which a group of companies has a substantial stake (typically 20%-50%) but not outright control.…
Assurance: Insurance against an inevitable event such as death.…
ATK (Available Tonne Kilometres): Aircraft weight carrying capacity in tonnes × km flown over period.…
ATS (automated trading system): A computer system for matching orders in securities.…
At the money: An option is at-the-money if the strike price equals the exercise price.…
Audit: The independent checking of a company's accounts by external accounts.…
Auditors' opinion: The auditor's opinion on the whether a company's accounts give a true view of its finances.…
Average: A generic term which can refer to one several types of average.…
Average cost: A book value for stocks (inventory) calculated using a moving average of the price of stocks received.…
Average down: Buying more of a security which has fallen in price in order to lower the average price paid.…
Average Revenue Per User: The revenues from services divided by the number of clients buying those services.…
Backfill bias: The distortion caused by the inclusion of historical of historical data of new index constituents.…
Back office: Administrative functions such as processing orders.…
Back-testing: The testing of a financial model by using it on past date and then comparing the 'predictions' to what actually happened.…
Backwardation: Backwardation is the opposite of forwardation; it occurs when the price of the future is less than the spot price of underlying commodity.…
Backward integration: Increasing vertical integration by acquiring suppliers or otherwise increasing level of self supply.…
Bad debt: Debt that is unlikely to be recoverable.…
Balance sheet: The balance sheet shows what assets and liabilities the company has, and how the business is funded.…
Bancassurance: The sale of insurance and banking products through the same channel, most commonly bank branches selling insurance.…
Banking covenants: Agreements between a company and its creditors that it should that the company should operate within certain limits, typically on debt levels, asset sales or gearing.…
Bankruptcy: A person who is insolvent (unable to pay their debts) can be declared bankrupt. This means their assets and income become, for a period, by a trustee who attempts to clear what debts they can.…
Barrel of oil: In the oil industry, a barrel is 42 US gallons, approximately equal to 159 litres.…
Barrier options: A type of exotic option whose value depends on the underlying passing (or not) a particular price point.…
Barriers to entry: Anything that makes it difficult for a new entrant to break into a market.…
Basic EPS: Earnings per share without any adjustments.…
Basis points: A basis point is to one hundredth of a percentage point (i.e. 0.01%).…
Basis risk: A basis risk is the risk that the value of a hedge may not move in perfect opposition to the position it hedges.…
bboe: Billions of barrels of oil equivalent. A single number combining the volumes of oil and gas production.…
Bear: An investor who is pessimistic about the prospects for a market, a sector or a particular security.…
Bearer securities: A security which gives the bearer of a paper certificate ownership, with no register of owners being maintained.…
Bear raid: An attempt by traders to force the price down of a security by heavy forward selling. Such market manipulation is illegal in most countries.…
Bear squeeze: A price rise that causes bears to buy to cover their positions. The demand this creates causes further price rises.…
Bear trap: A short term dip in the price of a security that tempts bears into positions that make a loss when the price then rises again.…
Behavioural finance: A branch of financial economics that models the behaviour of investors, rather than simply assuming that they are rational and risk averse.…
Benchmark: In an investment context most likely to mean a performance benchmark or a benchmark price.…
Benchmark index: The index or other measure against which the performance of a fund or portfolio is measured.…
Benchmark price: Prices of commodities in a particular well specified, widely traded, form.…
Beneficial ownership: The "real" owner of assets that are held by a trustee.…
Beta: Beta is a measure of the correlation between the value of a security and the market. Beta is used to calculate discount rates for CAPM.…
Bid-offer spread: The difference between the prices at which shares can be bought and sold.…
Bid price: The highest price at which a buyer is willing to buy a particular security. The buyer may be a market maker or an ordinary investor.…
BIMBO: Buy-in management buy-out. A partial management buy-in combined with an MBO.…
Binary options: Options that either pay a fixed amount or nothing.…
Black-Scholes: The most widely used method of option valuation. More complex models are sometimes necessary as it uses a number of simplifying assumptions.…
Black swan: An event that is highly improbable (and unforeseen and therefore omitted from models) that nonetheless occurs and has a significant impact.…
Blue chip: A large company. Blue chip shares are generally lower risk. FTSE 100 constituents are generally considered blue chips.…
Boe: Barrels of oil equivalent is a single measure combining oil and natural gas production.…
Bonds: A bond is a security that pays interest. The majority of bonds have a fixed life at the end of which the principal is returned.…
Bonus issue: The issue of new shares to existing shareholders at no charge in proportion to their existing shareholdings. It is basically a bookkeeping exercise.…
Book to bill ratio: The ratio of the orders taken in a period to the amount invoiced over the same period. Most commonly used in the semiconductor industry.…
Book value: The value of assets as shown on the balance sheet.…
Bottom fishing: Any investment strategy that relies on buying extremely cheap; an extreme form of value investing.…
Bottom-up stock selection: Picking individual stocks or securities rather than sectors or regions.…
Boutique: A small specialist financial institution such as a fund manager or broker.…
Brand: The identifying name and other distinguishing characteristics attached to a business and its products or services.…
Brand dilution: Brand dilution is the weakening of a brand though its overuse: often from ill judged brand extension.…
Brand extension: Brand extension is the widening of the range of products sold using a particular brand. If overdone it can risk diluting a brand.…
Break-even: The break-even point is the level of sales (revenues or volumes) needed to cover the fixed costs; the level of sales at which neither a profit or loss is made.…
Brent crude: The accepted world benchmark crude oil which is used to price two thirds of the world's internationally traded crude oil supplies.…
Bubble: Security prices far above the levels which can be justified by any rational assessment of the real value of future cash flows. Bubbles inevitably burst.…
Building society: A British financial mutual. In effect, a a bank owned by depositors and borrowers.…
Bulge bracket banks: The largest, mostly American, investment banks.…
Bull: An investor who expects the market, sector or security to rise in price. The expectation of rises is described as "bullish".…
Bulldog bond: A sterling bond issued by an non-British issuer.…
Bullet bond: A simple bond which pays fixed interest with repayment of the principal on a fixed date.…
Bull run: A period in which investors' optimism keeps the market moving strongly and consistently upwards.…
Bundling: The practice of supplying two separate products together, so buyer who only want one, must buy both.…
Business to business: Sales to another business as opposed to consumers.…
Buy and hold: Any strategy that holds securities for long periods, avoiding frequent trading.…
Buy-in management buy-out: A partial management buy-in combined with an MBO. Often abbreviated to BIMBO.…
Buy-side analyst: An analyst who works for an institutional investor such as a fund management company, usually producing research for internal use rather than publication.…