Financial glossary A–Z

194 contextual terms

Financial glossary

Clarify a term before comparing figures. Definitions connect to explanations and sources.

A

Accounts payable: A company’s obligations to settle with suppliers and other creditors.
Accounts payable turnover: The relationship between purchases and the average trade debt owed to suppliers.
Accounts receivable: Amounts and claims that other parties are required to settle in the company’s favor.
Accounts receivable turnover: A measure relating credit sales to the average amount owed by customers.
Accrual basis: Recognizes economic events when the applicable recognition requirements are met, not simply when cash moves.
Accrued coupon income — ACI: The portion of a coupon accrued between payment dates and accounted for under the terms of the particular transaction.
Annual interest rate: The rate expressed on a yearly basis; actual income depends on term, day count and accrual rules.
Annuity as a payment sequence: Equal-amount payments at equal intervals in a specified financial model.
Annuity due: A sequence of equal payments made at the beginning of each equal period.
Ask price: The price at which a participant offers to sell an instrument in the order book under review.
Asset allocation: Choosing the shares of asset classes and sources of risk in a portfolio in line with its objective and constraints.
Asset turnover: Revenue for a period divided by the average carrying amount of assets.
Assets: Resources controlled by a company and used to obtain economic benefits.

B

Backtest overfitting: Fitting a strategy to features of historical data so that past success transfers poorly to new observations.
Balance sheet: A report of recognized assets, liabilities and equity at a specific date.
BCG matrix: A framework using four quadrants of growth and relative market share, with limits on its application.
Bid price: The price at which a participant offers to buy an instrument in the order book under consideration.
Bid–ask spread: The difference between the best displayed offer to sell and the best displayed offer to buy in a selected snapshot.
Bond: A debt security with payment terms defined by the issue documents.
Bond convexity: A measure of the curvature of the price–yield relationship under a selected cash-flow model.
Bond coupon: An interest payment on a bond whose amount and payment procedure are set by the issue terms.
Bond redemption: Performance of the issue terms requiring the issuer to return the face amount or part of it.
Brier score: The mean squared difference between the stated probability of a binary event and its actual outcome.

C

Carryover inventory: The meaning of “carryover inventory,” an editorial example and its limits of application.
Cash conversion cycle: An analytical estimate of how long cash remains tied up in inventory and receivables after supplier payment terms are considered.
Cash flow: Cash receipts and payments during a period; net cash flow is the difference between them.
Cash-generating unit: A group of assets with independent cash inflows, used in certain impairment tests.
Clearing: Determining participants’ obligations after trades and preparing their execution, including netting where provided for.
Collateral haircut: The difference between the valuation of posted collateral and the amount of funding supported by it, expressed on a specified basis.
Compound annual growth rate (CAGR): A constant calculated annual rate linking an indicator’s starting and ending values.
Conflict of interest when selling a financial service: A difference between the incentives of a client and the person explaining or selling a product.
Consolidated financial statements: Presenting a parent organization and its subsidiaries as a single economic entity.
Contingent liability: A possible or certain unrecognized liability for which disclosure and uncertain events matter.
Counterparty risk: The risk that the other party to a transaction will not perform its obligations under the specified terms.
Covenant: A contractual condition that limits a borrower’s metrics or actions.
Credit spread: The difference between the yield of a debt instrument and a selected comparable benchmark.
Current bond yield: Annual coupon income relative to a selected market price of the bond.
Current ratio: The ratio of current assets to current liabilities in a common analytical formula.
Cycle inventory: Inventory that covers ordinary consumption between successive deliveries in a selected supply model.

D

Debt amortization: The gradual repayment of an obligation’s principal through a sequence of payments.
Default: Failure to perform an obligation on the terms set by a contract or offering documents.
Deferred tax: Tax consequences of temporary differences and certain unused tax amounts, distinct from the current tax payment.
Deposit term: The contractual period for which money is placed. Exact calendar dates can matter more than a rounded number of months.
Depreciation and amortization: The systematic allocation of an asset’s depreciable amount over its useful life.
Derivative financial instrument: A contract whose value or payments depend on an underlying asset, indicator or event.
Discounted cash flow valuation (DCF): A valuation model based on expected future cash flows brought back to the present.
Discounting: Bringing future cash amounts to a common point in time using a selected rate.
Diversification: Distributing investments across different sources of risk to reduce dependence on individual adverse events.
Dividend: A distribution of company funds to shareholders under a corporate decision and the terms of the relevant share rights.
Duration: A measure of a bond’s cash-flow timing and sensitivity to yield changes; the type of duration must be specified.

E

Earnings per share (EPS): Profit attributable to ordinary shareholders, calculated per weighted-average number of shares.
EBIT — earnings before interest and taxes: An analytical measure of profit before interest expense and income tax.
EBITDA — earnings before interest, taxes and depreciation and amortization: An analytical profit measure before interest, income tax and depreciation and amortization; it is not the same as cash flow.
Economic order quantity: The EOQ model, its formula, an example and the conditions under which the optimum no longer applies.
Effective annual rate: The annual result of a specified capitalization model; it is not automatically the same as a product’s total cost or a regulatory indicator.
Emergency fund: Accessible reserves for unexpected expenses and temporary income reductions.
Enterprise value (EV): An analytical valuation of a business for different capital providers, not only shareholders.
Equity: The residual interest in a company’s recognized assets after deducting its liabilities.
Equity dilution: A reduction in an owner’s share or in earnings per share when the number of shares or potential shares increases.
Equity risk premium: A model-based or observed return increment relative to a selected base rate; the method must be specified.
EV/EBITDA: enterprise value relative to EBITDA: The ratio of analytical enterprise value to EBITDA for a comparable period.
Exchange: An organized venue that sets rules for admitting instruments and conducting trading.
Expected value: The average result in a probabilistic model, calculated by weighting outcomes by their probabilities.
Exponential moving average: A recursively smoothed series in which the influence of past observations gradually declines.

F

Financial risk: Uncertainty of an outcome, including loss or failure to reach a financial goal.
Floating coupon: An interest payment determined by a formula with a changing reference value on specified dates and under specified rules.
Forecast calibration: The correspondence between stated probabilities and observed event frequencies in a comparable series of forecasts.
Free cash flow to equity (FCFE): Analytical cash flow available to equity holders after reinvestment and corresponding debt-financing transactions.
Free cash flow to the firm (FCFF): Operating-business cash flow after necessary reinvestment and before distribution between debt and equity capital.
Future value: The amount on a selected future date when cash flows and accumulation factors are explicitly specified.
Futures contract: A standardized contract for future delivery or settlement under specified terms.

G

Going concern: The assumption used in preparing financial statements, distinct from a promise of future return or an absence of risk.
Goodwill: The residual amount in a business combination, distinct from a separately recognized brand.
Gross profit: The difference between revenue and the corresponding cost of sales under the selected presentation.

H

Heavy tail: The part of a distribution where large deviations occur more often than the selected thin-tailed model assumes.

I

Illiquid inventory: An educational definition of illiquid inventory, with an editorial example and application limits.
Impairment of an asset: The excess of carrying amount over recoverable amount under the applicable standard.
Income-smoothing buffer: A reserve used to cover weaker periods when income is irregular; it is a planning function, not a banking product.
Inflation: A sustained increase in the general price level that reduces the purchasing power of money.
Insurance float: Funds held by an insurer until related insurance obligations are performed and potentially available to finance investments.
Intangible assets: Identifiable non-monetary resources without physical substance that meet the conditions for recognition in accounting.
Interest capitalization: Adding accrued interest to the amount on which later interest is calculated. The contract determines dates and frequency.
Interest coverage ratio: The ratio of a selected profit measure to interest expense for one period.
Interest-rate risk: The risk that a financial instrument’s value or cash flows change when market rates change.
Internal rate of return (IRR): The discount rate at which the net present value of specified cash flows equals zero.
Inventory: Materials, work in progress and goods intended for sale or use in production.
Inventory costing by the cost of each purchased unit: Definition of inventory costing by the cost of each purchased unit, with an editorial example and limits of application.
Inventory holding costs: Definition of inventory holding costs, with an editorial example and limits of application.
Inventory in transit: Definition of “inventory in transit,” an editorial example and the boundaries of its application.
Inventory turnover: The ratio of cost of sales to average inventory for a comparable period.
Inventory valuation methods: Methods for allocating inventory cost between period expenses and goods remaining in inventory.
Investment horizon: The time until funds are needed for a specific financial goal.
Investment portfolio: A group of assets and positions considered as one whole for a defined financial goal.
Investor behavioral biases: Recurring decision patterns connected with emotions and the way information is perceived.
ISIN: international securities identification number: An international identifier for a financial instrument, used to distinguish it unambiguously.
Issuer: An organization or other authorized party that issues securities and assumes the related obligations.

L

Leverage: An increase in market exposure relative to one’s own funds that magnifies possible gains and losses.
Liabilities: Existing obligations of a company to transfer economic resources to other parties.
LIFO method: A definition of the LIFO method, an editorial example and limits of application.
Limit order: An order with a price boundary: buy at no more than, or sell at no less than, the specified level.
Liquidity: The ability to sell an asset or meet cash obligations on time without unacceptable loss.
Liquidity ladder: Organizes resources by when and under what conditions they can fund an expense; it does not guarantee profit or safety.
Liquidity ratios: A definition of liquidity ratios, an editorial example and limits of application.
Look-ahead bias: Using information in a historical decision before that information was published or available on the relevant date.

M

Maintenance capital expenditure: An analytical estimate of investment needed to preserve a business’s existing ability to operate.
Mandatory expenses in a personal plan: Expenses that cannot be refused or postponed without consequences; mandatory does not mean constant in amount.
Market capitalization: The market value of issued shares, calculated using the price and the corresponding number of shares.
Market order: An instruction to execute against available offers without fixing the exact final price.
Material-resource requirement for consumption: Definition of the material quantity needed to carry out a specified activity program over a defined period, with an editorial example and application limits.
Material-resource requirement for incoming deliveries: Definition of the external replenishment needed after available inventory and other sources covering consumption are taken into account, with an editorial example and application limits.
Materiality of information: The effect of omitting, misstating or concealing information on the decisions of financial-statement users.
Maximum historical drawdown: The deepest decline from a preceding peak within a selected window and at a selected observation frequency.
Mean reversion: The tendency for a repeat measurement of observations selected for being extreme to be less extreme when a random component is present.
Merchandise inventory: Goods acquired or held for sale in the ordinary course of business when this management classification is used.
Modified internal rate of return: An educational definition of the modified internal rate of return, with an editorial example and application limits.
Money-weighted return — MWR: A return measure that reflects the size and timing of the owner’s external contributions and withdrawals.

N

Nash equilibrium: A set of actions in which no participant benefits from changing their own action alone, given the actions of the others.
Net asset value (NAV): The value of assets less liabilities; a per-unit figure requires division by the corresponding number of units.
Net debt: Financial debt less the cash resources included under the selected methodology.
Net income: A company’s financial result after recognized income, expenses and income tax.
Net operating profit after tax (NOPAT): An analytical operating profit after a notional tax, excluding the effect of the chosen financing structure.
Net present value (NPV): The sum of a project’s discounted cash flows, including initial and subsequent investments.
Net working capital: The difference between current assets and current liabilities.
Non-controlling interest: The share of outside owners in a subsidiary consolidated by the controlling company.
Normalized earnings per share (normalized EPS): An analytical EPS estimate on a recurring or otherwise explicitly defined basis, rather than a separate published fact.
Notes to the financial statements: Explanations that disclose the composition, measurement methods and uncertainty of reported amounts.

O

Open interest: The number of existing unsettled contracts at a given time, counted on one side of the obligation.
Operating profit: An intermediate performance result whose definition must be checked against the presentation used.
Operating segment: A business line whose information is disclosed under applicable segment-reporting requirements.
Option: A contractual right to take a specified action in relation to an underlying asset on stated terms; the other party’s obligation requires separate assessment.
Option premium: The price paid to acquire an option right; it is not the same as the exercise payment or the seller’s collateral.
Order book: A display of visible offers to buy and sell an instrument by price and quantity.
Order fulfillment costs: Definition of order fulfillment costs, with an editorial example and limits of application.
Other comprehensive income: Income and expenses that, under applicable standards, are not included in the profit or loss for the period.
Over-the-counter market (OTC): Transactions in instruments outside a centralized exchange mechanism, on the terms of the relevant market or contract.

P

P/B — price to book value: The ratio of market capitalization to the corresponding carrying value of equity.
P/E — price to earnings: The ratio of a share price to earnings per share, or of market capitalization to the corresponding earnings.
Personal cash shortfall: Insufficient accessible money on a payment date because income and expenses arrive at different times.
Personal payment calendar: A plan of available receipts and payments by date, carrying the balance forward between periods.
Planned-expense fund: Money set aside in advance for an expected payment or purchase with a specified purpose.
Portfolio rebalancing: Returning a portfolio’s structure to preselected weights or ranges after they have changed.
Portfolio turnover: A measure of transaction volume relative to portfolio value under an explicitly chosen formula.
Power-law distribution: A distribution whose tail over a stated range declines as a power of the threshold.
Preparation inventory: Inventory that covers the time needed to receive, sort, dry or otherwise prepare a resource for use.
Principal amortization: Repayment of principal in installments under a specified schedule, reducing the remaining claim.
Procurement and supply: The process of providing operations with the required resources in agreed quantities, quality and time frames.
Procurement plan: A definition of a procurement plan, an editorial example and its limits of application.
Production inventories: In a management classification, materials and other resources prepared for use in production.
Profitability index (PI): In a simple model with one initial investment, the present value of future net receipts per unit of investment.
Profitability ratios: A definition of profitability ratios, an editorial example and limits of application.
Project payback period: The period over which cumulative cash inflows compensate for the initial costs in a selected model.
Property, plant and equipment: Tangible items used in a company’s activities for more than one reporting period.
Provision: An obligation with an uncertain amount or timing of settlement.

Q

Quick ratio: Coverage of current liabilities by more liquid current assets, usually excluding inventory.

R

Real return: Return adjusted for changes in the purchasing power of money; expenses and deductions must be considered separately.
Repo: Linked first and reverse legs of a transaction involving securities and cash settlement under specified terms.
Return: The result of an investment relative to its value over a stated period and with a defined set of income and costs.
Return correlation: A unit-free measure of the linear co-movement of returns over a defined set of observations.
Return covariance: An estimate of the joint deviation of returns that preserves the scale of their variability.
Return on assets — ROA: Profit for a period relative to average asset value; the profit numerator must be specified.
Return on equity — ROE: Profit attributable to owners relative to the corresponding average equity.
Return on invested capital (ROIC): Operating profit after a notional tax charge relative to the average capital engaged in operating activity.
Return on investment — ROI: The result of an investment relative to its cost; the result and calculation period must be stated explicitly.
Return on sales: The share of a selected profit measure in revenue; net and operating margins describe different results.
Revenue: Income from the sale of goods and provision of services before expenses are deducted.
Right-of-use asset: Recognition of a lessee’s right to use the corresponding underlying asset during a lease.

S

Safety stock: A definition of safety stock, an editorial example and its limits of application.
Savings account: A bank account whose balance earns interest under its contract; it is not automatically a fixed-term deposit.
Seasonal inventory: Inventory built for demand, production or supply that is uneven over time.
Security: A financial instrument establishing specified proprietary rights and related rights of its holder.
Sequence risk of returns: The dependence of a portfolio result with cash flows on the order of market changes.
Share: A security representing an ownership interest in a company and the rights connected with that interest.
Simple interest: Interest calculated only on the original amount; previously accrued income does not increase the calculation base.
Statement of cash flows: A statement explaining changes in cash through operating, investing and financing flows.
Strike price: The price specified by an option contract for exercising the corresponding right.
Survivorship bias: A distortion caused by studying only objects that remain instead of the original population.
Sustainable competitive advantage: A mechanism that allows a business to maintain an attractive return despite competition.

T

Terminal value: An estimate of the value of a business continuing or ending at the end of the detailed forecast period.
Ticker: A short designation for an instrument in a particular trading or information system.
Time-weighted return (TWR): The linked result of subperiods between external cash flows.
Total cost of a deposit (Russian-specific historical term): A historical Russian indicator in the cited 2014–2024 materials; the source does not establish a current 2026 methodology.
Total inventory management costs: Definition of total inventory management costs, with an editorial example and limits of application.
Tracking difference: The difference between a fund’s result and a selected index over an agreed period, with the sign and method stated explicitly.
Tracking error: A measure of the variability of the difference between a fund’s periodic results and an index; the estimation method and periodicity must be specified.
Trade settlement: Performance of obligations to deliver money and instruments within the prescribed time and manner.
Turnover ratios: Measures of how intensively resources are used and how quickly they are converted into sales or cash receipts.

U

Unit economics: Results for a selected business unit with an explicitly defined composition of revenue and costs.

V

Variation margin: The cash result of revaluing a futures position under the applicable calculation rules.
Volatility: The degree of variation in a price or return; the assessment depends on the period and measurement method.

W

Weighted average cost of capital (WACC): An estimated required return for financing sources, taking into account their weights and the assumptions selected.
Weighted-average cost method for inventory: An inventory-costing method that allocates the cost of interchangeable items using a weighted-average price in an agreed manner.

Y

Yield curve: The relationship between a specified yield measure and maturity for a consistent set of instruments or calculation points.
Yield to maturity: A calculated rate linking a bond’s price with its scheduled future payments through maturity.

Z

Zero-coupon bond: A debt instrument without periodic coupon payments; in a simple structure, the result is linked to the purchase price and the final payment.