1. Definition A - C
2. Definition D - G
3. Definition H - L
4. Definition M - O
5. Definition P - R
6. Definition S - T
7. Definition U - Z
8. Back to Main
|Stock Glossary - (A - C)
A - C
| D -
G | H - L
| M -
O | P - R
| S -
T | U - Z
Definitions A - C
No one likes jargon, especially when it comes to talking
about finances. If you've come across any terms you don't understand, you
may find them explained here. Perhaps one or two of these definitions will
bring a wry smile to your face. Not a belly laugh, nor a throaty roar of
delight. Or even a hearty chuckle, you understand. Just a wry smile.
Still, that's not bad for a collection of explanations of financial
- One who records and/or examines the finances of individuals or
businesses. Someone who comes in very handy at tax time.
- Accounting earnings
- A company's earnings as reported on its income statement.
- Accounting insolvency
- A situation in which total liabilities exceed total assets. A
company with a negative net worth is insolvent on the books.
- Accounting liquidity
- The ease and speed at which assets can be converted to cash.
- Accounts payable
- Money owed by a company to suppliers.
- Accounts receivable
- Money owed to a company by customers that have purchased goods
and/or services on credit. Accounts receivable is listed as an asset on
the balance sheet, as it is a number that will (presumably) be turned
into cash by the company as the receivables are paid off.
- Accounts receivable turnover
- A measure of how quickly customers pay their bills. Accounts
receivable turnover is sales for the period divided by the average
accounts receivable. Also called receivables turnover.
- Accredited investor
- Someone who is supposed to know a lot about investing, and who meets
certain income and net worth criteria, as established by the SEC. Being
an "accredited investor" is sometimes a requirement for certain limited
- Accrual basis
- An accounting method where income is reported when earned and
expenses are reported when incurred. This is in contrast to cash-basis
accounting, which reports income when it is actually received and
expenses when they're actually paid.
- Accrual bond
- See Zero coupon bond.
- Accrued expenses
- Expenses incurred during a given accounting period for which payment
has not yet been made.
- Accrued interest
- Interest that has accumulated on a bond since the last interest
payment was made.
- Accumulated dividend
- A dividend that is due and owed to a preferred stockholder, but has
not yet been paid.
- Accumulated earnings
- Retained earnings.
- Accumulated earnings tax
- A tax on earnings retained by a business to avoid paying the higher
income taxes that would be due if the earnings were paid out to the
owners as dividends. Also known as an accumulated profits tax.
- Buying shares over a period of time. For an individual investor,
this just means buying additional shares of a stock you already own. For
an institution, however, it may mean making a series of purchases rather
than one large purchase that could drive up the market price.
- Accumulation period
- In retirement parlance, the years when one is making regular
contributions to a retirement plan or deferred annuity. The period is
considered to end when the income payments begin. See generally: Retirement
Planning: How to Retire in Style.
- Accumulation unit
- A share of participation in a variable annuity.
- Acid-test ratio
- See Quick
- Acquisition cost
- The cost of equipment or property after it has been adjusted for any
incentives, discounts, or closing costs, but before sales tax.
- Acquisition of assets
- A merger or consolidation in which an acquirer buys a company's
- Acquisition of stock
- A merger or consolidation in which an acquirer buys a company's
- Active management
- Any investment strategy that involves picking individual securities
with the goal of either beating the market's returns, or lessening the
risk of following the market. In the context of mutual funds, active
management refers to any non-index funds. The vast majority of actively
managed mutual funds fail to outperform index funds, and we recommend
Fools not invest in actively managed mutual funds. See Index
- Adjusted gross income
- The amount on which an individual pays income tax.
- See American
- Advisory fee
- See Management
- Aggressive growth fund
- A mutual fund that seeks long-term capital growth by investing
primarily in stocks of fast growing smaller companies or narrow market
segments, such as "the technology sector" or "the Internet sector."
Sometimes called a capital appreciation fund.
- Allowance for bad debt
- Money reserved to cover the possibility of a nonpaying customer. A
company may be forced to convert a portion of accounts receivable into a
loan if one of its big customers gets in financial trouble.
- American Depositary Receipt (ADR)
- A receipt for the shares of a foreign-based company held by a U.S.
bank that entitles the shareholder to all dividends and capital gains of
the underlying stock. ADRs trade similar to stocks on U.S. exchanges,
and provide a way for Americans to invest in foreign-based companies by
buying their shares in the U.S. instead of through an overseas exchange.
- American Stock Exchange (or Amex or AMEX)
- Founded in 1842 in New York City, the American Stock Exchange is one
of the three major stock exchanges in the U.S. along with the New York
Stock Exchange and the Nasdaq. It was acquired by the Nasdaq in 1998,
but still operates as separate exchange.
- AMEX or Amex
- See American
- The systematic repayment (e.g., monthly, quarterly, or yearly) of a
debt or loan, such as a bond or mortgage, over a specific time period.
- Amortized value
- The value of a security as determined by the process of
- Amount recognized
- The amount of a capital gain that is reportable and subject to tax.
- Alternative minimum tax.
- A financial professional who analyzes securities to determine their
investment merits, including possibly a "fair" or "intrinsic" value for
them. The term is generally applied to almost any professional investor
who does research of some kind. There are "sell-side" and "buy-side"
analysts. "Sell-side" analysts typically work for investment banks and
brokerages and sell or publish their analysis. "Buy-side" analysts
typically work for the mutual fund companies or institutions that use
the analysis to make investment decisions for the funds they manage.
- Annual effective yield
- The measure of the actual annual rate of return on an account after
interest is compounded.
- Annual report
- The corporate financial statement that shareholders eagerly await
each year. These reports are required by Securities and Exchange
Commission regulations and frequently include impressive color pictures
of the CEO smiling, regardless of whether the company has had a year to
smile about or not.
- To make a period of less than a year apply to a full year to
facilitate comparative analysis. For example, to annualize quarterly
results, you multiply them by four. This can lead to incorrect
assumptions when employed for analyzing companies in industries with
strong seasonal or cyclical sales trends.
- A contract between an insurance company and a person that provides
for periodic payments to the individual or designated beneficiary in
return for an investment. Typically, an annuity agrees to provide
payments to the purchaser of the contract (annuitant) beginning at some
point in the future. Annuities are typically very poor investments, and
Fools generally avoid purchasing them. Insurance companies typically
push selling them very hard since they usually have high fees. For more
information, see Annuities:
What's to Like?.
- An increase in the price or value of an asset. Appreciation is one
component of total return.
- The price at which a prospective seller is willing to sell a
security. See also: Bid.
- Anything that has monetary value. Typical personal assets include
stocks, real estate, jewelry, art, cars, and bank accounts. Corporate
assets are found on the company's balance sheet and include cash,
accounts receivable, short- and long-term investments, inventories, and
- Asset allocation
- Dividing investment dollars among various asset classes, typically
among cash investments, bonds, and stocks. Wall Street firms frequently
change their "model asset allocation" portfolios -- ostensibly to show
that they have recalculated the best method for balancing the risks
involved in holding various investments. This also, however, results in
additional commissions from clients who follow the "model portfolios"
and sell various assets to rebalance their portfolios.
- Asset allocation fund
- A mutual fund that, as market conditions change, consistently
rebalances its investments among the major asset classes (stocks, cash,
- Asset classes
- The three major asset classes are cash (also called cash reserves,
money market instruments, or moolah), bonds, and stocks.
- At the market
- See Market
- Automatic reinvestment
- A method in which the dividends or other earnings from an investment
are used to buy additional shares in the investment vehicle. Dividend
Reinvestment Plans (Drips) are one example. See Drip
- Average maturity
- The average of all maturity dates for securities in a money market
or bond fund. The longer the average maturity, the more volatile a
fund's share price will be, moving up or down as interest rates change
-- which they do every day.
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- Back-end load
- A pernicious and usually not fully explained sales fee charged by
some mutual funds when an investor sells fund shares. Also called a
contingent deferred sales charge. Before you purchase a mutual fund,
make sure you find out all fees that are included -- including those you
might have to pay when you sell.
- Balanced fund
- Any mutual fund that provides a combination of stocks, bonds, and/or
money market instruments.
- When a company is unable to pay its debts, it is bankrupt. Such a
company often files for Chapter 11 bankruptcy protection, which allows
it to continue to operate while it reorganizes.
- Basis point
- Most often used relating to changes in interest rates. One basis
point is 1/100 of a percentage point.
- A person with a generally pessimistic market outlook or a
pessimistic view on a sector or specific stock.
- Bear market
- When the overall market loses value over an extended period of time.
There is no "official" definition of what makes a bear market, though
many feel a drop of at least 10% is needed. A drop of something less
than 10% is often called a "correction" (even though the term
"correction" is never used when the market moves up 10%).
- Beat the Dow strategy
- See Before-tax contributions
- Contributions made to a retirement plan -- such as a 401(k) or
403(b) -- before federal income taxes are deducted, reducing one's gross
income for federal tax purposes. See Is Your 401(k)
- A measure of the relative volatility of a stock or other security as
compared to the volatility of the entire market (usually measured by the
S&P 500 index). A beta above 1.0 shows greater volatility than the
overall market, and a beta below 1.0 is less volatile.
- The price a prospective buyer is willing to pay for a security. See
- Bid-ask spread
- The difference between what a buyer is willing to pay (bid) for a
security and the seller's asking price (ask).
- Blue-chip stocks
- Really good, large companies -- often Dow components -- that have
been around long enough to have a solid history of rewarding
shareholders. Think Coca-Cola, IBM, General Electric, General Motors,
and Johnson & Johnson.
- Board of directors
- A group of people elected by a corporation's shareholders to oversee
the management of the company. The board members meet several times each
year, are paid in cash and/or stock, and take on legal responsibility
for corporate activities. Also called directorate.
- An interest bearing or discounted debt security issued by
corporations and governments. Bonds are essentially loans by the
investor to the issuer in return for interest payments.
- Bond fund
- A mutual fund that invests in bonds.
- Book value
- A company's assets, minus any liabilities and intangible assets.
Book value is literally the value of a company that can be found in the
accounting ledger and is often represented as a per-share value by
taking the company's shareholder equity and dividing by the current
number of shares outstanding.
- Bottom line
- The bottom line on a business's income statement shows its actual
profits according to generally accepted accounting principles (GAAP).
Hence the all-important phrase -- "What's the bottom line?" See also: Net
profit and Net profit
- One who sells financial products. Whether in insurance, real estate,
or stocks, most brokers work under compensation structures that are at
direct odds with the best interests of their clients. When using a
broker, you should always find out how he or she is compensated.
- A person with a positive or optimistic outlook for the general
market, a market segment or industry, or for particular stocks (e.g., a
Coca-Cola bull). (Slang: an exaggerated or untrue statement.)
- Bull market
- A market that has been gaining value over a prolonged period.
- A strategy that employs buying shares of companies with the
intention of keeping those holdings for a long time, preferably
indefinitely, and participating in the long-term success of being a
partial owner of the business underlying the stock. Our favorite
investing method by far.
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- Call option
- An option contract that grants the buyer the right, but not the
obligation, to buy the optioned shares of a company at a set price (the
"strike price") for a certain period of time. If the stock fails to meet
the strike price before the expiration date, the option expires
worthless. You buy a call option if you think the share price of the
underlying security will rise, or sell a call option if you think it
will fall. Selling an option is also referred to as ''writing'' an
option. The option seller is called the writer.
- A business's cash or property, or an investor's pile of cash. See
- Capital appreciation
- One of the two components of total return, capital appreciation is
how much the underlying value of a security has increased. If you bought
a stock at $10 per share and it has risen to $13, you have enjoyed a 30%
return or appreciation on the original capital you invested. Dividend
yield is the other component of total return.
- Capital gain/loss
- The difference between the price at which an asset is sold and its
original purchase price (or "basis").
- Capital gains distributions
- Payments, typically made in December, to mutual fund shareholders of
gains realized through purchases and sales by the mutual fund during the
year. Because these capital gains distributions are sometimes
substantial, check with the mutual fund you are considering investing in
and avoid buying shares of mutual funds just prior to a capital gains
- Capital growth
- An increase in a stock's or bond's price. Sometimes called capital
- See Market
- Cash account
- A brokerage account that settles transactions on a cash basis with
no opportunity for the account holder to use credit (margin). See also:
- Cash and cash equivalents
- The first line of a corporate balance sheet is always named this, or
some similar phrase. It refers to the amount of money that a company has
sitting in the bank. It may also include marketable securities, such as
government bonds and banker's acceptances. Cash equivalents on the
balance sheet may include securities that mature within 90 days.
- Cash flow
- A measure that tells an investor whether a company is actually
bringing cash in to the company's coffers.
- Cash flow statement
- A financial statement reflecting the monies that go into and out of
a business, and the timing of those movements. The cash flow statement
reports on cash inflows and outflows in a company's operations,
investments, and financing activities.
- Cash investments
- Short-term debt instruments such as commercial paper and Treasury
bills that mature in less than a year. Also known as money market
accounts or cash reserves.
- Cash reserves
- See Cash
- See Certificate
- Certificate of deposit (CD)
- An insured, interest-bearing deposit at a bank, requiring the
depositor to keep the money invested for a specific length of time.
- Certified Financial Planner (CFP)
- An investment professional who has passed the CFP Board of Standards
series of exams on subjects such as taxes, securities, insurance, and
- Certified Public Accountant (CPA)
- A professional who is licensed by a state to practice public
- See Chartered
- Chief Financial Officer.
- See Certified
- Chairman of the board
- The head officer of a corporation's board of directors. This person
often has executive authority over the company. See also: Board of
- Charge off
- A loss that is written off a company's books when a lender
determines it will be unable to collect from the debtor.
- A graph showing how the price of a given stock has changed over
time. Other data is often included, such as volume data. Many people
claim to be able to divine extraordinary information about the future
performance of a stock by consulting charts about the past. Fools don't
believe this can be done on a consistent basis.
- Chartered Financial Analyst (CFA)
- Someone who has passed competency standards -- as determined by the
Institute of Chartered Financial Analysts -- in securities, portfolio
management, economics, and financial accounting.
- Chief Executive Officer (CEO)
- The CEO is the highest executive officer in a corporation, sort of
like the captain of a ship. He or she is accountable to the company's
board of directors and is frequently a member of that board. The CEO
participates in setting goals with the board and other officers and is
responsible for the strategies and tactics employed to meet the
- Churning is unconscious or conscious overtrading by a broker in a
customer's account. Since brokers are most often compensated by the
number of transactions made on a customer's behalf, there is temptation
to trade too frequently, whether that's in stocks, bonds, or mutual
funds with loads.
- Closed-end fund
- A mutual fund that has a fixed number of shares and is typically
listed on a major stock exchange. These funds often trade perpetually at
a discount to their net asset value (NAV). See also: Open-end
- Closing price
- The last trading price of a stock when the market closes for the
- Cold call
- It's cold because the person calling doesn't know you from a
snowdrift. To build a book of business, many new brokers must call
people they don't know and try to sell an investment idea or their
services as a broker. Cold calls are a good reason not to answer the
telephone around dinner time.
- Commercial paper
- A promissory note issued by a large company to secure short-term
- A fee charged by a broker for executing a securities transaction.
One of the principle things investors should watch for when selecting a
brokerage. "Full-service" brokers can have commissions running as high
as $150 per trade or more, while discount brokers average less than $20
per trade. See also: "How to Choose a Discount
- Goods such as grains, silver and other precious metals, and minerals
traded in large amounts on a commodities exchange.
- Common stock
- A security representing partial ownership in a public or private
- When an investment generates earnings on reinvested earnings.
- Conduit IRA
- See Rollover
- Consumer Price Index (CPI)
- An inflation tracker, much followed by the mainstream media. It is
the measure of the price change in consumer goods and services.
- Contingent deferred sales charge
- See Back-end
- Convertible security
- A preferred stock or corporate bond that can be exchanged for shares
of the company's common stock at a predetermined price or rate.
- A short-term drop in stock market prices. The term "correction"
comes from the notion that, when this happens, an overpriced individual
stock, market segment, or stocks in general are returning back to their
"correct" values. The term, for reasons that elude us, is never used
when a stock or the stock market returns to a higher level after
momentarily visiting a lower level.
- Cost basis
- The original price paid for an investment (including commissions).
- Cost/benefit analysis
- An attempt to determine the feasibility of embarking on a project by
quantifying its anticipated costs and benefits.
- Cost-of-living index
- See Consumer
- Coupon/coupon rate
- The interest rate that a bond issuer is obligated to pay the bond
holder until the bond matures.
- See Certified
- See Consumer
- A market crash is a big drop in market value. It is what many
shorter-term focused investors always worry about. The stock market
never goes up in a straight line, so there will always be crashes. It
can take a few days, months, or even years for a market to recover after
- Money loaned. It also refers to the borrowing capacity of an
individual or company.
- Credit history
- The record of how well an individual or company has, in the past,
repaid borrowed money.
- Credit limit
- The maximum amount of money that a bank or other lender will lend to
a particular individual or company.
- A person or organization that lends money to others.
- A creditor's measure of a borrower's ability to meet debt
- Cumulative total return
- The performance of an investment over a stated period of time.
- Current assets
- Assets that are easily convertible to cash. Cash, short-term
investments, and accounts receivable are asset categories that should
result in cash within the next year.
- Current liabilities
- Debt or other obligations that are payable within a year.
- Current ratio
- The current ratio provides a speedy indication of a company's
ability to meet short-term debt obligations. The higher the ratio, the
more liquid the company is, and the better able it is to take care of
any short-term debt. To determine the ratio, take current assets and
divide by current liabilities.
- Current yield
- As applied to bonds, the annual interest rate divided by the current
- Cyclical stock
- Stock of a company whose performance is generally related (or
thought to be related) to the performance of the economy as a whole.
Paper, steel, and the automotive stocks are thought to be cyclical
because their earnings tend to be hurt when the economy slows and are
strong when the economy turns up. Food and drug stocks, on the other
hand, are not considered "cyclicals," as consumers pretty much need to
eat and care for their health regardless of the performance of the
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