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More Terminologies

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This is a continuation of various terminologies used in the business/financial sector. This is a follow-up on the terminologies published in June 2016.

Vertical Integration

The process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity, in order to increase that company’s or entity’s power in the marketplace

Preferred Stock

Capital stock which provides a specific dividend that is paid before any dividends are paid to common stockholders, and which takes precedence over common stock in the event of a liquidation. Like common stock, preferred stocks represent partial ownership in a company, although preferred stock shareholders do not enjoy any of the voting rights of common stockholders.

Book Value

A company’s common stock equity as it appears on a balance sheet, equal to total assets minus liabilities, preferred stock, and intangible assets such as goodwill. This is how much the company would have left over in assets if it went out of business immediately. Since companies are usually expected to grow and generate more profits in the future, market capitalization is higher than book value.

Mortgage

A loan to finance the purchase of real estate, usually with specified payment periods and interest rates. The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral for the loan

 Debit

An accounting entry which results in either an increase in assets or a decrease in liabilities or net worth. opposite of credit.

Credit

A journal entry recording an increase in assets. With cash basis accounting, credits are recorded when income is received. With accrual basis accounting, credits are recorded and recognized when income is earned.

Underwriting

The procedure by which an underwriter brings a new security issue to the investing public in an offering. In such a case, the underwriter will guarantee a certain price for a certain number of securities to the party that is issuing the security (in exchange for a fee). Thus, the issuer is secure that they will raise a certain minimum from the issue, while the underwriter bears the risk of the shortfall.

Profit

The positive gain from an investment or business operation after subtracting for all expenses.

Journal

An accounting record where all business transactions are originally entered. A journal details which transactions occurred and what accounts were affected. Journal entries are usually recorded in chronological order, and using the double-entry method of bookkeeping

Current ratio

An indication of a company’s ability to meetshort-term debt obligations; the higher the ratio, the more liquid the company is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength.

Demand

The amount of a particular economic good or service that a consumer or group of consumers will want to purchase at a given price. The demand curve is usually downward sloping, since consumers will want to buy more as price decreases. Demand for a good or service is determined by many different factors other than price, such as the price of substitute goods and complementary goods.

Lien

A legal claim against an asset which is used to secure a loan and which must be paid when the property is sold. Liens can be structured in many different ways. In some cases, the creditor will have legal claim against an asset, but not actually hold it in possession, while in other cases the creditor will actually hold on to the asset until the debt is paid off.

Finance

  1. A branch of economics concerned with resource allocation as well as resource management, acquisition and investment. Simply, finance deals with matters related to money and the markets.
  2. To raise money through the issuance and sale of debt and/or equity.

Median

One type of average, found by arranging the values in order and then selecting the one in the middle. If the total number of values in the sample is even, then the median is the mean of the two middle numbers. The median is a useful number in cases where the distribution has very large extreme values which would otherwise skew the data.

Equity

  1. Ownership interest in a corporation in the form of common stock or preferred stock.
  2. Total assets minus total liabilities; here also called shareholder’s equity or net worth or book value.
  3. Real Estate: The difference between what a property is worth and what the owner owes against that property (i.e. the difference between the house value and the remaining mortgage or loan payments on a house).

Productivity

The amount of output per unit of input (labor, equipment, and capital). There are many different ways of measuring productivity. For example, in a factory productivity might be measured based on the number of hours it takes to produce a good, while in the service sector productivity might be measured based on the revenue generated by an employee divided by his/her salary

Commodity

A physical substance, such as food, grains, and metals, which is interchangeable with another product of the same type, and which investors buy or sell, usually through futures contracts. The price of the commodity is subject to supply and demand. Risk is actually the reason exchange trading of the basic agricultural products began

Analyst

An employee of a bank, brokerage, advisor, or mutual fund who studies companies and makes buy and sell recommendations, often specializing in a single sector or industry. Analysts use a wide variety of techniques for researching and making recommendations. The reports and recommendations they publish are often used by traders, mutual fund managers, portfolio managers and investors in making their investment decisions.

Annuity

  1. A contract sold by an insurance company designed to provide payments to the holder at specified intervals, usually after retirement. The holder is taxed only when they start taking distributions or if they withdraw funds from the account. All annuities are tax-deferred, meaning that the earnings from investments in these accounts grow tax-deferred until withdrawal.

 REFERENCES

http://www.investorguide.com/

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