Glossary
Inside information—information unavailable to the public, upon which it is illegal to base transactions
Institutional investors —money managers, pension fund managers, and managers of mutual funds
Intangible asset—an asset without physical presence; examples include intellectual property rights (patents) or going-concern value (goodwill)
Interest—payment for the use of borrowed money
Interest-coverage ratio—the ratio of pretax earnings to interest expense
Interest-only mortgage security (IO)—interest payments stripped from a pool of mortgages which, for a given change in interest rates, fluctuates in value inversely to conventional mortgages (see principal-only mortgage security)
Interest rate reset—a promise made by an issuer to adjust the coupon on a bond at a specified future date in order to cause it to trade at a predetermined price
Internal rate of return (IRR)—calculation of the rate of return of an investment that assumes reinvestment of cash flows at the same rate of return the investment itself offers
Investment—an asset purchased to provide a return; investments, in contrast to speculations, eventually generate cash flow for the benefit of the owners (see speculation)
Investment banking—profession involving raising capital for companies as well as underwriting and trading securities, arranging for the purchase and sale of entire companies, providing financial advice, and opining on the fairness of specific transactions
Investment grade—fixed income security rated BBB or higher
Junk bond - fixed-income security rated below investment grade
Leveraged buyout (LBO)—acquisition of a business by an investor group relying heavily on debt financing
Liability—a debt or other obligation to pay
Liquidating distribution—cash or securities distributed to shareholders by a company in the process of liquidation
Liquidating trust—an entity established to complete a corporate liquidation
Liquidation value—the expected proceeds if the assets of a company were sold off, but not as part of an ongoing enterprise
Liquidity—having ample cash on hand
Liquid security—a security that trades frequently and within a narrow spread between the bid and asked prices
Making a market—acting as a securities dealer by simultaneously bidding for and offering a security
Margin of safety—investing at considerable discounts from underlying value, an individual provides himself or herself room for imprecision, bad luck, or analytical error (i.e., a “margin of safety”) while avoiding sizable losses
Market price—the price of the most recent transaction in a company’s publicly traded stock or bonds
Maturity—the date on which the face value of a debt security is due and payable
Merchant banking—an activity whereby Wall Street firms commit their own capital while acting as principal in investment banking transactions
Merger—a combination of two corporations into one
Mutual fund—a pooled investment portfolio managed by professional investors
Net asset value (NAV)—the per share value of a mutual fund calculated by dividing the total market value of assets by the number of shares outstanding
Net-net working capital—net working capital less all long-term liabilities
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