Investor's glossary: financial terms in plain English
Stock market terms with the formula, the calculation method and a list of pitfalls. Every multiple is explained once and surfaces as a tooltip.
- CouponThe regular payment made to a bondholder under the terms of the issue.
- Coupon frequencyHow many times a year the issuer pays: monthly, quarterly, twice a year.
- Coupon guidanceThe range of rates the arranger announces before order collection in order to test demand.
- Coupon income taxCoupons are subject to personal income tax, withheld by the broker or the depository at the moment of payment.
- Coupon payment dateThe day the issuer transfers the coupon; it reaches the holder's account later, once the settlement chain has done its work.
- Coupon periodThe interval between two coupon payments.
- Coupon rateThe annual percentage of par the issuer promises to pay: it fixes the size of the coupon, not the return on the investment.
- Coupon resetThe issuer's right to set a new rate for the following periods, usually alongside a put offer.
- Coupon reset lagThe gap between the date the reference rate is observed and the period a floater pays for at that rate.
- CovarianceA measure of how two assets move together: positive when they tend to deviate from their averages in the same direction, negative when in opposite ones.
- CovenantsConditions in a debt agreement that constrain what the borrower may do.
- Covered callSelling a call against an asset already held in the portfolio.
- Crack spreadThe gap between the value of refined products and the price of the crude they are made from.
- Creation and redemptionThe mechanism by which the number of units in an exchange-traded fund changes on demand: a large participant delivers a basket of assets and receives units, or returns units and receives assets.
- Credit enhancementThe devices that make an issue safer than the assets standing behind it: overcollateralisation, a reserve fund, a junior tranche, a third-party guarantee.
- Credit eventA fact defined by documentation that triggers consequences: a missed payment, a restructuring, bankruptcy, a covenant breach.
- Credit ratingAn agency's opinion on an issuer's ability to meet its obligations.
- Credit riskThe risk that a borrower fails to meet its obligations.
- Cross rateThe rate between two currencies computed through a third.
- Cross tradeA trade in which one participant is both buyer and seller, matching the instructions of two of its own clients.
- Cross-defaultA clause under which a breach by the issuer on one debt automatically counts as a breach on this issue too.
- Crude oil qualityThe main quality parameters of crude: how light the oil is and how much sulphur it contains.
- Cumulative preferred sharesPreferred shares on which an unpaid dividend is not lost but accrues and remains payable later.
- Cumulative votingA method of electing the board in which votes are multiplied by the number of seats and may all be cast for a single candidate.
- Currency bandAnnounced boundaries within which the central bank lets the rate move freely.
- Currency controlsRules restricting the movement of currency between residents and the outside world.
- Currency crisisA situation in which a state can no longer hold its exchange rate, and the rate collapses once reserves run out or the peg is abandoned.
- Currency diversificationSpreading holdings across currencies so that the portfolio's result does not depend entirely on the rate of any single one.
- Currency exposureThe dependence of a portfolio's value on movements in the exchange rate.
- Currency pairThe quote of one currency expressed in another.
- Currency revaluationThe change in the domestic-currency value of a foreign-currency asset caused by exchange rate movement.
- Currency revaluation in taxComputing the tax base on a foreign-currency asset in home currency at the purchase and sale dates.
- Currency riskThe risk that an asset's value changes because the exchange rate moves.
- Current accountThe part of the balance of payments covering trade in goods and services and investment income.
- Current liabilitiesDebts falling due within a year.
- Current ratioCurrent assets divided by current liabilities: whether the company holds enough short-term means to cover what falls due soonest.
- Current yieldThe annual coupon divided by the purchase price: what the bond pays in coupon against the money put into it.
- Curve fittingTuning rules to the accidental features of a historical sample: the more variants are tried, the better the result on the past looks and the less it says about the future.
- Custody accountAn account at a depository on which the rights to your securities are recorded.
- Custody account statementA depository document stating which securities, and in what quantity, are recorded on a holder's account as at a given date.
- Custody feeA charge for recording and safekeeping securities on a custody account.
- Cyclical earningsProfit that depends heavily on the phase of the economic cycle.
- Cyclical sectorAn industry whose demand depends heavily on the phase of the economic cycle.
- Cyclically adjusted multiplePrice against average profit over a long span covering both the upswing and the downturn, rather than against the profit of one year.
- DAXThe main German equity index, covering the largest companies on the Frankfurt exchange.
- DV01The change in the value of a bond or a portfolio, in money, for a one basis point shift in yield.
- Day count conventionThe rule for counting the fraction of a coupon period: how many days are counted in the period and how many are taken as a year.
- Days payable outstandingHow many days the company on average waits before paying suppliers for goods already received.
- Days sales outstandingHow many days pass on average between shipping goods and collecting the money for them.
- Debt instrumentA security certifying an issuer's obligation to repay a loan and pay interest.
- Debt restructuringChanging the terms of an issue by agreement with holders: pushing back dates, cutting the coupon, writing off part of the principal.
- Debt to assetsHow much of the company's property is financed with borrowed money.
- Debt to equityHow many borrowed units of currency fall on each unit of shareholders' capital.
- Debt-funded dividendA payment that operating cash did not cover and that was financed by borrowing or by selling assets.
- Debt-like itemsItems that behave like debt without being loans: lease liabilities, pension obligations, deferred consideration on acquisitions, guarantees given.
- Debt-to-GDP ratioGovernment debt set against a year of economic output — a measure of what the debt will be serviced out of.
- DefaultAn issuer's failure to pay a coupon or to redeem the principal.
- Defensive sectorAn industry with steady demand regardless of the phase of the cycle.
- Deferred taxThe difference between tax under accounting rules and under tax rules, carried into future periods.
- Deferred tax assetA right to reduce future tax: an accumulated loss, or a difference between accounting and tax measurement that will one day work in the company's favour.
- Deferred tax liabilityTax the company will pay later: accounting profit today exceeds the tax base, and the difference is deferred into the future.
- DeflationA sustained fall in the general price level.
- DelistingThe removal of a security from the exchange's list of traded instruments.
- Deliverable futureA contract whose settlement involves delivery of the underlying asset.
- Delivery versus paymentA settlement principle under which the transfer of securities and the transfer of money happen together or not at all.
- DeltaThe sensitivity of an option's premium to a change in the price of the underlying.
- Depositary receiptA security certifying rights to the shares of a foreign company.
- DepositoryThe organisation that maintains the record of rights to securities.
- Depreciation and amortisationThe gradual writing down of long-lived assets into expenses.
- Derivatives marketThe market of contracts for future delivery or settlement — futures and options.
- Derivatives on the balance sheetForwards, swaps and options carried at fair value: their revaluation lands either in profit or in equity.
- DevaluationA substantial fall in the value of a national currency.
- Developed marketsThe group of countries with long-established exchanges, free movement of capital and deep liquidity.
- Diluted earnings per shareEarnings per share calculated as if every programme granting a right to receive shares had already been exercised.
- DilutionThe reduction of a holder's share of capital and votes caused by new shares he did not buy.
- Direct listingBringing shares to an exchange without issuing new stock and without a book: existing holders come to the market.
- Direct market accessAn arrangement in which a client's order reaches the trading system directly, without manual handling at the intermediary.
- Direct methodBuilding the cash flow statement from actual receipts and payments rather than from profit.
- Direct quoteA way of writing a rate in which the foreign currency is priced in the domestic one.
- Dirty priceThe clean price plus accrued interest — the amount actually debited on purchase.
- Disclaimer of opinionThe auditor declines to say whether the accounts are reliable: there was not enough evidence to assert anything either way.
- DisclosureAn issuer's obligation to publish information that matters to investors.
- Disclosure newswireThe official channel through which issuers publish mandatory announcements; the primary source of corporate news.
- Discontinued operationsA business the company is selling or closing: its result is lifted out of the main lines into a separate one.
- DiscountA price sitting below some reference point — face value, asset value, or the price of a comparable asset.
- Discount factorThe multiplier that converts a future amount into a present one: the further away the date and the higher the rate, the smaller it is.
- Discount rateThe rate at which future cash flows are brought back to today's value.
- Discounted cash flowValuing a company by the present value of its future cash flows.
- Discrete auctionA temporary switch from continuous trading to auction-style order collection when the price moves sharply.
- Discretionary managementAn arrangement in which a manager, not the account holder, decides on trades within an agreed strategy.
- Disposition effectThe tendency to realise gains early and to hold losses for a long time.
- Distributable profitThe part of accumulated profit a company may direct to dividends under statute and its articles.
- DivergenceA disagreement between the direction of price and the direction of an indicator.
- DiversificationSpreading investments so that a single failure does not decide the fate of the whole portfolio.
- Dividend approvalThe shareholder meeting's decision on a payment: it may not exceed the amount the board recommended, but it may be smaller or nil.
- Dividend baseThe measure a dividend policy applies its formula to: profit under a named accounting standard, cash flow or another metric.
- Dividend calendarA compilation of dates for declared and expected payments: recommendation, meeting, record date and remittance.
- Dividend coverageSetting the declared payment against the profit and the cash flow it is paid out of.
- Dividend declarationThe moment a payment stops being an intention and becomes the company's obligation to its shareholders.
- Dividend discount modelValuing a share by the present value of the dividends it will bring its holder.
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