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.
- ADR levelsThe tiering of receipt programmes by depth of access, from over-the-counter trading without US-standard reporting to a full listing with a capital raise.
- Accelerated placementThe sale of a large block of shares to institutional buyers within hours, usually once the main session has closed.
- Account maintenance feeA recurring charge for servicing the account that applies whether or not a single trade was made in the period.
- Accounting policyThe set of rules by which a company recognises income and expenses and values its assets.
- Accounts payableWhat a company owes its suppliers and contractors.
- Accounts receivableAmounts customers owe the company.
- Accruals ratioA measure of the gap between profit and cash flow: how much of the profit rests on accruals rather than on cash received.
- Accrued interestThe portion of the coupon that has built up since the last payment.
- Accrued interest in the tax baseAccrued interest paid at purchase reduces the tax base; accrued interest received on a sale increases it.
- Acquisition cost deductionDocumented costs of buying a security — price, commissions, accrued interest paid to the seller — that reduce the taxable base when it is sold.
- Active managementA manager selecting securities with the aim of beating a benchmark.
- Adjusted EBITDAEBITDA from which the company has removed items it considers untypical: write-offs, one-off costs, revaluation effects and sometimes share-based pay.
- Administrative expensesThe cost of running the company: head office, finance and legal functions, office rent, audit fees.
- Admission to tradingThe venue operator's decision that a security may be dealt in on that venue.
- Adverse audit opinionThe auditor states outright that the accounts are not reliable: the misstatements are material and pervasive.
- Affiliated personA person able to influence a company's decisions, or connected with it through participation in its capital and management.
- Aggressive accountingAccounting choices that stretch out the recognition of costs and pull forward the recognition of income: capitalising instead of expensing, long useful lives, early revenue on long contracts.
- All-or-none orderAn execution condition under which an order is filled in full or not filled at all.
- All-weather portfolioAn allocation designed to give an acceptable result in any phase of the economy.
- AllocationThe share of an order actually filled in an oversubscribed offering.
- AlphaThe return earned beyond what the portfolio's market risk explains: what is left after subtracting beta multiplied by the market's own move.
- Ambiguity aversionA readiness to choose the option with known probabilities even when its expected result is worse — anything rather than deal with uncertainty that cannot be measured.
- American depositary receiptA security issued by a US bank against the shares of a foreign company and traded on the American market.
- American-style optionAn option the holder may exercise on any day up to expiry.
- Analysis paralysisThe state in which gathering more information substitutes for deciding: every check spawns the next one and the action is postponed indefinitely.
- AnchoringThe influence of the first number encountered on every estimate that follows.
- Annual general meetingThe mandatory yearly meeting of holders: it approves the accounts and the distribution of profit and elects the board.
- AnnualisationRestating a return earned over an arbitrary period as an annual figure.
- Appraisal rightThe right of a holder who voted against certain resolutions, or did not vote, to sell his shares back to the company.
- ArbitrageExtracting profit from a price discrepancy in the same asset.
- Articles of associationThe company's constitutive document: it names the classes of shares, the rights attached to them, how a meeting is convened and how the preferred dividend is worked out.
- Asian financial crisisThe sequence of devaluations and collapses across South-East Asia that began when Thailand stopped defending its currency in 1997.
- Asset allocationThe proportions between asset classes in a portfolio.
- Asset bubbleA market state in which the price is held up by the expectation of reselling higher rather than by anything the asset itself pays.
- Asset impairmentWriting an asset down to its recoverable amount.
- Asset management companyThe organisation managing a fund's property under the fund's rules.
- Asset turnoverHow much revenue each unit of assets produces: the speed at which property turns into sales.
- AssociateA company the group significantly influences without controlling; its result is reported as a share of profit rather than line by line.
- At the moneyThe state in which the price of the underlying and the strike are practically the same.
- Audit committeeThe board committee responsible for financial reporting, internal control and the relationship with the external auditor.
- Auditor's opinionThe auditor's view on whether the statements are reliable.
- Authorised participantA professional participant entitled to exchange a basket of assets for fund units and back. He does not serve private investors, yet the price in the order book depends on him.
- Authorised sharesThe maximum number of shares a company may place in addition to those already issued, should it decide to.
- Automatic exerciseThe automatic exercise of options that finish in the money on the expiry date.
- Availability heuristicJudging the probability of an event by how easily an example comes to mind.
- Average True RangeA measure of a security's typical daily price range.
- Average cost basisThe weighted average price at which a position was accumulated.
- Averaging downBuying more of a fallen holding to bring the average price of the position down: the break-even point moves, and the size of the bet on the original idea grows with it.