Glossary of Finance Terms

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Account Receivable
A balance due from a customer.
Accounting Beta Method
A method of estimating a project's beta by running a regression of the company's return on assets against the average return on assets for a large sample of firms.
Accounting Profit
A firm's net income as reported on its income statement.
Accruals
Continually recurring short-term liabilities, especially accrued wages and accrued taxes.
Acquiring Company
A company that seeks to acquire another firm.
Actual Realized Rate of Return,-ks
The rate of return on a common stock actually received by stockholders.-ks may be greater or less that ^ks and/or ks.
Add-On Interest
Interest that is calculated and added to funds received to determine the face amount of an installment loan.
Additional Funds Needed (AFN)w
Funds that a firm must raise externally through borrowing or by selling new common or preferred stock.
Adjustable Rate Preferred Stocks (ARPs)
Preferred stocks whose dividends are tied to the rate on Treasury securities.
After-tax Cost of Debt, kd(1-T)
The relevant cost of new debt, taking into account the tax deductibility of interest; used to calculate the WACC.
Agency Problem
A potential conflict of interest between the agent (manager) and (1) the outside stockholders or (2) the creditors (debtholders).
Aging Schedule
A report showing how long accounts receivable have been outstanding.
Amortization Schedule
A table showing precisely how a loan will be repaid. It gives the required payment on each payment date and a breakdown of the payment, showing how much is interest and how much is repayment of principal.
Amortized Loan
A loan that is repaid in equal payments over its life.
Annual Compounding
The arithmetic process of determining the final value of a cash flow or series of cash flows when interest is added once a year
Annual Percentage Rate (APR)
The periodic rate X the number of periods per year.
Annual Percentage Rate (APR)
A rate reported by banks and other lenders on loans when the effective rate exceeds the nominal rate of interest.
Annual Report
A report issued annually by a corporation to its stockholders. It contains basic financial statements, as well as management's opinion of the past year's operations and the firm's future prospects.
Annuity
A series of payments of an equal amount at fixed intervals for a specified number of periods.
Annuity Due
An annuity whose payments occur at the beginning of each period.
Arbitrage
The simultaneous buying and selling of the same commodity or security in two different markets at different prices, and pocketing a risk-free return.
Arrearages
Unpaid preferred dividends.
Asset Management Ratios
A set of ratios which measure how effectively a firm is managing its assets.
Asymmetric Information
The situation in which managers have different (better) information about firms' prospects than do investors.
Average Tax Rate
Taxes paid divided by taxable income
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