Finance Essentials: A Glossary of Key Terms
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Investment & Trading
Key Concepts
Collateral: Assets a borrower uses to secure or guarantee a loan.
Shares: Certificates representing part ownership of a company.
Institutional Investors: Financial organizations that own a lot of shares.
Day Traders: People who buy and resell shares in a very short time, often just a few hours.
Raise Capital: To get money from investors with which to run a business.
Issue: To offer securities for sale to financial institutions and the public.
Market Dynamics
Bid-Offer Spread (Bulls & Bears): The difference between the buying (bid) and selling (offer) price of shares. Bulls are investors who buy shares expecting prices to rise, while bears sell shares anticipating price drops.
Market Makers: Traders who buy and sell shares, creating liquidity in the market.
Going Public (Flotation): An operation in which a private company offers shares to outside investors, becoming a public company (PLC in Britain, Corporation in the US).
Underwriting: A guarantee to buy unsold shares during an initial public offering (IPO).
Due Diligence Report: A detailed examination of a company's financial situation.
Right Issue: Existing shareholders are offered the first right to buy newly issued shares.
Nominal Value: The price written on the share certificate.
Scrip Issue: A process where profits are reinvested into the company by issuing new shares instead of paying dividends.
Financial Management
Core Principles
Bankruptcy: A state of insolvency where a company or individual cannot pay debts and may have to sell assets.
Equity: The sum of a company's assets minus its liabilities, representing ownership value.
Capital Budgeting: The process of evaluating potential large expenses or investments.
Cash Flow: The total amount of money moving into and out of a business.
Net Working Capital: The difference between current assets and current liabilities.
Cash Inflow: Funds received by a company from sales, financing, or investments.
Cash Outflow: Money spent by a company on operations, investments, or financing.
Accounting & Reporting
Assets: Resources owned by a company, such as buildings, machinery, and equipment.
Liabilities: Obligations or debts owed by a company, such as loans and mortgages.
Big 4 Accounting Firms: Deloitte, PwC, Ernst & Young (E&Y), and KPMG.