Net Income - is referred to as a company’s total earning. It is calculated by subtracting all expenses including tax from sales or revenue.
Gross profit - is referred to as a company’s profit after subtracting all making and processing costs from sales. In case the firm is a service provider, then all costs related to providing that service are subtracted from sales.
Operating profit - is the profit a company earns from its operations. It is calculated by subtracting all operating expenses from gross profit. For example, if a firm rents a place to operate then rent is considered as an operating expense. Similarly, electricity bills, internet charges, etc.
EBIT (Earnings before Interests and Tax) - are the earnings that include all production, operating and non-operating costs except interest expenses and income tax.
EBITDA (Earnings before interest, tax, depreciation, and amortizations) – is EBIT and adding back depreciation and amortization charges. This is a measure of a firm’s overall financial performance used instead of net income. Simply, it is a measure of profitability.
NOPAT (Net Operating Profit After Tax) – it is operating income multiplied by 1 minus tax rate. (Operating income * 1–Tax rate). This is used to measure a firm’s operating efficiency.
PBT (Profit before Tax) – is profit after all expenses except tax. It is calculated by EBIT minus interest expense of a firm. It is used to measure a firm’s profits before it pays corporate tax.
Free Cash Flow to Firm – this represents the amount of cash flow from operations available for distribution after depreciation expenses, taxes, capital expenditure, and investments are paid.
Free Cash Flow to Equity – it is a measure of how much cash is available to equity shareholders of a company after all expenses, debt payments and reinvestments are made.
Return on Assets – is a measure of how profitable the firm is relative to its total assets. For an investor, this shows how efficiently the management is using the firm’s assets. It is calculated as net income divided by total assets.
Return on Equity – is a measure of profitability or financial performance of a firm relative to its total equity. For an investor, this shows how much return is generated in percentage to equity. Simply, net earnings relative to total equity. It is calculated by net income divided by total equity. Equity = total assets – debts (loan).
Return on Invested Capital – it is a measure of profitability of a company where it is used to assess the firm’s efficiency of allocating its capital to profitable investments or projects. It is also known as return on capital.
Asset turnover Ratio – It is a measure of sales efficiency relative to assets. This means how many units were sold concerning assets it owns. It is calculated as total sales value divided by total assets. The higher the asset turnover ratio the better.
Receivable Turnover Ratio – it is an accounting ratio, to measure the firm’s ability to collect cash from its creditors or clients who bought goods or services on credit. It is calculated as net credit sales divided by average accounts receivables.
Payables Turnover Ratio – it is an accounting ratio, to measure the firm’s short-term credit on raw material purchases. It is used to measure the rate at which the firm pays its suppliers. It is calculated as net credit purchases divided by average accounts payables.
Error-cost mitigation – it is the process of reducing the costs of making mistakes.
Risk minimization – it is the process of reducing the probability of risk and impact of risk towards zero.
Risk profiling – it is the evaluation of a person’s willingness and ability to take risk.
Investments - It is the allocation of funds to assets or committing capital to a project or business with a profit-generating expectation.
Risk management – it is the forecasting and evaluation of risk along with taking steps to minimize it.
Lending – the action of allowing others to use money under an agreement to pay it back later.
Interest rate – the proportion of a loan that is charged as interest for lending money to the borrower. It is typically expressed as an annual percentage.
Principal – it the amount borrowed from a lender. Interest is charged on this borrowed amount.
Installment – an amount of money due which are one of several equal payments spread over an agreed time period.
Repayment – is the act of paying back borrowed money from a lender.
Collateral – it is a security provided by the borrower to the lender when money is given to the borrower. This acts as a protection for the lender in case the borrower is unable to pay back the loan amount with interest.
Default – it is the failure to repay a loan principal with interest within the agreed time period. A delay in repaying the principal and interest is also considered default.
Debt – it an amount of money borrowed by one party from another party. Simply, it can also be referred to as a loan.
Asset – it is a resource with an economic value that is owned or controlled by a person or corporation that will provide some future benefit.
Line of credit – it is a present borrowing limit that can be used anytime by the borrower as long as the limit is not reached.
Cash Flow – the total amount that is transferred in and out of a business.
Operating expenses – any expense which is incurred by a business to run its operations.
Repayment Schedule – it is a document that outlines all terms like principal, interest rate, due dates relating to a loan.
Mortgage – it is a debt instrument, secured by collateral of a specified property. The borrower is obligated to pay back the debt amount with a specified set of payments.
Lump-sum amount – it is often a large sum of money that is paid in one single payment.
Premium – it is the price or amount paid to get insurance.
Policy – it is an insurance contract.
Hedge – it is a protection against financial losses. It can also be an investment to reduce the risk of adverse price movements in an asset.
Creditworthiness – it is the extent to which a person is considered suitable to receive loans or credit. It is usually the reliability of a person based on past repaying capacity.
Beneficiary – a person that gets benefits from something especially an insurance policy or legal will.
Externality – in economics, it is a cost or benefit to a party or business which is not in their control.
Annual percentage rate (APR) – it is the annual rate charged for borrowing or earned on investments. It is often expressed as a percentage that represents the cost of funds or expected return on investments.
Funds – it is a sum of money saved for a particular purpose.
Capital – it is a term used for funds held in accounts and/or funds obtained from special financial sources.
Profit – it is a financial gain which is the difference between the amount received and the amount spent on business activity.
Monetary asset – an asset whose value is stated in or convertible into a fixed amount of cash.
Expected return – it is the profit or loss an investor expects to get on an investment. It is calculated by multiplying all potential outcomes by the chances of each outcome happening. Then totaling these results will give expected return.
Bankrupt – a person or company that is declared by law as unable to pay its debts.
Capital gain – it is a rise in the value of an asset that gives it a higher worth than the purchase price. This gain is not realized until the asset is sold.
Quarterly interest – interest received once every quarter of a year.
Semi-annual interest – interest received once every six months of a year.
Face Value – it is the original cost of the stock or bond as listed on the certificate. In finance, it can also be a term to describe the nominal value or rupee value of security. It is also known as the par value.
Pooled funds – they are a portfolio of money collected from many investors that are aggregated for investment.
Mutual Funds – they are a type of financial vehicle like pooled funds collected from many investors for investment purposes. They are managed by professional money managers who work for their investor’s interests.
Exchange-traded funds – they are a type of pooled fund which collects money from many investors intending to invest in any securities. These funds are actively traded on exchanges.
Trading Day – in finance, a regular trading day the time-span that a stock exchange is open for stock and derivatives trading.
Hedge Funds – they are a type of alternative investment that uses pooled funds to invest in different types of investment opportunities. They hedge their investments by going long and short on stocks and other investments.
Options – they are a type of derivative that gives the buyer the right but not the obligation to buy or sell a stock or index.
Nature of Scheme – is the fund’s investment objective and it is determined by all underlying investments.
Rating Profile – it is the rating of underlying investments of a fund. All mutual funds invest in securities or stocks after evaluating their creditworthiness which is mentioned as ratings.
Holdings – are the mutual fund’s portfolio disclosing their allocation into different assets. It is an updated statement of all investments.
AUM – Assets under management are referred as the most recent total/ cumulative market value of investments managed by a mutual fund.
Beta – is the measure of an investment’s volatility with respect to the market. A Beta of less than 1 means that the security is less volatile than the market. If the Beta is greater than 1 then this means the security is more volatile than the market.
Sharpe Ratio – it is a measure of risk-adjusted returns. It is used to measure reward per-unit of risk. It is calculated as excess return over risk-free rate divided by the standard deviation (sigma).
Modified Duration – is a measure of price sensitivity. It measures the percentage change in price for a unit change in the yield.
Exit load – it is the charge paid by the investor when they redeem their units of a mutual fund. Simply, charges payable when investors exit the mutual fund.
Entry load – it is the charge paid by the investor when they invest in mutual funds. This is used to compensate the agent or the distributor of mutual fund units.
Benchmark – A group of securities, typically a market index, whose performance is used as a standard or benchmark to measure investment performance of mutual funds, among other investments.
NAV – Net Asset Value is the total asset value per unit of mutual fund. It is calculated after deducting all related and permissible expenses.
SIP – Systematic Investment Plan that works on the principle of making regular periodic investments of the same fixed amount.
YTM – Yield to Maturity is the rate of return anticipated on a bond if held until maturity.
Minimum Additional Amount – for existing investors, it is the minimum amount that can be invested
Application Amount for Fresh Subscription – the minimum amount that is required for investment by a new investors.
Fund Manager – the person responsible for asset management in a mutual fund.
Zero-coupon Bond – Any bond that does not pay regular interest, rather it is sold at a discount. The difference between Face value and purchase price
Volatility – it is variability in the returns of securities. It is the measure of the risk of returns. Total volatility is measured by the standard deviation. Systematic volatility is measured by the Beta of securities.
Underwriter – the financial institution or company that does underwriting and handles sales of new securities.
Trustee – the Legal protector who looks after all money invested in a unit trust or mutual fund with a legal point of view. He/She is the upholder of covenants and not responsible for asset allocation.
Tracking error – when the fund is following passive portfolio management or indexing, then the amount by which the performance of the portfolio differs from the benchmark or index.
Sector fund – a fund that invests in a particular sector or in companies that are engaged in specific business operations. Sector funds are not well-diversified; thus, they take more risk but also may offer greater potential returns.
Record Date – it is a date when companies close the records to determine which stockholder will receive dividends, rights, etc.
Price-to-earnings (P/E) – It is the ratio of market price to earnings per share. This is a measure of price relative to earnings. Simply, this means how much the market is paying for the company’s ability to earn 1 rupee.
Premium – it is the amount paid for a security above its face value or eventual value at maturity.
Preferred stock – it is a type of stock or equity security that is entitled to a fixed dividend which is given out before common stocks receive any dividend. These shares also have residual rights before common shares.
Portfolio – it is a collection of securities that includes various security types like stocks, bonds, and money market instruments.
Options – it is derivative security, which is a contract of the right, but not the obligation, to buy (call option) or sell (put option) an underlying security at a fixed price (strike price) before or at a predetermined future date (expiration).
Open-ended Fund – it is a mutual fund scheme that is available for subscription, redemption, and repurchase on a continuous basis.
Close-ended fund – it is a fund scheme which is issued once and is not redeemable. Once bought, these can only be sold in the secondary market.
Net worth – it is the total value of paid-up capital and capital reserves (excluding revaluation reserves), minus the total value of all losses, deferred expenses, and miscellaneous expenses not written off.
Load – It is a sales charge that is taken by mutual fundsto cover costs. A front-end load is charged at the time of purchase and a back-end load is charged at the time of sale.