Important Finance Terminologies (V-Z)

Important Finance, Accounts and Economics Terminologies

 

What Is Valuation

Valuation is the analytical process of determining the current (or projected) worth of an asset or a company. There are many techniques used for doing a valuation. An analyst placing a value on a company looks at the business's management, the composition of its capital structure, the prospect of future earnings, and the market value of its assets, among other metrics.

What Is a Value Chain

A value chain is a business model that describes the full range of activities needed to create a product or service. For companies that produce goods, a value chain comprises the steps that involve bringing a product from conception to distribution, and everything in between—such as procuring raw materials, manufacturing functions, and marketing activities.

What Is a Value-Added Tax (VAT)

A value-added tax (VAT) is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. The amount of VAT that the user pays is on the cost of the product, less any of the costs of materials used in the product that have already been taxed.

What Is Variability

Variability, almost by definition, is the extent to which data points in a statistical distribution or data set diverge—vary—from the average value, as well as the extent to which these data points differ from each other. In financial terms, this is most often applied to the variability of investment returns. Understanding the variability of investment returns is just as important to professional investors as understanding the value of the returns themselves. Investors equate a high variability of returns to a higher degree of risk when investing.

What Is a Variable Cost

A variable cost is a corporate expense that changes in proportion to production output. Variable costs increase or decrease depending on a company's production volume; they rise as production increases and fall as production decreases. Examples of variable costs include the costs of raw materials and packaging.

What Is Variance

Variance (σ²) in statistics is a measurement of the spread between numbers in a data set. That is, it measures how far each number in the set is from the mean and therefore from every other number in the set.

What is Velocity of Money

The velocity of money is a measurement of the rate at which money is exchanged in an economy. It is the number of times that money moves from one entity to another. It also refers to how much a unit of currency is used in a given period of time. Simply put, it's the rate at which consumers and businesses in an economy collectively spend money. The velocity of money is usually measured as a ratio of gross domestic product (GDP) to a country's M1 or M2 money supply.

What is Venture Capital

Venture capital is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks and any other financial institutions. However, it does not always take a monetary form; it can also be provided in the form of technical or managerial expertise. Venture capital is typically allocated to small companies with exceptional growth potential, or to companies that have grown quickly and appear poised to continue to expand.

What Is Vertical Analysis

Vertical analysis is a method of financial statement analysis in which each line item is listed as a percentage of a base figure within the statement. Thus, line items on an income statement can be stated as a percentage of gross sales, while line items on a balance sheet can be stated as a percentage of total assets or liabilities, and vertical analysis of a cash flow statement shows each cash inflow or outflow as a percentage of the total cash inflows.

What Is Vertical Integration

Vertical integration is a strategy whereby a company owns or controls its suppliers, distributors, or retail locations to control its value or supply chain. Vertical integration benefits companies by allowing them to control the process, reduce costs, and improve efficiencies. However, vertical integration has its disadvantages, including the significant amounts of capital investment required.

What is Volatility

Volatility is a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security. Volatility is often measured as either the standard deviation or variance between returns from that same security or market index.

What Is Virtual Currency

Virtual currency is a type of unregulated digital currency that is only available in electronic form. It is stored and transacted only through designated software, mobile or computer applications, or through dedicated digital wallets, and the transactions occur over the internet through secure, dedicated networks. Virtual currency is considered to be a subset of the digital currency group, which also includes cryptocurrencies, which exist within the blockchain network.

What is a Vulture Capitalist

A vulture capitalist is an investor who buys up distressed companies in order to turn them around so he can sell them at a profit. Vulture capitalists are often criticized because of their aggressive behavior. 

What is a Vanilla Option

A vanilla option is a financial instrument that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a given timeframe. A vanilla option is a call or put option that has no special or unusual features. Such options are standardized if traded on an exchange such as the Chicago Board Options Exchange. 

What Is Vendor Financing

Vendor financing is a financial term that describes the lending of money by a vendor to a customer who uses that capital to purchase that specific vendor's product or service offerings. Sometimes called "trade credit," vendor financing usually takes the form of deferred loans from the vendor. It may also include a transfer of stock shares from the borrowing company to the vendor. Such loans typically carry higher interest rates than those associated with traditional bank loans.

What Is a Waiver of Subrogation

A waiver of subrogation is a contractual provision whereby an insured waives the right of their insurance carrier to seek redress or seek compensation for losses from a negligent third party. Typically, insurers charge an additional fee for a waiver of subrogation endorsement. Many construction contracts and leases include a waiver of subrogation clause.

What Is Wall Street

Wall Street is a street located in the lower Manhattan section of New York City and is the home of the New York Stock Exchange or NYSE. Wall Street has also been the historic headquarters of some of the largest U.S. brokerages and investment banks.

What Is a War Bond

A war bond is a debt security issued by a government to finance military operations during times of war or conflict. Investment in War Bonds was made through an emotional appeal to patriotic citizens to lend the government money as these bonds offered a rate of return below the market rate.

What is a Warrant

Warrants are a derivative that give the right, but not the obligation, to buy or sell a security—most commonly an equity—at a certain price before expiration. The price at which the underlying security can be bought or sold is referred to as the exercise price or strike price. An American warrant can be exercised at any time on or before the expiration date, while European warrants can only be exercised on the expiration date. Warrants that give the right to buy a security are known as call warrants; those that give the right to sell a security are known as put warrants. 

What Is Wealth Management

Wealth management is an investment advisory service that combines other financial services to address the needs of affluent clients. It is a consultative process whereby the advisor gleans information about the client's wants and tailors a bespoke strategy utilizing appropriate financial products and services.

What Is a Weighted Average

Weighted average is a calculation that takes into account the varying degrees of importance of the numbers in a data set. In calculating a weighted average, each number in the data set is multiplied by a predetermined weight before the final calculation is made.

What Is Weighted Average Cost of Capital – WACC

The weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All sources of capital, including common stock, preferred stock, bonds, and any other long-term debt, are included in a WACC calculation.

What Is White-Collar Crime

White-collar crime is a nonviolent crime committed for financial gain. According to the FBI, a key agency that investigates these offenses, "these crimes are characterized by deceit, concealment, or violation of trust." The motivation for these crimes is to obtain or avoid losing money, property, or services, or to secure a personal or business advantage.

What Is a Wholesale Price Index

A wholesale price index (WPI) is an index that measures and tracks the changes in the price of goods in the stages before the retail level – that is, goods that are sold in bulk and traded between entities or businesses instead of consumers. Usually expressed as a ratio or percentage, the WPI shows the included goods' average price change and is often seen as one indicator of a country's level of inflation.

Although many countries and organizations use WPIs in this way, many other countries, including the United States, use the producer price index (PPI) instead – a similar but more accurately named index.

Fact: Wholesale prices are what retailers pay manufacturers.

 

What Is a Withholding Tax

A withholding tax is an amount that an employer withholds from employees’ wages and pays directly to the government. The amount withheld is a credit against the income taxes the employee must pay during the year. It also is a tax levied on income (interest and dividends) from securities owned by a nonresident alien, as well as other income paid to nonresidents of a country. Withholding tax is levied on the vast majority of people who earn income from a trade or business in the United States.

What Is a Wire Transfer

A wire transfer is an electronic transfer of funds via a network that is administered by hundreds of banks and transfer service agencies around the world. The transfer can also be made in cash at a cash office. Wire transfers allow for the individualized transmission of funds from single individuals or entities to others while still maintaining the efficiencies associated with the fast and secure movement of money. By using a wire transfer, people in different geographic locations can safely transfer money to locales and financial institutions around the globe.

What Is Working Capital

Working capital, also known as net working capital (NWC), is the difference between a company’s current assets, such as cash, accounts receivable (customers’ unpaid bills) and inventories of raw materials and finished goods, and its current liabilities, such as accounts payable. Net operating working capital is a measure of a company's liquidity and refers to the difference between operating current assets and operating current liabilities. In many cases these calculations are the same and are derived from company cash plus accounts receivable plus inventories, less accounts payable and less accrued expenses.

What Is a Work-in-Progress (WIP)

The term work-in-progress (WIP) is a production and supply-chain management term describing partially finished goods awaiting completion. WIP refers to the raw materials, labor, and overhead costs incurred for products that are at various stages of the production process. WIP is a component of the inventory asset account on the balance sheet. These costs are subsequently transferred to the finished goods account and eventually to the cost of sales.

What Is the World Trade Organization (WTO)

Created in 1995, the World Trade Organization (WTO) is an international institution that oversees the global trade rules among nations. It superseded the 1947 General Agreement on Tariffs and Trade (GATT) created in the wake of World War II.

What Was WorldCom

WorldCom was not just the biggest accounting scandal in the history of the United States—it was also one of the biggest bankruptcies of all time. The revelation that telecommunications giant WorldCom had cooked its books came on the heels of the Enron and Tyco frauds, which had rocked the financial markets. However, the scale of the WorldCom fraud put even them in the shade.

KEY TAKEAWAYS

• WorldCom was a telecommunications company that went bankrupt in 2002 following a massive accounting fraud.
• WorldCom remains the biggest accounting scandal in U.S. history as well as one of the largest bankruptcies.
• As a result of the scandal, former CEO Bernard Ebbers was sentenced to 25 years in prison, and former CFO Scott Sullivan was sentenced to five years.

 

What is a Waiver

• A waiver is a legally binding provision where either party in a contract agrees to voluntarily forfeit a claim without the other party being liable.
• Waivers can either be in written form or some form of action.
• Examples of waivers include the waiving of parental rights, waiving liability, tangible goods waivers, and waiver for grounds of inadmissibility.

 

What Is Wealth Tax

• Wealth tax is a tax levied on the value of held assets.
• A wealth tax is applicable to a variety of asset types including cash, bank deposits, shares, fixed assets, personal cars, assessed value of real property, pension plans, money funds, owner-occupied housing, and trusts.
• France, Portugal, and Spain all have wealth taxes.

 

What Is Window Dressing

Window dressing is a strategy used by mutual fund and other portfolio managers near the year or quarter end to improve the appearance of a fund’s performance before presenting it to clients or shareholders. To window dress, the fund manager sells stocks with large losses and purchases high-flying stocks near the end of the quarter. These securities are then reported as part of the fund's holdings.

What Is Winding Up

Winding up is the process of dissolving a company. While winding up, a company ceases to do business as usual. Its sole purpose is to sell off stock, pay off creditors, and distribute any remaining assets to partners or shareholders.

The term is used primarily in Great Britain, where it is synonymous with liquidation.

What Is a Windfall Tax

• A windfall tax is a surtax imposed by governments on businesses or economic sectors that have benefited from economic expansion.
• The purpose is to redistribute excess profits in one area for the greater social good; however, this can be a contentious ideal.
• Some individual taxes, such as inheritance tax or taxes on lottery or game show winnings, can also be construed as a windfall tax.

 

What Is a Write-Off

A write-off is an accounting action that reduces the value of an asset while simultaneously debiting a liabilities account. It is primarily used in its most literal sense by businesses seeking to account for unpaid loan obligations, unpaid receivables, or losses on stored inventory. Generally it can also be referred to broadly as something that helps to lower an annual tax bill.

 What Is Whipsaw

Whipsaw describes the movement of a security when, at a particular time, the security's price is moving in one direction but then quickly pivots to move in the opposite direction. There are two types of whipsaw patterns. The first involves an upward movement in a share price, which is then followed by a drastic downward move causing the share's price to fall relative to its original position. The second type occurs when a share price drops in value for a short time and then suddenly surges upward to a positive gain relative to the stock's original position.

What is a Water ETF

The water ETF is an exchange-traded fund that invests primarily in companies that operate within the purview of water treatment, distribution and sales. This ETF goes beyond the scope of private companies and deals with utility companies and third-party marketers as well.  

Definition of Whisper Stock

Whisper stock is shares in a company that is rumored to be the target of a takeover offer. The reason for the whisper is that any such talk must be kept quiet for one of two reasons. One, if the rumor has some validity, those who believe it will want to act on it before the rumor spreads. Two, if the whispering actually turns out to be true due to a leak of a confidential mergers and acquisition (M&A) transaction, no one wants to be brought in for questioning by the enforcement unit of a regulator or an investigator from the Department of Justice. There may be a surge in trading volume and upward price pressure on shares of a whisper stock. Once that happens and gains wider notice by the market, the stock will no longer be a whisper stock.

What Is a Whistleblower

A whistleblower is anyone who has and reports insider knowledge of illegal activities occurring in an organization. Whistleblowers can be employees, suppliers, contractors, clients, or any individual who becomes aware of illegal business activities. Whistleblowers are protected from retaliation under various programs created by the Occupational Safety and Health Administration (OSHA), Sarbanes Oxley Act, and the Securities and Exchange Commission (SEC). The protection of federal employees is under the Whistleblower Protection Act of 1989.

What is Extensible Markup Language (XML)

Extensible Markup Language (XML) is a flexible markup language for structured electronic documents. Extensible Markup Language (XML) is a programming language commonly used by data-exchange services (like blog feeds) to send information between otherwise incompatible systems. It is readable by both humans and computers and is based on SGML (standard generalized markup language), an international standard for electronic documents. Many other languages, such as RSS and XHTML, are based on XML.

What is a Xenocurrency

Xenocurrency is a currency that circulates or trades in markets outside of its domestic borders. The name derives from the Greek prefix "xeno," meaning foreign or strange. 

Today, use of the term is infrequent, perhaps due to the somewhat negative connotation of the word "Xeno." Xenophobia, for example, means an irrational fear or hatred of foreigners. Foreign currency, therefore, has become the preferred term when referring to a non-domestic currency.

What Is eXtensible Business Reporting Language

XBRL or eXtensible Business Reporting Language is a software standard that was developed to improve the way in which financial data is communicated, making it easier to compile and share this data. Notably, eXtensible Business Reporting Language is an implementation of XML (extensible markup language), which is a specification that is used for organizing and defining data online

What is Yacht Insurance

Yacht insurance is an insurance policy that provides indemnity liability coverage on pleasure boats. Yacht insurance includes liability for bodily injury or damage to the property of others and damage to personal property on the boat. Depending on the insurance provider, this insurance could also include gas delivery, towing and assistance if your boat gets stranded.

What Is a Yankee Bond

A Yankee bond is a debt obligation issued by a foreign entity, such as a government or company, which is traded in the United States and denominated in U.S. dollars.

What Is a Yield

Yield refers to the earnings generated and realized on an investment over a particular period of time. It's expressed as a percentage based on the invested amount, current market value, or face value of the security. It includes the interest earned or dividends received from holding a particular security. Depending on the valuation (fixed vs. fluctuating) of the security, yields may be classified as known or anticipated.

What Is a Yield Curve

A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity. There are three main types of yield curve shapes: normal (upward sloping curve), inverted (downward sloping curve) and flat.

What Is Yield on Cost (YOC)

Yield on Cost (YOC) is a measure of dividend yield calculated by dividing a stock's current dividend by the price initially paid for that stock. For example, if an investor purchased a stock five years ago for $20, and its current dividend is $1.50 per share, then the YOC for that stock would be 7.5%.

What Is a Yield Spread

A yield spread is the difference between yields on differing debt instruments of varying maturities, credit ratings, issuer, or risk level, calculated by deducting the yield of one instrument from the other. This difference is most often expressed in basis points (bps) or percentage points.

What Is Yield To Call

Yield to call (YTC) is a financial term that refers to the return a bondholder receives if the bond is held until the call date, which occurs sometime before it reaches maturity. This number can be mathematically calculated as the compound interest rate at which the present value of a bond's future coupon payments and call price is equal to the current market price of the bond.

What Is Yield to Maturity (YTM)

Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield but is expressed as an annual rate. In other words, it is the internal rate of return (IRR) of an investment in a bond if the investor holds the bond until maturity, with all payments made as scheduled and reinvested at the same rate.

What Is Yield Variance

Yield variance is the difference between actual output and standard output of a production or manufacturing process, based on standard inputs of materials and labor. The yield variance is valued at standard cost. Yield variance is generally unfavorable, where the actual output is less than the standard or expected output, but it can be that output expects expectations as well.

What Is a Yuppie

Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, affluence, and business success. They are often preppy in appearance and like to show off their success by their style and possessions.

What Is Zacks Investment Research

Zacks Investment Research is an American company dedicated to the production of independent research and investment-related content. Founded in 1978 by Len Zacks, armed with his PhD from MIT, hit upon a key discovery: Earnings estimate revisions are the most powerful force impacting stock prices.

What Is ZCash

ZCash is a cryptocurrency with a decentralized blockchain that seeks to provide anonymity for its users and their transactions. As a digital currency, ZCash is similar to Bitcoin. Like Bitcoin, ZCash also has an including its open-source code, but their major differences lie in the level of privacy and fungibility that each provides.

What Does Zero-Based Budgeting Mean

Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. The process of zero-based budgeting starts from a "zero base," and every function within an organization is analyzed for its needs and costs. Budgets are then built around what is needed for the upcoming period, regardless of whether each budget is higher or lower than the previous one.

What Is a Zero Balance Account (ZBA)

A zero balance account (ZBA) is pretty much exactly what it sounds like: a checking account in which a balance of zero is maintained. When funds are needed in the ZBA, the exact amount of money required is automatically transferred from a central or master account. Similarly, deposits are swept into the master account daily. Corporations sometimes use zero balance accounts to ensure that funds are readily available throughout different departments, to eliminate excess balances in separate accounts, and to maintain greater control over the disbursement of funds.

What Is a Zero-Beta Portfolio

A zero-beta portfolio is a portfolio constructed to have zero systematic risk, or in other words, a beta of zero. A zero-beta portfolio would have the same expected return as the risk-free rate. Such a portfolio would have zero correlation with market movements, given that its expected return equals the risk-free rate or a relatively low rate of return compared to higher-beta portfolios.

What is a Zero-Coupon Bond

A zero-coupon bond is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full face value.

What Is a Zero-Sum Game

Zero-sum is a situation in game theory in which one person’s gain is equivalent to another’s loss, so the net change in wealth or benefit is zero. A zero-sum game may have as few as two players or as many as millions of participants. In financial markets, options and futures are examples of zero-sum games, excluding transaction costs. For every person who gains on a contract, there is a counter-party who loses.

What Is the Zero-Volatility Spread (Z-Spread)

The Zero-volatility spread (Z-spread) is the constant spread that makes the price of a security equal to the present value of its cash flows when added to the yield at each point on the spot rate Treasury curve where cash flow is received. In other words, each cash flow is discounted at the appropriate Treasury spot rate plus the Z-spread. The Z-spread is also known as a static spread.

What is the Zig Zag Indicator

The Zig Zag indicator plots points on the chart whenever prices reverse by a percentage greater than a pre-chosen variable. Straight lines are then drawn, connecting these points. The indicator is used to help identify price trends. It eliminates random price fluctuations and attempts to show trend changes. Zig Zag lines only appear when there is a price movement between a swing high and a swing low that is greater than a specified percentage; often 5%. By filtering minor price movements, the indicator makes trends easier to spot in all time frames.

What are Zombies

Zombies are companies that earn just enough money to continue operating and service debt but are unable to pay off their debt. Such companies, given that they just scrape by meeting overheads (wages, rent, interest payments on debt, for example), have no exccess capital to invest to spur growth. Zombie companies are typically subject to higher borrowing costs and may be one just event—market disruption or a poor quarter performance—away from insolvency or a bailout. Zombies are especially dependent on banks for financing, which is fundamentally their life support. Zombie companies are also known as the "living dead" or "zombie stocks."

What Is a Zoning Ordinance

A zoning ordinance is a rule that defines how property in specific geographic zones can be used. Zoning ordinances detail whether specific geographic zones are acceptable for residential or commercial purposes. Zoning ordinances may also regulate lot size, placement, density, and the height of structures. Zoning ordinances also describe the procedures for how to handle any zoning rule infractions (including any penalties).

What is Zero-Floor Limit

Zero-floor limit is a term that relates to authorization for transactions involving credit and debit cards. Floor limit refers to the limit above which credit or debit transactions require authorization. A retailer can only automatically process transactions up to the maximum set by the floor limit. When that limit is zero, all transactions require authorization, regardless of their size. Authorization is provided electronically through the debit or credit card's issuer.

What Is Zakat

Zakat is an Islamic finance term referring to the obligation that an individual has to donate a certain proportion of wealth each year to charitable causes. Zakat is a mandatory process for Muslims and is regarded as a form of worship. Giving away money to the poor is said to purify yearly earnings that are over and above what is required to provide the essential needs of a person or family.

• Zakat is a religious obligation, ordering all Muslims who meet the necessary criteria to donate a certain portion of wealth each year to charitable causes.
• Giving away money to the poor is said to purify yearly earnings that are over and above what is required to provide the essential needs of a person or family.
• Zakat is based on income and the value of possessions. The common minimum amount for those who qualify is 2.5%, or 1/40 of a Muslim's total savings and wealth.
• If personal wealth is below the nisab during one lunar year, no zakat is owed for that period.

 

What Is Zombie Debt

Zombie debt is debt that has fallen off your credit report but, for various reasons, someone is still trying to collect. Zombie debt has often been long forgotten and has probably been written off as uncollectible. But zombie debt can rise from the grave if a debt collector attempts to collect on it all over again, even when the debt is too old to legally pursue.

 

 

(Source: Investopedia)