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)
