We at Select Debt Relief understand how hard it can be to navigate in the world of finance so we have compiled a glossary of "common" and "not so common" financial terms.
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Acronym referring to the term Automated Clearing House which is an electronic network utilized for financial transactions.
Account Balance
Credits minus debits at the completion of a reporting period.
Acquisition of Assets
When an acquiring firm purchases a selling firms’ assets usually through a consolidation or merger.
Adjustable-Rate Mortgage (ARM)
A mortgage that features predetermined adjustments of the loan interest rate.
Adjusted Balance Method
This method of calculating finance charges utilizes the account balance remaining after adjusting for all of the transactions posted during the billing period as its base point.
Adjusted Gross Income (AGI)
Gross income minus allowable adjustments, reflects the income on which an individual is taxed by the federal government.
After Acquired Clause
A binding clause found in a mortgage agreement which states that any additional mortgageable property attained by the borrower after a mortgage is signed is regarded as additional collateral.
Asset-Coverage Test
A bond indenture restriction which permits supplementary borrowing if the ratio of assets to debt does not drop below the stated bare minimum.
Asset for Asset Swap
When a creditor exchanges the debt of a defaulting borrower for the debt of another borrower in default.
Assets
A company’s productive resources.
A Mutual Fund which charges it’s investors a fee to sell shares.
Bad Debt
A debt that is written off and treated as uncollectable.
Bank Line
A Line of credit that a bank offers to a customer.
Bankruptcy
When you can’t pay your debts. In bankruptcy of an entity owned by the public, the ownership of the company’s assets are transferred from the stockholders to the bondholders.
Bankruptcy Cost View
The argument that probable indirect and direct bankruptcy costs make up for the other benefits from leverage so that the best amount of leverage is less than 100% debt financing.
Bankruptcy Risk
The risk that a firm won’t be able to meet its debt obligations. Also referred to as default or insolvency risk.
Bankruptcy View
The argument that expected bankruptcy costs will negate a firm from financing completely with debt.
Bear Market
Any market in which prices display a declining trend. For an extended period, generally falling by 20% or more.
Best-Interests-of-Creditors Test
The condition that a claim holder voting against a plan of restructuring must receive equal or more than if the debtor were liquidated.
Bi-Weekly Mortgage Loan
A mortgage on which interest and principal payments are made every half-month (total of 26 payments) as opposed to once a month. The result is earlier loan retirement.
Bond
Bonds are debt and issued for a period of more than one year. The U.S. government, local governments, companies and other types of institutions sell bonds. When an investor buys bonds, they are lending money. The seller agrees to repay the principal amount of the loan at a determined time. Bonds can bear interest which is paid periodically.
Bond Agreement
A contract for privately placed debt.
Bond Anticipation Note
A short-term debt instrument issued by a state or municipality to borrow against the earnings of a future bond issue.
Book Value
A company's total assets minus intangible assets and liabilities.
Borrow
To obtain or receive money with the promise to pay it back.
Budget
A detailed plan of financial activity.
Budget Deficit
The amount by which government spending exceeds government revenues.
Bull Market
When the market trend is heading in an upward fashion.
Business Failure
A business that has closed with a loss to creditors.
Term of measurement used by creditors to gauge a person's ability to repay loans.
Capital
Money that has been invested in a firm.
Capitalization
Known as the debt and or equity which funds a firm's assets.
Cash Flow Time Line
A time line which indicates the operating activities and cash flows for a firm over an indicated period.
Charge Off
Bad Debt
Check
An exchange representing a draft on a bank from funds that have been deposited which pays a given sum of money to a certain party.
Clear Title
Title of ownership which has zero claims to property.
Collection
Term used to turn an accounts receivable item into cash.
Composition
Voluntary arrangement which will restructure a firm's debt, under this type of agreement the payment is reduced.
Compound Interest
Interest that is paid on previously earned interest as well as on principal.
Conforming Loans
Mortgage loan that meets the guidelines of Freddie Mac or Fannie Mae.
Consolidated Mortgage Bond
A bond that covers several different units of property.
Consolidation Loan
A loan used to mix and finance payments on other loans.
Consumer Credit
Credit a company allows consumers to utilize for the purchase of goods or services. Aka retail credit.
Consumer Credit Protection Act of 1968
Legislation passed by the Federal government which established rules for the disclosure of the terms of a loan to protect borrowers.
Convertible Bond
This is the debt obligation a corporation can exchange for a fixed number of common shares of the issuing corporation at a preset conversion price.
Corporate Bonds
Debt obligations issued by companies.
CPI
Consumer Price Index-measure of inflation.
Credit
Money loaned.
Credit Analysis
Evaluation of a firm’s default risk.
Credit Bureau
Companies that evaluate credit history of consumers so creditors can make decisions about granting of loans.
Credit Enhancement
Purchase of the financial guarantee of a large insurance company to raise money.
Credit Insurance
Insurance against atypical losses due to unpaid receivables.
Credit Period
The length of time for which a customer is granted credit.
Credit Rating
Indication of individual's or company's ability to repay obligations or its likelihood of not defaulting.
Credit Risk
The risk of default on debt owed to a company.
Credit Scoring
A technique using statistics which combines several financial characteristics to arrive at a numerical score which in turn reflects the creditworthiness of a consumer.
Credit Spread
The difference in the value of two options, when the value of the one sold exceeds the value of the one purchased. A credit spread can be sold.
Credit Union
A non profit institution operating as a cooperative which lends money to its members.
Credit Watch
A bond rating firm that issues warnings regarding the possible change of a firms current credit rating after a current review is completed.
Crediting Rate
An interest rate offered on investment type insurance policies.
Creditor
Institution that lends money.
Creditor's Committee
A party that represents firms that have claims on a company which may be facing bankruptcy or other severe financial difficulty.
Creditworthiness
Ability of an individual or company to borrow money.
Cross-Default
When default on one debt obligation sets off default on another debt obligation.
Currency
Money.
Current Liabilities
Funds owed for salaries, interest, accounts payable and other debt due within 1 year.
Current Maturity
Time to maturity on an outstanding debt instrument.
Current Ratio
Indication of the ability to repay short-term debt.
Customized Benchmarks
A benchmark that is intended to meet a client's requirements and long term objectives.
Used in the context of bonds to refer to the date when a bond is issued and when interest starts accruing. Used in the context of stocks to refer when trading begins on a new stock.
Dated Date
The date one uses to calculate accrued interest on different debt instruments.
Days in Receivables
Average collection time.
Dealer Loan
Overnight, collateralized loan from a money market bank made to a dealer financing his position by borrowing.
Debenture
Any debt obligation backed only by the borrower's integrity.
Debenture Bond
An unsecured bond whose owner has the claim of a general creditor on all assets of the issuer not pledged explicitly to secure other debt.
Debenture Stock
A type of stock that makes fixed payments at scheduled intervals of time.
Debt
Money that is borrowed.
Debt Bomb
A default on debt and obligations by a large financial institution that disrupts the stability of the economic system.
Debt Capacity
Ability to borrow.
Debt Ceiling
Total borrowing power of a governmental entity.
Debt Displacement
The amount of borrowing that leasing displaces. Firms that do a lot of leasing are reduced in their debt capacity.
Debt/Equity Ratio
Indicator of financial leverage. Compares assets provided by creditors to assets provided by shareholders. Determined by dividing long-term debt by stockholder equity.
Debt Instrument
An asset requiring fixed money payments.
Debt Leverage
Strengthening of the return earned on equity when an investment or firm is financed partly with loans.
Debt Limit
The upper limit that a municipality can borrow.
Debt Limitation
A bond covenant that restricts a firm's ability to take on additional indebtedness in some way.
Debt Market
The market for trading debt instruments.
Debt Ratio
Total debt divided by total assets.
Debt Relief
Reducing the principal and/or interest payments on loans.
Debt Retirement
The total repayment of debt. See: Sinking fund.
Debt Securities
IOUs created through transactions such as commercial paper, bank CDs, bills, and bonds.
Debt Service
Interest payment plus repayments of principal to creditors.
Debt Service Coverage
The borrower’s ratio of cash flow available to the annual interest and principal payments on a loan.
Debt-Service Coverage Ratio
Earnings before interest and income taxes, divided by interest expense plus the quantity of principal repayments divided by one minus the tax rate.
Debt Service Parity Approach
Payment alternatives that provide the firm with the exact same schedule of after-tax debt payments (including both interest and principal).
Debt Swap
A group of transactions in which a firm buys a country's dollar bank debt at a discount and swaps this debt with the central bank for local currency. Also called a debt-equity swap.
Debtor
Borrower of money.
Debtor in Possession
A firm that continues to operate while undergoing a chapter 11 bankruptcy.
Debtor-in-Possession Financing
New debt obtained by a firm during the Chapter 11 bankruptcy.
Default
Failure to make timely payment of interest or principal on a debt.
Default Premium
A differential in promised yield that compensates the investor for the risk that exists in buying a corporate bond which has some risk of default.
Default Risk
The risk that an issuer of a bond may be unable to make timely payments of principal and interest. Also referred to as credit risk.
Deficit
A higher amount of liabilities over assets or losses over profits.
Deficit Spending
When government spending overwhelms government revenue resulting in government borrowing. See: Deficit financing.
Deflation
A reduction in the prices of goods and services. The opposite of inflation.
Delinquency
Failure to make a payment on a debt or obligation by the date it is expected.
Demand Deposits
Checking accounts that do not pay interest and from which funds can be withdrawn when requested.
Demand Line of Credit
A bank line of credit that allows a customer to borrow on a daily or on-demand basis.
Depreciate
To allocate the purchase cost of an asset over its lifetime.
Disposable Income
The amount of personal income an individual has after taxes and expenses.
The strike price in a market redemption provision plus the accrued interest to the redemption date.
Effective Debt
Total debt owed by a firm to its creditors.
Effective Rate
Measurement of the time value of money which fully reflects the effects of compounding
Electronic Depository Transfers
Transfer of funds between bank accounts through an ACH system.
Emerging Markets
The financial markets of developing economies/countries.
Euro-Note
Debt instrument sold on the Eurocurrency market.
Extinguish
When one retires or pays off debt owed.
Amount at which an asset would change hands between two parties, that both understand the relevant facts. Also referred to as market price.
Federal Credit Agencies
Agencies of the federal government set up to supply credit to various types of businesses and individuals.
Federal Farm Credit Bank
An institution created by the government with the purpose of bringing together the financing activities of the federal land banks, the federal intermediate credit banks, and the banks for cooperatives.
Federal Reserve System
The monetary authority of the U.S. The system includes 12 Federal Reserve Banks and is authorized to regulate monetary policy in the U.S. as well as to oversee Federal Reserve member banks, bank holding companies, international operations of U.S. banks, and U.S. operations of foreign banks.
Finance Charge
The total cost of credit a customer must pay on a consumer loan, including interest.
Financial Leverage
Use of debt to increase the expected return on equity. Financial leverage is measured by the ratio of debt to debt plus equity.
Financial Risk
The risk that the cash flow of an issuer will not be enough to meet its financial obligations.
Financial Structure
The way in which a company's assets are financed, such as long-term debt, and ownership equity.
Fixed Cost
A cost that is fixed in total for a given period of time and for given production levels.
Fixed-Rate Loan
A loan whose rate is fixed for the life of the loan.
Flat Tax
A tax which is levied at the same rate regardless of income level.
Flip-Flop Note
Note that allows investors to switch between two different types of debt.
Floating Debt
Short-term debt that is renewed and refinanced constantly to fund capital needs of a firm or institution.
Forecasting
Making projections about future performance on the basis of past and current conditions information.
Funded Debt
Debt maturing after more than one year.
Generally Accepted Accounting Principles. Used by companies to make sure correct accounting practices are used.
General Ledger
Accountant records that show all the financial statement accounts of a firm.
Gift Tax
An assessed taxed ion the giver of property or assets.
Golden Parachute
Compensation received by top-level management by a target firm if a takeover occurs.
Gross Domestic Product (GDP)
The market value of goods and services produced over time including the income of foreign corporations and foreign residents working in the United States.
Gross Estate
Value of a person's property and assets. This is before debt, taxes and other liabilities are taken into account.
A transaction that diminishes the risk of an investment.
Housing Bond
Bonds issued by a local housing authority to finance housing projects.
Less than favorable credit.
Income Tax
Tax on individual and corporate earnings.
Inflation
Indicated as a percentage at which the general level of prices for goods and services is rising
Insolvency Risk
Risk that a company will be unable to satisfy its debt(s). Bankruptcy risk is another common term used to describe this type of risk.
Insolvent
When a firm is unable to pay its debt(s).
Interest Rate on Debt
Cost of debt capital for a firm.
A form of business organization lies somewhere between a corporation and a partnership. The company sells stock, and its shareholders are free to sell their stock, but shareholders are also liable for the debts of the company
Junior Debt (Subordinate Debt)
Debt whose owners have a claim on the firm's assets only after senior debtholder’s claims have been fulfilled.
Junk Bond
A bond with a speculative credit rating of BB (S&P) or Ba (Moody's) or lower. Junk or high-yield bonds offer investors higher yields than bonds of financially sound companies. Standard & Poors and Moody's Investor Services are two agencies that provide the rating systems for companies' credit.
Just-In-Time Inventory Systems
Systems that schedule materials to arrive exactly when they are needed in the production process.
Economic theory presented by British economist, John Maynard Keynes that active government intervention is necessary to ensure economic growth and stability.
A fee a creditor charges a borrower for a late payment
Leasehold Improvement
An improvement made to leased property.
Lemon
An investment with poor results.
Leverage
The use of debt financing, or property of rising or falling at a proportionally greater amount than comparable investments. For example, an option is said to have high leverage compared to the underlying stock because a given price change in the stock may result in a greater increase or decrease in the value of the option.
Leveraged Company
A company that has debt in its capital structure.
A loan secured by the collateral of some specified real estate property which will oblige the borrower to make a predetermined series of payments.
The first electronic stock market listing over 5000 companies. The Nasdaq stock market comprises two separate markets, namely the Nasdaq National Market, which trades large, active securities and the Nasdaq Smallcap Market that trades emerging growth companies.
National Debt
Treasury bills, notes, bonds, and other debt obligations that make up the debt owed by the federal government.
National Securities Clearing Corporation (NSCC)
A clearing corporation that facilitates the settlement of accounts among brokerage firms, exchanges, and other clearing corporations.
Nationalization
A government takeover of a private company.
Negative Amortization
A loan repayment schedule in which the outstanding principal balance of the loan increases, rather than amortizing, because the scheduled monthly payments do not cover the full amount required to amortize the loan. The unpaid interest is added to the outstanding principal, to be repaid later.
Net Interest Cost (NIC)
The total amount of interest that will be paid on a debt obligation by a corporate or municipal bond issuer.
New York Stock Exchange (NYSE)
Also known as the Big Board or the Exchange.
In financial terms, the ability to repay debt.
Open-End Credit
Revolving credit line which is extended with every purchase or cash advance.
Open-End Mortgage
Type of mortgage against which additional debt may issued.
Outsourcing
Component purchasing from outside suppliers.
Overlapping Debt
This type of debt is typically the responsibility of a municipality regarding neighboring districts.
A clause in a contract that provides for a penalty if there is a default.
Pension Plan
A fund established for the payment of retirement benefits.
Per Capita Debt
The total bonded debt of a municipality divided by the population of the municipality.
Plan for Reorganization
A plan for reorganizing a firm during the Chapter 11 bankruptcy process.
Measurement of the qualities of a firm-management quality.
Quantitative Analysis
A analysis that mathematical measures certain figures of a company. Example sales, assets and liabilities.
An evaluation of credit quality of a firm’s debt issue by Moody's, S&P, and Fitch Investors Service.
Real Capital
Wealth that can be represented in financial terms, such as savings account balances and real estate.
Receiver
The bankruptcy practitioner appointed by secured creditors to manage the repayment of debts.
Recession
A temporary downturn in economic activity, usually indicated by two consecutive quarters of a falling GDP.
Recourse
If a loan is with recourse, the lender has a general claim against the parent company if the collateral is insufficient to repay the debt.
Refinancing
An extension and/or increase in amount of existing debt.
Debt that is protected by collateral/assets.
Settlement
When payment is made and rendered final.
Shareholder
The owner of shares in a corporation or other entity
Short-Term Debt
Debt with required payments within the year.
A direct dollar-for-dollar reduction in tax allowed for expenses such as child care and Research/Development for building low-income housing.
Tender Offer
An offer made publicly and directly to a firm's shareholders to buy their stock at a price above the current market price.
Total Capitalization
The total long-term debt and equity of a company that comprises its capital structure.
Trade Credit
Credit that one firm grants to another firm for the purchase of goods/ services.
Treasury
U.S. Department of the Treasury, which issues all Treasury bonds, notes, and bills as well as overseeing other agencies. Also, the department within a corporation that oversees its financial operations including issuing new shares.
Treasury Bills
Debt obligations of the U.S. Treasury that have maturities of one year or less. Maturities for T-bills are usually 91 days, 182 days, or 52 weeks.
Treasury Bonds
Debt obligations of the U.S. Treasury that have maturities of 10 years or more.
A municipal bond that is controlled by larger government entities which share the credit responsibility.
Unemployment Rate
Percentage of the people classified as unemployed in comparison to the total labor force.
Unencumbered
Property not subject to any claims by creditors.
Unfunded Debt
Aka short term debt. Debt that matures within one year.
Unsecured Debt
Debt that does not have collateral attached to it.
U.S. Treasury Bill
United States government debt which matures within a year.
The value of a company's stock based on earnings and the market value of assets.
Vancouver Stock Exchange (VSE)
A securities and options exchange in Vancouver, Canada specializing in venture capital firms.
Variable Cost
A cost that is directly proportional to the amount of output produced.
Venture Capital
An investment in a start-up business that appears to have excellent growth prospects but does not have access to capital markets. This type of financing is sought by early-stage companies seeking to grow quickly.
Voluntary Bankruptcy
The legal proceeding following a petition of bankruptcy.
World Trade Organization (WTO)
An agency that administers world trade agreements, cultivates trade relations among nations, and works out trade disputes with member countries.
A bond in which there is no periodic coupon paid over the life of the contract. Instead, both the principal and the interest are paid at the maturity date.
Zombies
Companies that continue operation while waiting to be acquired or closed, even though they are insolvent and bankrupt.
Z Score
Z score is the output from a credit test that gauges the probability of bankruptcy.
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