| Term | Definition |
| Alpha | A measure of performance based on the excess return of an investment relative to the return of a benchmark index. |
| Active Share | Percentage of how much a portfolio differs from its benchmark index, with 0% indicating no difference and 100% indicating no common holdings. |
| Agency Mortgage-Backed Security (MBS) | Debt security composed of a pool of residential loans issued by the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac). |
| Asset Coverage | Ability to cover debt obligations with assets. |
| Balance Sheet | A financial statement that provides a snapshot of a company's assets, liabilities, and shareholder equity at a specific point in time. |
| Basis Point | 1/100th of 1%. |
| Beta | Measure of a security or portfolio's volatility compared to the broad market's volatility. |
| Book to Market | Common shareholders' equity divided by market capitalization. |
| Book Value | Assets minus liabilities. Also known as shareholders’ equity. |
| Bullet Security | A debt investment for which the principal is repaid in a balloon payment at maturity. |
| Callable Bond | A debt security that can be repaid by the issuer prior to maturity. |
| Capital Adequacy Ratio | Capital divided by risk-weighted assets. |
| Capital Expenditure (Capex) | Money spent to purchase or upgrade physical assets such as property, plant, and equipment. |
| Cash Flow | Amount of cash generated minus the amount of cash used by a company in a given period. |
| Cash Pay Bond | Debt security which makes interest payments in cash. |
| Commercial Mortgage-Backed Security (CMBS) | Debt security composed of a pool of commercial property loans. |
| Consumer Price Index (CPI) | Measurement by the U.S. Bureau of Labor Statistics of price changes over time for a representative basket of goods and services. |
| Correlation | Statistical measure of how two securities move in relation to each other. |
| Coupon Rate | Annual interest rate on a debt security as a percentage of face value. |
| Credit Risk | Likelihood of loss due to a borrower defaulting on a loan. |
| Credit Spread | Difference between yields from bonds of similar maturity but different credit quality. |
| Discount Rate | Amount of interest charged by the Federal Reserve for short-term loans to commercial banks and other financial institutions. |
| Dividend Payout Ratio | Amount of dividends paid to shareholders relative to net income. |
| Drawdown | Percentage change in the value of a security or portfolio from a peak to a subsequent trough. |
| Dry Powder | Treasuries or other debt securities that can be liquidated on short notice. |
| Dividend Yield | Dividends per share divided by price per share. |
| Dot Plot | Data points plotted on a graph to show trends such as projected interest rates. |
| Duration | Weighted maturity of a fixed-income investment’s cash flows, used in the estimation of the price sensitivity of fixed-income securities for a given change in interest rates. |
| EBITDA | Earnings before interest, taxes, depreciation and amortization. |
| Earnings Per Share (EPS) | Commonly used measure of a company's profitability. EPS is calculated by dividing a company's net income by the total number of outstanding shares. |
| Enterprise Value | Market capitalization plus debt, minority interest, and preferred shares, minus total cash and cash equivalents. |
| Enterprise Value/EBIT | Market capitalization plus debt, minority interest, and preferred shares, minus total cash and cash equivalents, divided by earnings before interest and taxes. |
| Enterprise Value/EBITDA | Market capitalization plus debt, minority interest, and preferred shares, minus total cash and cash equivalents, divided by earnings before interest, taxes, depreciation, and amortization. |
| Enterprise Value/Free Cash Flow | Market capitalization plus debt, minority interest, and preferred shares, minus total cash and cash equivalents divided by total cash flow from operations less capital expenditures. |
| Enterprise Value/Sales | Market capitalization plus debt, minority interest, and preferred shares, minus total cash and cash equivalents, divided by annual sales. |
| Federal Funds Rate | Amount of interest depository institutions charge to lend reserve funds overnight to other depository institutions. |
| Floating Rate Note | Debt instrument that pays a variable rate of interest. |
| Forward Earnings | Consensus earnings estimates for a future period, usually the next 12 months or next fiscal year. |
| Forward Price/Earnings | Price per share divided by earnings per share expected over the next 12 months or next fiscal year. |
| Free Cash Flow | Total cash flow from operations less capital expenditures. |
| Gap Down | Significant decrease in price of a financial instrument between market close and opening, or when there is little to no trading. |
| Graham-and-Dodd Investment Approach | Method described by Benjamin Graham and David Dodd in their 1934 book Security Analysis which seeks to identify securities that may be underpriced relative to their estimated intrinsic value. |
| Gross domestic product (GDP) | The total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. |
| Idiosyncratic Risk | Possibility of loss prevalent in a particular asset class. |
| Indenture | Legal contract between a bond issuer and bondholder. |
| Interest Coverage | Earnings before interest and taxes during a given period divided by interest expense due in that period. |
| Intrinsic value | the real value of an asset based on fundamental factors, as opposed to the price assigned by the market. |
| Investment Grade | Credit rating that indicates a debt instrument has a relatively low risk of default. |
| LIBOR | London Interbank Offered Rate. A survey of what London banks expect to pay to borrow overnight from other London banks. |
| Long-Term Consensus Earnings Per Share | A forecast of a company's earnings growth over a longer period, typically three to five years or more. It's based on the average or median of estimates from analysts who track a company's stock. |
| Margin Call | Request from a broker to increase a margin account's balance when it falls below a required minimum. |
| Margin of Safety | Discount of a security’s market price to what the firm believes is the intrinsic value of that security. |
| Market Capitalization | Number of common shares outstanding multiplied by market price per share. |
| Multiple Expansion | An increase in a valuation multiple such as a Price to Earnings multiple. |
| Net Asset Value | Total assets minus liabilities, divided by the number of outstanding shares. |
Net debt-to-equity ratio | A financial metric that measures a company's financial leverage and reliance on debt by comparing its net debt (total debt minus cash) to its shareholder equity. |
Net debt-to-EBITDA ratio | Measures a company's financial leverage and indicates how many years it would take to pay back its debt using only its earnings. |
| Net Present Value | Difference between present value of cash inflows and present value of cash outflows over a given period. |
| Net Cash | Total cash minus total debt. |
| Net Income | A company's profit after all expenses, including taxes and interest, have been deducted from revenue. |
| Net Interest Income | Difference between interest revenue and interest expense. |
| Net Interest Margin | Difference between interest revenue and interest expense as a percentage of income-generating assets. |
| Net-Net | When a company trades for less than the value of current assets minus all liabilities. |
| Nifty Fifty | Nickname for a group of large U.S. companies in the 1960s and '70s, characterized by high price/earnings and consistent earnings growth. |
| Normalized Earnings | Earnings adjusted to remove effects of one-time, unusual, or seasonal influences. |
| Operating Margin | Operating income divided by net sales. |
| Operating Revenue | The money a company generates from its primary business activities. |
| Option-Adjusted Spread | Difference between the interest rate paid by a fixed-income security and the risk-free rate of return, adjusted to take into account an embedded option. |
| Par Value | Amount a bond issuer promises to repay when the bond matures. |
| Patent Cliff | Patent expirations for pharmaceutical companies which typically result in a drop in sales. |
| Personal Consumption Expenditures Price Index | Measurement by the Bureau of Economic Analysis of changes in prices U.S. consumers pay for goods and services. |
| Price/Book | Price per share divided by book value per share. |
| Price/Cash Flow | Price per share divided by cash flow per share. |
| Price/Earnings | Price per share divided by earnings per share. |
| Price/Earnings-to-Growth | The PEG ratio is a company's Price/Earnings ratio divided by its earnings growth rate over a period of time. |
| Price/Tangible Book Value | Price per share divided by tangible book value per share. |
| Profit Margin | Net income divided by revenue. |
| R2 (R-squared) | Percentage of a security or portfolio’s results that was likely caused by the movements of a benchmark index. |
| Reflation Trade | Purchase of a security expected to perform well because of or during an economic recovery. |
| Return on Assets | Net income divided by total assets. |
| Return on Equity | Net income divided by shareholder equity. |
| Return on Invested Capital/Return on Capital | Net income minus dividends paid, divided by total capital. |
| Secured Debt | Loan backed by the borrower's collateral. |
| Sell Side | The part of the financial industry involved with the creation, promotion, analysis, and sale of securities. |
| Sharpe Ratio | Portfolio return minus the risk-free rate—such as that of the 10-year U.S. Treasury bond—divided by standard deviation of the portfolio's excess returns. |
| Shiller Price/Earnings | Price divided by real (inflation-adjusted) per-share earnings over a 10-year period |
| Standard Deviation | A data set's dispersion from its mean. |
| Systematic Risk | Possibility of loss inherent to an entire market. Usually considered undiversifiable. |
| Systemic Risk | Possibility of loss from a company-level event that could destabilize an entire industry or economy. |
| Tangible Book Value | Book value minus intangible assets (e.g., goodwill). |
| Tangible Equity | Book value minus intangible assets (e.g., goodwill) and preferred equity. |
| Term Structure of Interest Rates | Graph that depicts yields offered by bonds of similar quality at different maturities. |
| Total Return | Income plus capital appreciation. |
| Tracking error | The standard deviation of the difference between the returns of a portfolio and its benchmark. |
| CBOE Volatility Index (VIX) | Shows the market’s expectation of 30-day volatility. Constructed using the implied volatilities of S&P 500 Index options. |
| Working Capital | Current assets minus current liabilities; a measure of a company’s efficiency and short-term financial health. |
| Write-Down | Reduction in the book value of an asset. |
| Yield | Annual income from an investment (dividend, interest, etc.) divided by the current market price of the investment. |
| Yield Curve | Graphical comparison of the relationship between interest rates for loans of various maturities with similar credit quality. |
| Yield Spread | Difference in yield from a Treasury security and another debt security of similar maturity. |
| Yield to Maturity | The rate of return anticipated on a bond if held until the maturity date |
