Principles of Finance Glossary — Key Terms & Definitions
- Altman Z-score
- At the money (ATM)
- Debt-to-equity ratio
- Jensen's alpha
- Marginal tax rate
- Repurchase agreement (repo)
- Sharpe ratio
- Trade-off theory
- Variance
- After-tax cost of debt
- Capital structure
- Cash ratio
- Clientele effect
- Delta
- Effective annual rate (EAR)
- Free cash flow to equity (FCFE)
- Hedging
- Interest tax shield
- Liquidity premium
- Pecking order theory
- Principal
- Compounding
- Cost of equity
- Dirty price
- Equity multiplier
- MOIC (Multiple on Invested Capital)
- Risk premium
- Tracking error
- Yield to maturity (YTM)
- Zero-coupon bond
- American option
- Asset turnover
- Cost of carry
- Cost of preferred equity
- Discount bond
- Diversification
- Face value
- Financial leverage
- Forward contract
- Internal rate of return (IRR)
- Intrinsic value
- Macaulay duration
- Modified duration
- NOPAT (Net Operating Profit After Tax)
- Option-adjusted spread (OAS)
- Payback period
- Profitability index (PI)
- Amortization
- Arbitrage pricing theory (APT)
- Basis risk
- Beta
- Efficient market hypothesis (EMH)
- Equity risk premium (ERP)
- Hamada equation
- Implied volatility
- Modigliani-Miller (M&M) propositions
- Put-call parity
- Real option
- Residual claim
- Return on invested capital (ROIC)
- Risk-neutral probability
- SOFR
- Term structure of interest rates
- Time-weighted return (TWR)
- Vega
- Accrued interest
- Bond-equivalent yield (BEY)
- Callable bond
- Cash conversion cycle
- Common-size analysis
- Degree of total leverage (DTL)
- DuPont decomposition
- EV/EBITDA multiple
- Expected shortfall (ES)
- Information ratio
- Par value
- Precedent transaction analysis
- Security market line (SML)
- Share repurchase (buyback)
- Term premium
- Treasury stock method (TSM)
- Volatility
- Weighted average cost of capital (WACC)
- Yield curve
- Yield to call (YTC)
- Accretion / dilution (M&A)
- Asset-backed security (ABS)
- Basis
- Basis point
- Country risk premium
- Derivative
- EBITDA margin
- European option
- In the money (ITM)
- Long position
- Net profit margin
- Out of the money (OTM)
- P/E ratio
- Relative valuation
- Sortino ratio
- Syndication
- Arbitrage
- Bookrunner
- Bootstrapping
- Capital market line (CML)
- Collateralized debt obligation (CDO)
- Debt-to-capital ratio
- Discount factor
- Forward rate
- Modern portfolio theory (MPT)
- Operating leverage (DOL)
- Option
- Premium bond
- Strike price
- Two-fund separation
- Capital asset pricing model (CAPM)
- Capital budgeting
- Continuous compounding
- Control premium
- Day count convention
- Degree of financial leverage (DFL)
- Delta hedging
- Dividend discount model (DDM)
- Holding period return (HPR)
- Initial public offering (IPO)
- Law of one price
- Leverage ratio
- Minimum variance portfolio (MVP)
- Operating margin
- Secondary market
- Standard deviation
- Straddle
- Terminal value (TV)
- Treynor ratio
- Unsystematic (idiosyncratic) risk
- Volatility smile
- Active return
- Annuity due
- Basel III
- Comparable company analysis (comps)
- Convexity
- Days payable outstanding (DPO)
- Days sales outstanding (DSO)
- Dollar-weighted return (IRR)
- Gamma
- Geometric mean return
- Inventory turnover
- Leveraged buyout (LBO)
- LIBOR
- Liquidating dividend
- Margin call
- Market portfolio
- Monte Carlo simulation
- Mortgage-backed security (MBS)
- Put option
- Return on assets (ROA)
- Return on equity (ROE)
- Time value of money (TVM)
- Times interest earned (TIE)
- Convertible bond
- Covenants
- Credit default swap (CDS)
- Current yield
- Duration
- Fama-French three-factor model
- Futures contract
- Gordon growth model
- Stock split
- Tangency portfolio
- Theta
- Allocation effect
- Binomial model
- Diluted EPS
- Discounted cash flow (DCF)
- Indenture
- Internal growth rate (IGR)
- Net present value (NPV)
- P/B ratio
- Preferred stock
- Realized return
- Retention ratio (plowback)
- Sustainable growth rate (SGR)
- Z-spread
- Arithmetic mean return
- Black-Scholes-Merton model
- Cash flow from operations (CFO)
- Days inventory outstanding (DIO)
- Fisher equation
- Investment policy statement (IPS)
- Nominal spread
- Notional principal
- Perpetuity
- Present value (PV)
- Primary market
- Protective put
- Adjusted EBITDA
- Benchmark
- Bid-ask spread
- Carhart four-factor model
- Credit spread
- Interest rate swap
- Mark-to-market
- Market maker
- Maturity premium
- Risk-free rate
- Short position
- Subordinated debt
- Unlevering/relevering beta
- Value-at-risk (VaR)
- Behavioral finance
- Business risk
- Coupon rate
- Current ratio
- Effective duration
- Enterprise risk management (ERM)
- Enterprise value (EV)
- Free cash flow to the firm (FCFF)
- Quick ratio
- Yield to worst (YTW)
- Zero curve (zero-coupon curve)
- Agency bond
- Annuity
- Call option
- Clean price
- Dividend yield
- Earnings before interest, taxes, D&A (EBITDA)
- Efficient frontier
- Exchange-traded fund (ETF)
- Payout ratio
- PEG ratio
- Signaling
- Spot rate
- Structural credit model
- Structured finance
- Systematic risk
- Underwriting