Financial Dictionary For Investors

Accounts Payable

Obligations owed by a company that are due within one year. These obligations are shown as a current liability on the balance sheet.

Accrued Interest

The interest due on a bond since the last interest payment was made. The buyer of the bond pays the market price plus accrued interest.

Accrued Wages

Wages owed to a firm's employees which have not yet been paid. Accrued wages appear as a current liability on the balance sheet.

Acid Test Ratio

The acid test ratio is similar to the current ratio except inventories are subtracted from current assets before current assets are divided by current liabilities. An investor should be wary if the quick ratio is below 0.5, out of line with its industry, and/or showing a declining trend.

Acquisition

The acquiring of control of one corporation by another. In "unfriendly" takeover attempts, the potential buying company may offer a price well above current market values, new securities and other inducements to stockholders. The management of the subject company might ask for a better price or try to join up with a third company.

Activity Ratios

A series of ratios that measure how actively a firm is using its resources.

American Depository Receipt (ADR)

ADRs represent a specific number of shares in a foreign company. It is used in the United States to facilitate the trading of foreign stocks

American Stock Exchange (AMEX)

One of the largest of several U.S.-based organized securities trading markets.

Amortization

Amortization is the process of decreasing or accounting for an amount over a period of time. It is the allocation of a lump sum amount to different time periods, particularly for loans and other forms of finance, including related interest or other finance charges.

Annual Report

The principal document used by public corporations to disclose information to shareholders. It is produced each year by every publicly-traded company in the U.S. and includes certain basic financial tables as well as valuable corporate information such as a business discussion and outlook, market segment data, product line data, and business expansion plans.

Arbitrage

A trading technique that attempts to exploit discrepancies in the price of a particular asset that trades in different markets. For example, an individual would purchase a stock in one market and sell it in another market where the price is higher.

Arrears

Typically used when referring to dividends on preferred stock that are "overdue." These "overdue" dividends, or "dividends in arrears," must be paid to shareholders before any common stock dividends may be paid.

Asset Turnover

This value is calculated as the total revenues for the trailing 12 months divided by the average total assets. Average total assets is defined as the total assets for the five most recent quarters, divided by 5. A low asset turnover ratio may indicate that a firm is not generating enough sales to justify its investments.

Assets

Resources owned by a firm. Assets are further classified as current assets, fixed assets, or intangible assets. Current assets are those assets that can be turned into cash within a year, such as cash, marketable securities, receivables, and inventories. Intangible assets are items of value such as patents and goodwill. Fixed assets are items such as buildings and equipment.

Auditor's Report

Also known as the Report of Independent Accountants, the Auditor's Report is one of the basic financial documents included in a firm's annual report to shareholders. It is prepared by an outside accounting firm and expresses the accountant's opinion regarding the fairness of a particular company's financial statements.

Average Shares Outstanding

The average number of common stock shares that are owned by investors during a particular time period such as a quarter or year.

Averages

A variety of stock market activity measures that attempt to summarize price movements. Among the best known of these averages (or indexes) is the Dow Jones Industrial Average, which is an average of 30 industrial stocks that are listed for trading on the New York Stock Exchange.