Expanding Your Financial Vocabulary: 100 Intermediate Terms to Know

As you delve deeper into the world of finance, your vocabulary needs to expand to keep pace with the more intricate discussions and literature you'll encounter. Building upon the basics, here are 100 intermediate terms that will further sharpen your financial acumen.

Corporate Finance:

1. Capital Structure: The composition of a company’s liabilities and equity.

2. Leveraged Buyout (LBO): Acquiring a company using a significant amount of borrowed money.

3. Mezzanine Financing: A mix of equity and debt financing that gives the lender rights to convert to an equity interest in the company in case of default.

4. Return on Capital Employed (ROCE): A measure of a company's profitability and the efficiency with which its capital is employed.

5. Weighted Average Cost of Capital (WACC): The average rate of return a company is expected to pay its security holders.

6. Earnings Per Share (EPS): The portion of a company's profit allocated to each outstanding share.

7. Price-Earnings Ratio (P/E Ratio): The ratio for valuing a company that measures its current share price relative to its per-share earnings.

8. Working Capital: The difference between a company’s current assets and current liabilities.

9. Capital Expenditures (CapEx): Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings, or equipment.

10. Free Cash Flow: The cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Investment & Markets:

11. Hedge: An investment to reduce the risk of adverse price movements in an asset.

12. Derivative: A financial security with a value reliant upon, or derived from, an underlying asset or group of assets.

13. Option: A contract which gives the buyer the right, but not the obligation, to buy or sell an underlying asset.

14. Futures Contract: A standardized legal agreement to buy or sell something at a predetermined price at a specified time in the future.

15. Short Selling: The sale of a security that is not owned by the seller, with the intention of buying it back later at a lower price.

16. Arbitrage: The simultaneous purchase and sale of the same asset in different markets to profit from tiny differences in the asset's listed price.

17. Alpha: The measure of an investment's performance on a risk-adjusted basis.

18. Beta: The measure of the volatility, or systematic risk, of a security or a portfolio compared to the market as a whole.

19. Forex (FX): The market in which currencies are traded.

20. Commodities: Basic goods used in commerce that are interchangeable with other goods of the same type.

Financial Analysis & Reporting:

21. DuPont Analysis: A framework for analyzing fundamental performance popularized by the DuPont Corporation.

22. Earnings Before Interest and Taxes (EBIT): An indicator of a company's profitability.

23. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): A measure of a company's overall financial performance.

24. Liquidity Ratios: Ratios that measure a company's ability to meet its short-term debt obligations.

25. Solvency Ratios: Ratios that measure a company's ability to meet its long-term debts and financial obligations.

26. Profit Margin: An indicator of a company's pricing strategies and how well it controls costs.

27. Operating Margin: A margin ratio used to measure a company's pricing strategy and operating efficiency.

28. Quick Ratio: An indicator of a company’s short-term liquidity position and measures a company’s ability to meet its short-term obligations with its most liquid assets.

29. Debt-to-Equity Ratio (D/E): A measure of a company’s financial leverage calculated by dividing its total liabilities by stockholders' equity.

30. Interest Coverage Ratio: A debt and profitability ratio used to determine how easily a company can pay interest on its outstanding debt.

Risk Management:

31. Value at Risk (VaR): A statistic that measures and quantifies the level of financial risk within a firm or portfolio over a specific time frame.

32. Credit Risk: The risk of loss due to a borrower's failure to make payments on any type of debt.

33. Market Risk: The risk of losses in positions arising from movements in market prices.

34. Operational Risk: The risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events.

35. Liquidity Risk: The risk that an entity will not be able to meet its financial obligations as they come due because it cannot convert assets to cash.

36. Systemic Risk: The risk of collapse of an entire financial system or entire market.

37. Diversification: A risk management strategy that mixes a wide variety of investments within a portfolio.

38. Stress Testing: A simulation technique used to determine the reaction of certain financial instruments to different economic situations.

39. Risk-Adjusted Return: A calculation of the profit made by an investment adjusted for the risk of the investment.

40. Counterparty Risk: The risk that the other party in an investment or transaction might default on its contractual obligation.

Banking & Loans:

41. Amortization: The paying off of debt with a fixed repayment schedule in regular installments over a period of time.

42. Refinancing: The process of obtaining a new mortgage in an effort to reduce monthly payments, lower your interest rates, take cash out of your home for large purchases, or change mortgage companies.

43. Prime Rate: The interest rate that commercial banks charge their most credit-worthy customers.

44. Foreclosure: The process by which a lender takes control of a property from a borrower who has defaulted on their mortgage payments.

45. Mortgage-Backed Securities (MBS): A type of asset-backed security that is secured by a mortgage or collection of mortgages.

46. Line of Credit: An arrangement between a financial institution and a customer that establishes a maximum loan balance that the lender permits the borrower to access or maintain.

47. Underwriting: The process by which a lender decides whether a loan or insurance policy applicant is creditworthy and establishes appropriate terms for the loan or policy.

48. Credit Scoring: A statistical analysis performed by lenders and financial institutions to assess a person's creditworthiness.

49. Loan-to-Value Ratio (LTV): A financial term used by lenders to express the ratio of a loan to the value of an asset purchased.

50. Collateral: An asset that a lender accepts as security for extending a loan. If the borrower defaults, the lender may seize the collateral.

Taxation & Regulation:

51. Inheritance Tax: A tax paid by a person who inherits money or property or a levy on the estate (money and property) of a person who has died.

52. Capital Gains Tax: A tax on the profit realized on the sale of a non-inventory asset.

53. Alternative Minimum Tax (AMT): A supplemental income tax required in addition to baseline income tax for certain individuals, corporations, estates, and trusts that have exemptions or special circumstances allowing for lower payments of standard income tax.

54. Tax Evasion: The illegal evasion of taxes by individuals, corporations, and trusts.

55. Tax Avoidance: The legal usage of the tax regime to one's own advantage to reduce the amount of tax that is payable by means that are within the law.

56. Securities and Exchange Commission (SEC): A U.S. government agency that oversees securities transactions, activities of financial professionals and mutual fund trading to prevent fraud and intentional deception.

57. Financial Industry Regulatory Authority (FINRA): A non-governmental organization that regulates member brokerage firms and exchange markets.

58. Sarbanes-Oxley Act: A law passed in 2002 that aimed to provide a framework for governing corporate board responsibilities and curbing corporate and accounting fraud.

59. Anti-Money Laundering (AML): A set of procedures, laws, and regulations designed to stop the practice of generating income through illegal actions.

60. Know Your Customer (KYC): The process of a business verifying the identity of its clients and assessing potential risks of illegal intentions for the business relationship.

Mergers & Acquisitions:

61. Synergy: The concept that the value and performance of two companies combined will be greater than the sum of the separate individual parts.

62. Hostile Takeover: An acquisition attempt by a company or individual that is not welcomed by the target company's management.

63. Friendly Takeover: An acquisition which is agreed upon by the management of the target company.

64. Merger: The combination of two companies to form a new company.

65. Acquisition: The process of acquiring control of a corporation, called a target, by stock purchase or exchange, either hostile or friendly.

66. Due Diligence: An investigation or audit of a potential investment or product to confirm all facts, such as reviewing all financial records, plus anything else deemed material.

67. Leveraged Recapitalization: A strategy where a company takes on significant additional debt with the purpose of either paying a large dividend or repurchasing shares, thus dramatically altering the capital structure of the company.

68. Buyout: The purchase of a company's shares in which the acquiring party gains control of the target company.

69. Poison Pill: A strategy used by companies to prevent or discourage hostile takeover attempts.

70. White Knight: A friendly investor or company that acquires a corporation at a fair consideration when it is on the verge of being taken over by an aggressor.

Investment Banking & Capital Markets:

71. Initial Public Offering (IPO): The first time that the stock of a private company is offered to the public.

72. Secondary Offering: Issuing new stock for public sale from a company that has already made its initial public offering.

73. Private Placement: The sale of securities to a relatively small number of select investors as a way of raising capital.

74. Prospectus: A formal legal document that provides details about an investment offering for sale to the public.

75. Roadshow: A series of presentations made by an issuer of securities to investors, typically before an IPO.

76. Underwriter: An entity that administers the public issuance and distribution of securities from a corporation or other issuing body.

77. Book Building: A process of generating, capturing, and recording investor demand for shares during an IPO or other securities issuance.

78. Lock-Up Period: A period of time after an IPO where large shareholders are restricted from selling their shares.

79. Market Capitalization: The total dollar market value of a company's outstanding shares.

80. Over-the-Counter (OTC): A decentralized market where market participants trade stocks, commodities, currencies, or other instruments directly between two parties and without a central exchange or broker.

Financial Planning & Strategy:

81. Financial Modeling: The process of creating a summary of a company's expenses and earnings in the form of a spreadsheet that can be used to calculate the impact of a future event or decision.

82. Balanced Scorecard: A strategic planning and management system used to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organizational performance against strategic goals.

83. Scenario Analysis: A process of analyzing possible future events by considering alternative possible outcomes (scenarios).

84. Budget Variance: The difference between the budgeted or baseline amount of expense or revenue, and the actual amount.

85. Cash Conversion Cycle (CCC): A metric that expresses the length of time, in days, that it takes for a company to convert resource inputs into cash flows.

86. Strategic Business Unit (SBU): A division or unit of a company that has its own vision and direction, typically managed independently of other divisions or units within the company.

87. Economies of Scale: A proportionate saving in costs gained by an increased level of production.

88. Internal Rate of Return (IRR): A metric used in financial analysis to estimate the profitability of potential investments.

89. Break-Even Analysis: The study to determine the point at which revenue received equals the costs associated with receiving the revenue.

90. SWOT Analysis: A strategic planning technique used to help identify Strengths, Weaknesses, Opportunities, and Threats related to business competition or project planning.

Personal Finance:

91. Net Worth: The total assets minus total outside liabilities of an individual or a company.

92. Asset Allocation: An investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance, and investment horizon.

93. 401(k) Plan: A retirement savings plan sponsored by an employer that allows employees to save and invest a portion of their paycheck before taxes are taken out.

94. Individual Retirement Account (IRA): A tax-advantaged investing tool that individuals use to earmark funds for retirement savings.

95. Estate Planning: The process of anticipating and arranging for the management and disposal of a person's estate during their life.

96. Annuity: A financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees.

97. Term Life Insurance: A life insurance policy that provides coverage at a fixed rate of payments for a limited period of time.

98. Roth IRA: An individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free.

99. Credit Report: A detailed report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

100. Debt Consolidation: A form of debt refinancing that entails taking out one loan to pay off many others, typically to secure a lower interest rate or for the convenience of servicing only one loan.

Equipped with these 100 intermediate financial terms, you're better prepared to navigate the complex world of finance. Remember, understanding the terminology is just the beginning. The real mastery comes from applying these concepts to real-world scenarios and developing a nuanced understanding of how they interplay to affect financial decisions and strategies.