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Financial Acronyms Explained

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ROI

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Return on Investment - a performance measure used to evaluate the efficiency or profitability of an investment

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EPS

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Earnings Per Share - the portion of a company's profit allocated to each outstanding share of common stock

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IPO

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Initial Public Offering - the first time that the stock of a private company is offered to the public

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GDP

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Gross Domestic Product - the total value of all goods and services produced over a specific time period within a country

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P/E

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Price to Earnings Ratio - a valuation ratio of a company's current share price compared to its per-share earnings

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NAV

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Net Asset Value - the value per share of a mutual fund or an ETF

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LTV

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Loan to Value Ratio - a financial term used by lenders to express the ratio of a loan to the value of an asset purchased

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DCF

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Discounted Cash Flow - a valuation method used to estimate the value of an investment based on its future cash flows

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CAGR

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Compound Annual Growth Rate - used to describe the geometric progression ratio that provides a constant rate of return over a time period

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FCF

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Free Cash Flow - a measure of financial performance calculated as operating cash flow minus capital expenditures

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NPV

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Net Present Value - the difference between the present value of cash inflows and the present value of cash outflows over a period of time

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EBITDA

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Earnings Before Interest, Taxes, Depreciation, and Amortization - an indicator of a company's financial performance which is calculated in the following manner: EBITDA = Revenues – Expenses (excluding tax, interest, depreciation and amortization)

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ETF

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Exchange-Traded Fund - a type of investment fund and exchange-traded product; the shares are traded on stock exchanges

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FIFO

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First In, First Out - an asset-management and valuation method in which assets produced or acquired first are sold, used, or disposed of first

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GAAP

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Generally Accepted Accounting Principles - a collection of commonly-followed accounting rules and standards for financial reporting

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IRR

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Internal Rate of Return - a metric used in capital budgeting to estimate the profitability of potential investments

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LIFO

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Last In, First Out - an inventory valuation method which presumes that the most recent products added to the inventory are sold first

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MBS

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Mortgage-Backed Security - a type of asset-backed security that is secured by a mortgage or collection of mortgages

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P&L

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Profit and Loss Statement (also known as Income Statement) - a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period

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REIT

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Real Estate Investment Trust - a company that owns, operates, or finances income-generating real estate

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S&P

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Standard & Poor's - a financial services company best known for providing market indices such as the S&P 500

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SEC

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Securities and Exchange Commission - a U.S. government oversight agency responsible for regulating the securities markets and protecting investors

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SWOT

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Strengths, Weaknesses, Opportunities, and Threats - a strategic planning technique used to help a person or organization identify competitive advantages and disadvantages

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T-Bill

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Treasury Bill - a short-term government security with a maturity of less than one year, sold at a discount to par value

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VC

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Venture Capital - a type of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which have demonstrated high growth

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WACC

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Weighted Average Cost of Capital - a calculation of a firm's cost of capital in which each category of capital is proportionately weighted; calculated using the following formula: WACC = E/V * Re + D/V * Rd * (1-Tc)

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YTM

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Yield to Maturity - the total return anticipated on a bond if the bond is held until it matures

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AAA

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Triple A - the highest possible rating that may be assigned to an issuer's bonds by credit rating agencies

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LIBOR

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London Interbank Offered Rate - an interest rate average calculated from estimates submitted by the leading banks in London

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MoM

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Month over Month - a method of expressing the changes in the value of a variable over a monthly period

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PPI

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Producer Price Index - an economic indicator that measures the average change over time in the selling prices received by domestic producers for their output

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PVC

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Present Value Calculation - a financial formula used to determine the present value of a future amount of money or stream of cash flows given a specified rate of return

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R&D

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Research and Development - refers to the investigative activities a business conducts to improve existing products and procedures or to lead to the development of new products and procedures

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SME

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Small and Medium-sized Enterprises - businesses whose personnel numbers fall below certain limits

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SOX

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Sarbanes-Oxley Act - a law passed by U.S. Congress to protect investors from the possibility of fraudulent accounting activities by corporations

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TVOM

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Time Value of Money - the concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity

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VAT

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Value Added Tax - a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale

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EBIT

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Earnings Before Interest and Taxes - an indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and interest

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CAPEX

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Capital Expenditures - funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment

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PMI

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Purchasing Managers' Index - an indicator of the economic health of the manufacturing sector based on five major indicators: new orders, inventory levels, production, supplier deliveries, and the employment environment

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ADR

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American Depositary Receipt - a negotiable certificate issued by a U.S. bank representing a specified number of shares in a foreign stock traded on a U.S. exchange

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