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Financial Acronyms Explained
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ROI
Return on Investment - a performance measure used to evaluate the efficiency or profitability of an investment
EPS
Earnings Per Share - the portion of a company's profit allocated to each outstanding share of common stock
IPO
Initial Public Offering - the first time that the stock of a private company is offered to the public
GDP
Gross Domestic Product - the total value of all goods and services produced over a specific time period within a country
P/E
Price to Earnings Ratio - a valuation ratio of a company's current share price compared to its per-share earnings
NAV
Net Asset Value - the value per share of a mutual fund or an ETF
LTV
Loan to Value Ratio - a financial term used by lenders to express the ratio of a loan to the value of an asset purchased
DCF
Discounted Cash Flow - a valuation method used to estimate the value of an investment based on its future cash flows
CAGR
Compound Annual Growth Rate - used to describe the geometric progression ratio that provides a constant rate of return over a time period
FCF
Free Cash Flow - a measure of financial performance calculated as operating cash flow minus capital expenditures
NPV
Net Present Value - the difference between the present value of cash inflows and the present value of cash outflows over a period of time
EBITDA
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)
ETF
Exchange-Traded Fund - a type of investment fund and exchange-traded product; the shares are traded on stock exchanges
FIFO
First In, First Out - an asset-management and valuation method in which assets produced or acquired first are sold, used, or disposed of first
GAAP
Generally Accepted Accounting Principles - a collection of commonly-followed accounting rules and standards for financial reporting
IRR
Internal Rate of Return - a metric used in capital budgeting to estimate the profitability of potential investments
LIFO
Last In, First Out - an inventory valuation method which presumes that the most recent products added to the inventory are sold first
MBS
Mortgage-Backed Security - a type of asset-backed security that is secured by a mortgage or collection of mortgages
P&L
Profit and Loss Statement (also known as Income Statement) - a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period
REIT
Real Estate Investment Trust - a company that owns, operates, or finances income-generating real estate
S&P
Standard & Poor's - a financial services company best known for providing market indices such as the S&P 500
SEC
Securities and Exchange Commission - a U.S. government oversight agency responsible for regulating the securities markets and protecting investors
SWOT
Strengths, Weaknesses, Opportunities, and Threats - a strategic planning technique used to help a person or organization identify competitive advantages and disadvantages
T-Bill
Treasury Bill - a short-term government security with a maturity of less than one year, sold at a discount to par value
VC
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
WACC
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)
YTM
Yield to Maturity - the total return anticipated on a bond if the bond is held until it matures
AAA
Triple A - the highest possible rating that may be assigned to an issuer's bonds by credit rating agencies
LIBOR
London Interbank Offered Rate - an interest rate average calculated from estimates submitted by the leading banks in London
MoM
Month over Month - a method of expressing the changes in the value of a variable over a monthly period
PPI
Producer Price Index - an economic indicator that measures the average change over time in the selling prices received by domestic producers for their output
PVC
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
R&D
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
SME
Small and Medium-sized Enterprises - businesses whose personnel numbers fall below certain limits
SOX
Sarbanes-Oxley Act - a law passed by U.S. Congress to protect investors from the possibility of fraudulent accounting activities by corporations
TVOM
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
VAT
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
EBIT
Earnings Before Interest and Taxes - an indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and interest
CAPEX
Capital Expenditures - funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment
PMI
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
ADR
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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