Definition Annual Percentage Rate (APR) is the annual rate charged for borrowing or earned through an investment. APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan or income earned on an investment. This rate includes any fees or additional costs associated with the transaction but does not take compounding into account.
Importance of APR APR provides a comprehensive figure that borrowers can use to compare different loan and credit offers.
Definition Assets Under Management (AUM) refers to the total market value of the investments that a financial institution or investment manager manages on behalf of clients. This figure includes all assets managed across various investment vehicles, such as mutual funds, hedge funds, pensions and separate accounts. AUM is a critical metric used to assess the size, influence and financial health of an investment firm, as well as its ability to attract and retain clients.
Definition Capital Expenditure (CapEx) refers to the funds that a company uses to acquire, upgrade or maintain physical assets such as property, industrial buildings or equipment. These expenditures are crucial for a company’s long-term growth and operational efficiency, as they often involve investments in new technology, infrastructure or expansions that enhance productivity and competitiveness. CapEx is capitalized on the balance sheet, meaning it is recorded as an asset rather than an immediate expense and is gradually depreciated over time.
Definition Capital gains refer to the increase in value of an asset or investment from the time it is purchased to the time it is sold. When the selling price exceeds the original purchase price, the difference is considered a capital gain and is often subject to capital gains tax. This concept is central in the fields of accounting and finance, particularly in investment and tax planning.
Types of Capital Gains Short-Term Capital Gains: Gains on assets held for one year or less.
Definition Corporate bonds are debt securities issued by corporations to raise capital for various purposes, such as expanding operations, financing new projects or refinancing existing debt. When an investor purchases a corporate bond, they are effectively lending money to the issuing corporation in exchange for regular interest payments (known as coupons) and the return of the bond’s face value (principal) when it matures. Corporate bonds are an essential part of the fixed-income market and offer investors a way to earn steady income with varying levels of risk, depending on the issuing company’s creditworthiness.
Definition The Current Ratio is a key financial metric that assesses a company’s capacity to meet its short-term liabilities with its short-term assets. It is an essential indicator of liquidity, allowing stakeholders to gauge the financial health of an organization over a specific period. The formula to calculate the Current Ratio is as follows:
\(\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}\) Components Understanding the components of the Current Ratio is critical:
Definition The Debt to Equity Ratio (D/E Ratio) is a key financial metric used to assess a company’s financial leverage by comparing its total liabilities to its shareholder’s equity. It provides insight into the proportion of debt financing used by a company relative to its equity, reflecting its ability to cover debts with its own assets.
Components The Debt to Equity Ratio is calculated using the following components:
Total Liabilities: This includes all financial obligations the company owes, such as loans, mortgages and other debts.
Definition Dividend Yield is a financial ratio that indicates how much a company pays in dividends each year relative to its stock price. It serves as a measure of the return on investment for shareholders, particularly for those who prioritize income generation through dividends. The formula for calculating the Dividend Yield is:
\(\text{Dividend Yield} = \frac{\text{Annual Dividends per Share}}{\text{Price per Share}}\) This ratio is commonly expressed as a percentage and provides insights into the income-generating potential of a stock.
Definition Fixed income refers to a type of investment security that pays investors fixed interest or dividend payments until its maturity date. Upon maturity, investors are repaid the principal amount invested. Fixed income securities are typically used by investors seeking regular income and lower risk compared to stocks. These instruments include government and corporate bonds, treasury bills, municipal bonds and preferred stocks.
Characteristics Capital Preservation: Fixed income investments are often used by conservative investors to protect their capital, as they generally involve lower risk compared to equities.
Definition High liquidity refers to the characteristic of assets that can be quickly converted into cash with minimal impact on their price. This quality is indicative of a robust market where assets can be bought or sold rapidly, ensuring that investors and individuals can easily access funds or reallocate resources without significant delays or losses.
Characteristics of High Liquidity Quick Conversion: Assets can be swiftly exchanged for cash, making them ideal for meeting immediate financial needs or taking advantage of investment opportunities.