Category: Financial Terms

Cost of Revenue: What It Is and How to Calculate It What it is Cost of revenue is the total direct cost a company incurs to produce and deliver its goods or services to customers. It appears on the income statement and aims to capture the expenses directly tied to generating sales, beyond just production…

Cost-of-Living Adjustment (COLA) Key takeaways * COLA is an annual increase to Social Security and Supplemental Security Income (SSI) intended to offset inflation. * The increase is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI‑W). * Automatic yearly COLAs have been in effect since 1975. * Recent COLAs: 8.7%…

What Is the Cost of Living? The cost of living is the amount of money required to maintain a given standard of living in a specific place and time. It typically includes essentials such as housing, food, taxes, transportation, healthcare, and utilities. Because prices vary by location, the cost of living is commonly used to…

Cost of Labor (Labor Costs): What It Is and Why It Matters The cost of labor is the total expense an employer incurs to employ workers. It includes wages, employee benefits, payroll taxes, and other auxiliary costs associated with hiring and retaining staff. These combined expenses are often referred to as the burden rate. Key…

Cost, Insurance, and Freight (CIF) What is CIF? Cost, Insurance, and Freight (CIF) is an Incoterm used for international shipments by sea or inland waterway. Under CIF, the seller pays the cost of freight and procures marine insurance for the goods while in transit to the named destination port. Risk of loss or damage, however,…

Cost of Goods Sold (COGS) Cost of Goods Sold (COGS) is the direct cost of producing or acquiring the goods a company sells during a reporting period. It excludes indirect expenses such as distribution, marketing, and most overhead. COGS is deducted from revenue to calculate gross profit and gross margin. Key takeaways COGS includes direct…

Cost of Equity The cost of equity is the return required by investors for holding a company’s equity. For a business, it represents the minimum return a project or investment must deliver to justify financing with equity. Companies use it in capital budgeting and capital-structure decisions; investors use it as a benchmark to judge whether…

Cost of Debt The cost of debt is the effective interest rate a company pays on borrowed funds (loans, bonds, etc.). It reflects lenders’ required return for lending and helps assess a firm’s risk profile and financing mix. Interest expense is generally tax-deductible, so analysts distinguish between the before-tax and after-tax cost of debt. How…

Cost Control: Strategies to Protect and Boost Profitability Key Takeaways Cost control begins with budgeting and comparing actual results to the plan. Common tactics include outsourcing, competitive bidding, inventory management, and process improvements. Fixed costs (rent, insurance) are harder to cut than variable costs (materials, hourly wages). Variance analysis — comparing budgeted to actual results…

Cost of Capital Definition Cost of capital is the rate a company must pay to finance its operations and investments, reflecting the required returns of both debt holders and equity investors. It serves as the minimum return a new project must earn to create value for the firm. Why it matters Sets the hurdle rate…

Cost-Benefit Analysis (CBA): A Concise Guide Cost-benefit analysis (CBA) is a systematic method for comparing the expected costs and benefits of a project, policy, or decision to determine whether it is worth pursuing. It assigns monetary values to both tangible and intangible effects where possible, incorporates opportunity costs, and uses structured calculations to support decision-making….

Understanding Cost Basis: Calculation, Examples, and Tax Impact What is cost basis? Cost basis (or tax basis) is the original value of an asset for tax purposes, typically the purchase price plus any purchase-related commissions or fees. It is the starting point for calculating capital gains or losses when you sell an asset and may…

Cost and Freight (CFR) Cost and Freight (CFR) is an Incoterm used in international sales contracts for goods transported by sea or inland waterways. It defines which party is responsible for arranging and paying for carriage, and when the risk of loss or damage passes from the seller to the buyer. How CFR works Seller…

Cost Accounting Cost accounting is a branch of managerial accounting that records, measures, and analyzes all costs associated with producing goods or delivering services. It helps managers understand where money is spent, evaluate operational efficiency, set prices, and make decisions—using systems tailored to internal needs rather than external reporting rules (cost accounting is not governed…

What is a correspondent bank? A correspondent bank is a third-party financial institution that enables domestic banks to conduct cross-border transactions and access foreign financial services without opening branches abroad. It performs payments, settlements, wire transfers, check clearing, currency exchanges, and other treasury services on behalf of client banks in different jurisdictions. Key takeaways Correspondent…

Correlation Coefficient The correlation coefficient quantifies the strength and direction of a linear relationship between two variables. It ranges from -1 to 1: – 1 indicates a perfect positive linear relationship, – -1 indicates a perfect negative linear relationship, – 0 indicates no linear relationship. Understanding correlation helps evaluate how variables move together—an important tool…

Correlation: Meaning, Calculation, and Use in Finance What is correlation? Correlation measures the strength and direction of a linear relationship between two variables. In finance, it describes how two assets or economic variables move together: – Range: -1.0 to +1.0 – +1.0 = perfect positive correlation (move together) – -1.0 = perfect negative correlation (move…

Correction What is a correction? In investing, a correction is a decline of 10% or more in the price of a security, index, or market from its most recent peak. Corrections can affect individual stocks, bonds, or broad-market indexes and may last days, weeks, months, or longer. On average, corrections tend to be short-lived—commonly lasting…

Corporation A corporation is a legal entity created to conduct business that is separate from its owners. It can own assets, enter contracts, borrow money, hire employees, sue and be sued, and file tax returns. Corporations provide limited liability protection: shareholders generally are not personally responsible for the company’s debts or legal obligations. Key takeaways…

Corporate Tax: Definition, Deductions, and How It Works What is corporate tax? Corporate tax is a tax on a corporation’s profits—its taxable income after allowable business expenses are deducted from revenue. In the United States, the federal statutory corporate tax rate is a flat 21%, a level set by the Tax Cuts and Jobs Act…

Corporate Social Responsibility (CSR): What It Is, How It Works, and Why It Matters Key takeaways CSR is a self‑regulating business approach where companies act in ways that benefit society and the environment while remaining accountable to stakeholders. Common CSR focus areas are environmental stewardship, ethical conduct, philanthropy, and financial support for sustainable initiatives. Effective…

Corporate Hierarchy: Definition, Structure, and Effects What is a corporate hierarchy? A corporate hierarchy is the arrangement of people within an organization according to authority, responsibility, and job function. It establishes who makes decisions, who follows them, and how responsibilities are distributed across the company. Why organizations use hierarchies Hierarchical structures help management coordinate operations,…

Corporate Governance: Definition, Principles, Models, and Examples What is corporate governance? Corporate governance is the system of rules, practices, and processes by which a company is directed and controlled. It defines relationships among a company’s management, board of directors, shareholders, and other stakeholders, and sets the framework for achieving objectives, managing risk, and ensuring accountability…

Corporate Finance Corporate finance is the area of finance that focuses on how businesses fund operations, structure capital, manage cash flow, and make investment decisions to maximize shareholder value. It spans short-term liquidity management and long-term planning, including decisions about borrowing, issuing equity, capital projects, and dividend policy. Key takeaways Corporate finance covers funding sources,…

Corporate culture is the shared values, beliefs, and behaviors that shape how employees interact, make decisions, and work together. It’s the personality of an organization—made up of formal policies and informal norms—and it strongly influences employee engagement, innovation, resilience, and financial performance. Key takeaways Corporate culture affects everything from daily collaboration to long-term business outcomes…

Corporate Citizenship Corporate citizenship describes a company’s commitment to meet its legal, ethical, economic, and social responsibilities in ways that benefit both society and the business. It encompasses practices that reduce harm, support communities, and align a company’s operations with broader environmental, social, and governance (ESG) expectations. Why it matters Investors, customers, employees, and regulators…

Corporate Charter: Definition, Purpose, and Legal Requirements Definition A corporate charter (also called a charter or articles of incorporation) is a legal document filed with a state Secretary of State (or registrar in Canada) that creates a corporation. When the state accepts the charter, the business becomes a legal corporation and gains the rights and…

Corporate Bonds Overview Corporate bonds are debt securities issued by companies to raise capital for operations, growth, capital improvements, acquisitions, or to refinance other debt. When you buy a corporate bond, you lend money to the issuer in exchange for periodic interest payments (coupons) and repayment of the principal (face value) at the bond’s maturity….

Core Competencies Core competencies are the distinctive skills, technologies, processes, or capabilities that give an organization (or an individual) a sustainable competitive advantage. They enable superior value for customers, are difficult for competitors to replicate, and are sufficiently rare to differentiate the firm in the marketplace. Origin and defining criteria The concept gained prominence in…

Understanding Copyright: Definitions, Scope, and How It Works Key takeaways * Copyright gives creators exclusive legal rights to reproduce, distribute, display, and create derivative works from their original creations. * Protection arises automatically once a work is fixed in a tangible medium; registration is not required but strengthens enforcement options. * In the U.S., copyright…

What It Means to “Cook the Books” “Cook the books” is slang for manipulating a company’s accounting to make financial results look better than they are. Tactics typically inflate revenue, understate expenses, or otherwise distort profit and financial position to mislead investors, lenders, and regulators. Key takeaways Cooking the books involves intentional accounting manipulation to…

Convexity What is convexity? Convexity describes the curvature of the relationship between a bond’s price and its yield. While duration estimates the linear sensitivity of price to small interest-rate changes, convexity captures how that sensitivity itself changes as yields move — a second-order, non‑linear effect. Key points Duration gives a first-order (linear) estimate of price…

Convertible Preferred Stock Convertible preferred stock is a class of preferred shares that pays fixed dividends and includes an option to convert into a specified number of common shares after a predetermined date. It combines features of both debt-like preferred stock (steady dividends and higher claim on assets) and equity (potential for capital appreciation through…

Convertible Bond Key Takeaways A convertible bond is a hybrid security that pays regular interest and can be converted into a predetermined number of the issuer’s common shares. Conversion is governed by a conversion ratio and conversion price set at issuance; conversion gives investors equity upside while preserving downside protection from the bond. Convertible bonds…

Conventional Mortgage: What It Is and How It Works A conventional mortgage (or conventional loan) is a home loan issued by private lenders—banks, credit unions, and mortgage companies—that is not insured or guaranteed by the federal government. Some conventional loans, however, may meet criteria to be bought or guaranteed by government-sponsored enterprises (GSEs) such as…