Category: Financial Terms

Understanding Comps: Definition, Uses, and Examples Key takeaways * “Comps” (comparables) are comparisons of financial or market metrics used to assess performance or value across retail, business valuation, and real estate. * Retail comps (same-store sales) isolate performance of stores open more than one year to show organic growth. * In valuation, comparable company analysis…

Comprehensive Income Comprehensive income measures the total change in a company’s owners’ equity from non-owner sources during a reporting period. It combines net income (the profit or loss recognized on the income statement) with other comprehensive income (OCI), which captures certain unrealized gains and losses excluded from net income. How it works Comprehensive income =…

Compounding Compounding is the process by which an asset’s earnings—interest or capital gains—are reinvested to produce additional earnings. Over time, returns grow on both the original principal and the accumulated earnings, producing exponential growth rather than linear growth. Key takeaways Compounding is “interest on interest,” allowing returns to increase faster over time. Frequency of compounding…

Compound Interest Introduction Compound interest is interest calculated on the initial principal plus all accumulated interest from prior periods. It accelerates growth because each period’s interest earns interest in subsequent periods. This makes compounding a powerful force for building wealth—and a costly one when applied to debt. Key takeaways Compound interest = interest on principal…

Compound Annual Growth Rate (CAGR) What is CAGR? The compound annual growth rate (CAGR) is the annualized rate at which an investment would have grown from its beginning value to its ending value over a specified period, assuming profits are reinvested and growth is compounded each year. It smooths varying year-to-year returns into a single…

Compliance Officer A compliance officer ensures that an organization follows external laws, regulations, and internal policies. In larger firms, a chief compliance officer (CCO) typically heads the compliance function and directs compliance-related activities across the business. Key takeaways Ensures company compliance with regulatory, legal, and internal requirements. Develops and enforces policies, conducts audits, and leads…

Competitive Advantage A competitive advantage is a distinguishing strength that allows a company to deliver greater value—through lower cost, superior quality, or a unique offering—than its rivals. This edge enables higher sales, larger margins, or stronger market position. Key takeaways Competitive advantage makes a product or service more desirable than competitors’. Main approaches: cost leadership,…

Competitive Intelligence Competitive intelligence (CI) is the systematic collection and analysis of information about competitors, customers, technologies, regulations, and market conditions to support better business decisions and strengthen competitive advantage. Key takeaways CI converts external information into actionable insight for short‑ and long‑term decision‑making. It relies on diverse, ethically gathered sources—public records, market data, interviews,…

Compensatory Damages: Types, Examples, and Key Takeaways What are compensatory damages? Compensatory damages are monetary awards intended to make a plaintiff whole after losses caused by another party’s negligent or unlawful conduct. To recover compensatory damages in a civil case, a plaintiff must prove causation and quantify the loss for the judge or jury. Explore…

Comparative Market Analysis A comparative market analysis (CMA) estimates a home’s likely selling price by comparing it to similar properties (“comps”) that recently sold in the same area. Agents commonly prepare CMAs to help sellers set competitive listing prices and to assist buyers in making informed offers. Buyers and sellers can also create their own…

Comparative Advantage Comparative advantage is the principle that an individual, firm, or country should specialize in producing the goods or services it can generate at the lowest opportunity cost, and trade for the rest. It explains why voluntary exchange and specialization can raise overall welfare—even when one party is absolutely better at producing everything. Key…

Comparable Company Analysis (CCA) What is CCA? Comparable Company Analysis (CCA) estimates a company’s value by comparing its financial and market metrics with those of similar companies in the same industry. The method relies on the assumption that comparable firms trade at similar valuation multiples, producing a useful market-based benchmark to judge whether a company…

What Is the Community Reinvestment Act (CRA)? Key takeaways * The CRA is a federal law passed in 1977 that requires federally insured depository institutions to help meet the credit needs of the communities where they operate, including low- and moderate-income (LMI) neighborhoods. * Federal banking agencies evaluate banks’ community lending, investment, and service performance…

Understanding Communism: Ideology, History, and Global Impact Communism is both an economic and political ideology that seeks a classless society in which property and wealth are held in common rather than privately owned. Originating from long-standing communal ideas, it was developed into a modern political program by Karl Marx and Friedrich Engels in the mid-19th…

Common Stock: Definition, Rights, Risks, and How to Invest Key takeaways * Common stock represents basic ownership in a corporation and usually carries voting rights. * Common shareholders share in profits via dividends (when declared) and benefit from capital appreciation, but are last in line in a liquidation. * Preferred stock has priority for dividends…

Common-Size Income Statement A common-size income statement expresses each line item as a percentage of total revenue (sales). It is a form of vertical analysis that standardizes financial statements so you can compare performance across periods, companies, or industries regardless of size. Definition Each line item on the income statement (COGS, operating expenses, taxes, net…

Common-Size Financial Statement A common-size financial statement converts dollar amounts on standard financial statements into percentages of a single base figure. This standardization makes it easier to compare companies of different sizes, compare performance across time, and identify what drives profitability. How it works Choose a base figure: Income statement: base = sales (revenue). Balance…

Understanding Common Law: Principles, Practices, and Differences From Civil Law What is common law? Common law is a body of unwritten law based on judicial decisions and legal precedents rather than comprehensive statutory codes. It developed from English legal tradition and remains a foundation of the legal systems in countries such as the United States,…

Common Equity Tier 1 (CET1) Key takeaways * CET1 is the highest-quality regulatory capital a bank holds to absorb losses as they occur. * CET1 primarily consists of common equity: common shares, retained earnings, share premium, qualifying minority interest and accumulated other comprehensive income (AOCI). * The CET1 ratio compares CET1 capital to a bank’s…

Commodity Trading Advisor (CTA) A commodity trading advisor (CTA) is an individual or firm that provides personalized advice about trading derivatives such as futures contracts, options on futures, retail off-exchange forex contracts, or swaps. CTAs typically work with institutional and retail clients to design, implement, or manage strategies that gain exposure to commodity and futures…

Commodity Futures Contract Definition A commodity futures contract is a standardized agreement to buy or sell a specified quantity of a commodity at a predetermined price on a future date. Futures create a binding obligation: unless the position is closed before expiration, the holder must buy or sell the underlying commodity at the contract price….

Commodities: Definition, Types, Markets, and Investment Roles Commodities are basic raw materials used in commerce that are interchangeable with other goods of the same type. They serve as inputs for producing goods and services and are traded in large volumes on specialized exchanges. Commodities are commonly used by producers to hedge price risk and by…

Commission: Definition, Examples, and How It Differs from Fees What is a commission? A commission is a service charge a broker or investment advisor assesses for executing transactions or providing investment services. It is typically calculated as a percentage of the trade value or as a flat fee per transaction. Commissions are one way financial…

Commingled Fund: Definition, How They Work, and Key Considerations What is a commingled fund? A commingled fund pools assets from multiple investors into a single professionally managed portfolio. It is commonly used by retirement plans, pension funds, and other institutional investors to achieve economies of scale and lower management costs. Unlike mutual funds, commingled funds…

Commercialization Commercialization is the process of bringing a new product or service to market. It covers the coordinated activities needed to move an idea from concept to paying customers, including production, distribution, marketing, sales, and customer support. Key takeaways Commercialization turns ideas into marketable products or services through coordinated operational, marketing, and legal efforts. A…

Understanding Commercial Real Estate Commercial real estate (CRE) comprises properties used for business activities rather than private residences. It includes offices, retail centers, industrial sites, hotels, healthcare facilities, and multifamily rental buildings when operated as income-producing assets. CRE generates returns through rental income and capital appreciation, but it typically requires more capital, management expertise, and…

Commercial Paper Commercial paper is an unsecured, short-term debt instrument issued by corporations to finance immediate needs such as payroll, accounts payable, and inventory. It is typically issued in large denominations (commonly $100,000 or more), sold at a discount, and repaid at face value at maturity. Maturities range from one day up to 270 days,…

Commercial Mortgage-Backed Securities (CMBS) Commercial mortgage-backed securities (CMBS) are fixed-income instruments backed by pools of commercial real estate loans—such as loans on office buildings, hotels, shopping centers, apartment complexes, industrial facilities and other income-producing properties. Investors receive principal and interest payments generated by the underlying mortgages; these payments are distributed according to a predefined priority…

Commercial Loan Key takeaways * A commercial loan is debt financing provided by a bank or lender to a business to fund operations, capital expenditures, or growth. * Many commercial loans require collateral (property, equipment, or accounts receivable) and strong documentation of cash flow. * Terms vary from short-term to renewable facilities; interest is typically…

Commercial Bank Commercial banks provide banking services and financial products to individuals, businesses, and other organizations. They accept deposits, make loans, process payments, and offer merchant services that let businesses accept electronic payments. How commercial banks work Accept deposits (checking, savings, certificates of deposit) and provide account access through branches, ATMs, online and mobile banking….

Commercial: What It Means in Business and Financial Markets Key takeaways * “Commercial” refers to business or market activity carried out to earn profit. * In finance, commercial positions—especially in futures and options—typically reflect hedging by businesses, while non-commercial positions are usually speculative. * Large commercial participants benefit from scale and can produce or trade…

What Is Commerce? Commerce is the large-scale exchange of goods and services for money or other value between two or more parties—businesses, consumers, or governments. It focuses on distribution and the sale of finished products rather than on manufacturing or production. Key Takeaways * Commerce is the distribution and sale of goods and services, distinct…

Command Economy: Definition, How It Works, Pros and Cons Key Takeaways * A command (or planned) economy is one in which a central government determines production levels, prices, and the allocation of resources, with most major industries publicly owned or controlled. * Central plans—often multi‑year—set national economic priorities and limit market competition. * Critics point…

Combined Ratio What it is The combined ratio is an insurance metric that measures underwriting profitability. It compares the amount an insurer pays out for claims and operating expenses with the premiums it has earned. A combined ratio below 100% indicates an underwriting profit; above 100% indicates underwriting losses. The ratio excludes investment income, so…

Combined Loan-to-Value (CLTV) Ratio What is CLTV? The combined loan-to-value (CLTV) ratio measures the total amount of secured loans on a property relative to the property’s market value. Unlike the standard loan-to-value (LTV) ratio, which includes only the primary mortgage, CLTV includes all liens—first mortgage, second mortgage, home equity loans, and HELOCs. Lenders use CLTV…