Category: Financial Terms

Capital Goods Capital goods are tangible, durable assets a business uses to produce goods or deliver services. They are classified as fixed assets—often called plant, property, and equipment—and differ from consumer goods, which are the finished products purchased by end consumers. Key takeaways Capital goods are physical assets used in production, such as machinery, buildings,…

Capital Gains Tax: What It Is, How It Works, and 2025 Rates Overview Capital gains tax is a tax on the profit you realize when you sell a capital asset for more than you paid. Common capital assets include stocks, bonds, cryptocurrencies, collectibles, and real estate. The amount you owe depends on how long you…

Capital Gain What is a capital gain? A capital gain is the profit realized when you sell a capital asset for more than its purchase price. Capital assets include investments (stocks, bonds, mutual funds, real estate) and many personal possessions (furniture, vehicles). A gain is realized only when the asset is sold; increases in value…

Capital Expenditure (CapEx): Definition, Formulas, and Examples Capital expenditures (CapEx) are funds a company spends to acquire, upgrade, or maintain long-lived physical assets—buildings, equipment, vehicles, software, and similar items—that support operations and generate benefits over multiple years. CapEx is capitalized on the balance sheet and depreciated (or amortized) over the asset’s useful life, rather than…

Capital Employed: Definition and Importance Capital employed (also called funds employed) measures the total funds a company uses to generate profit. It reflects the capital invested in operating assets after short-term obligations are removed, giving insight into how effectively management uses resources to produce returns. Key takeaways: * Capital employed shows how much capital is…

Capital Budgeting Capital budgeting is the process companies use to evaluate major projects or investments by analyzing expected cash inflows and outflows. It helps management decide which initiatives—such as building a new plant, opening a store, or investing in outside ventures—will best allocate limited capital to increase shareholder value. Key takeaways Capital budgeting identifies projects…

Capital Asset Pricing Model (CAPM) Overview The Capital Asset Pricing Model (CAPM) links an asset’s expected return to its systematic risk relative to the market. It is used to estimate the required return for a security, price risky assets, and inform cost-of-capital decisions. CAPM assumes investors are risk-averse and that markets are competitive and efficient,…

Capital Asset What is a capital asset? A capital asset is property held for long-term use or investment rather than for sale in the ordinary course of business. Examples include land, buildings, machinery, vehicles, investment securities, copyrights, patents, and collectibles. For businesses, capital assets typically provide economic benefits extending beyond one year and are recorded…

Capital Adequacy Ratio (CAR) Definition and purpose The Capital Adequacy Ratio (CAR), also called the capital-to-risk weighted assets ratio (CRAR), measures a bank’s available capital as a proportion of its risk-weighted assets (RWA). Regulators use CAR to assess a bank’s capacity to absorb losses and protect depositors, helping to preserve financial stability. How CAR is…

Capital Account The capital account is a term used in two related but distinct contexts: international macroeconomics and business accounting. In macroeconomics it tracks cross-border capital transfers and ownership changes; in accounting it records owners’ claims on a business. Understanding both meanings clarifies how capital moves between countries and how equity is reported on a…

Capital: Definition, Uses, Structure, and Types in Business Key takeaways * Capital is the money or assets used to run a business and fund future growth. * Main business capital types: working capital, debt capital, equity capital, and trading capital. * Capital appears on the balance sheet as cash and other assets; debt capital is…

CAPE Ratio (Shiller P/E): Definition, Calculation, and Market Insights What is the CAPE ratio? The CAPE ratio—cyclically adjusted price-to-earnings ratio—is a valuation measure that divides a market’s current price by the inflation-adjusted average of earnings over the previous 10 years. Popularized by economist Robert Shiller, it smooths short-term profit swings to give a longer-term view…

Capacity Utilization Rate What it is Capacity utilization rate measures the percentage of an organization’s (or economy’s) potential output that is actually produced. It indicates how fully resources—equipment, facilities, and labor—are being used and reveals slack or bottlenecks in production capacity. The metric is most applicable to industries that produce physical goods. Why it matters…

Cap and Trade: How It Works, Benefits, and Challenges Cap and trade is a market-based regulatory system designed to reduce pollution—most commonly greenhouse gas emissions—by limiting the total amount companies can emit and allowing trading of emission allowances. It aims to harness market incentives to lower emissions cost-effectively while encouraging investment in cleaner technology. How…

Candlestick Chart: Definition and Key Takeaways Key takeaways * A candlestick chart displays an asset’s open, high, low, and close for a chosen time period. * The candlestick’s body and wicks (shadows) visualize whether price moved up or down and the strength of that move. * Traders use candlestick shapes and multi-candle patterns to spot…

Canceled Check Key takeaways A canceled check is one that has been paid or cleared by the bank it was drawn on and is therefore void for further use. Canceled checks (or their digital images) are commonly used as proof of payment. You can cancel a check before it’s cashed by voiding it or requesting…

What is a callable bond? A callable bond (also called a redeemable bond) is a bond that gives the issuer the right to repay the principal and stop interest payments before the scheduled maturity date. Issuers include this feature so they can refinance debt if market interest rates fall. To compensate investors for the added…

Call Option A call option is a financial contract giving the option holder the right, but not the obligation, to buy a specified quantity of an underlying asset (commonly 100 shares per contract) at a predetermined price (the strike) on or before a set expiration date. The buyer pays a fee called the premium. The…

What Is a Call in Finance? In finance, the term “call” most commonly refers to either a call option or a call auction. It can also describe other, less frequent uses such as a company’s earnings call or the redemption (call) of outstanding bonds by an issuer. Call Option: Definition and How It Works A…

Understanding the C-Suite: Key Roles and Responsibilities The C-suite (or C-level) is the group of a company’s highest-ranking executives whose titles typically begin with “chief.” These leaders set strategy, guide operations, manage risk, and represent the organization internally and externally. C-suite composition varies by company size, industry and mission. Key takeaways “C-suite” refers to top…

C Corporation Key takeaways A C corporation (C corp) is a legal entity separate from its owners (shareholders). C corps provide limited liability protection; shareholders generally risk only their investment. Corporate profits are taxed at the corporate level and again when distributed as dividends (double taxation). C corps must maintain formal governance (board of directors,…

Buyout: Definition, Types, How They Work, Risks, and Examples Key takeaways A buyout is the acquisition of a controlling interest in a company—typically more than 50%—resulting in a change of control. Management buyouts (MBOs) occur when company managers purchase the business or a division; leveraged buyouts (LBOs) use substantial borrowed money. Private-equity firms often pursue…

Buying Power: Definition and How It Works Buying power (also called excess equity) is the amount an investor can use to purchase securities in a brokerage account. In plain terms, it’s the cash available plus any additional purchasing capacity provided by margin or leverage. Key points Buying power = cash available (in a cash account)…

Buying on Margin: How It Works, Risks, and Rewards What is buying on margin? Buying on margin means purchasing securities using borrowed money from a broker. The investor provides an initial payment (the margin) and borrows the remainder, using the securities in the brokerage account as collateral. Margin amplifies both gains and losses and also…

Buyer’s Market: Definition, Characteristics, and Example Key takeaways A buyer’s market is a market environment that favors buyers over sellers. It typically arises when supply exceeds demand or when demand weakens, putting downward pressure on prices. The term is commonly used for real estate but applies to any market where buyers hold negotiating power. The…

Key takeaways * A buyback (share repurchase) is when a company buys its own outstanding shares to reduce supply and increase the ownership stake of remaining shareholders. * Buybacks can raise earnings per share (EPS), affect the price-to-earnings (P/E) ratio, and signal management’s confidence — but they also consume cash and can be controversial. *…

Buy to Open Key takeaways * “Buy to open” establishes a new long position in an option (call or put). * It signals creation of a position; the opposite closing order is “sell to close.” * Used for speculation, hedging, or spreading; subject to exchange restrictions during halts or delistings. * Option sellers use “buy…

Buy to Cover Definition Buy to cover is a buy order used to close an existing short position. In a short sale, an investor borrows shares from a broker and sells them in the market with the intention of later repurchasing the same number of shares at a lower price and returning them to the…

Buy the Dips Key takeaways “Buy the dips” means buying an asset after a short-term price decline, expecting a rebound. The strategy works best in established uptrends; it can be costly during prolonged downtrends. Averaging down lowers your average cost but increases exposure and risk—use risk controls. What “buy the dips” means Buying the dips…

Buy Stop Order A buy stop order is an instruction to buy a security once its price reaches a specified level (the stop price). When that price is hit, the buy stop typically converts into a market order and is executed at the next available price. Traders use buy stop orders to enter positions on…

Buy-Side Explained: Definition, How It Works, and Key Roles What is the buy-side? The buy-side comprises institutions and investors that purchase securities to manage capital and generate returns. Typical buy-side entities include mutual funds, hedge funds, pension funds, insurance companies, trusts, private equity funds, and high‑net‑worth individuals. Their primary objective is to identify and buy…

Buy Limit Order Key takeaways * A buy limit order instructs your broker to purchase a security only at or below a specified maximum price. * It prevents paying more than your target price but does not guarantee execution if the market never reaches that price. * Useful for cost control and discipline; risky in…

Buy-In Management Buyout (BIMBO): What It Is and How It Works Key takeaways * A Buy-In Management Buyout (BIMBO) blends a management buyout (MBO) and a management buy-in (MBI): existing managers buy part of the business while outside managers buy in and join the ownership team. * BIMBOs are typically executed as leveraged buyouts (LBOs),…

Buy-In: What It Means and How Share Repurchases Work What is a buy-in? A buy-in most commonly refers to the forced repurchase of securities by a buyer when the original seller fails to deliver shares as promised. It can also mean: An agreement to purchase shares or a stake in a company. Informally, the psychological…

Buy-Sell Agreement A buy-sell agreement (also called a buyout agreement, business will, or business prenup) is a legally binding contract that specifies how an owner’s share of a business will be transferred if that owner dies, becomes disabled, retires, files for bankruptcy, or otherwise leaves the business. It defines who may buy the departing owner’s…