Category: Financial Terms

Authorized Stock Authorized stock (or authorized shares) is the maximum number of shares a corporation may legally issue, as specified in its articles of incorporation or corporate charter. It sets an upper limit; a company cannot issue more shares than this total without amending its charter and typically gaining shareholder approval. Key terms Authorized shares:…

Autarky Key takeaways Autarky denotes a policy or state of economic self-sufficiency with minimal reliance on international trade. No modern country is fully autarkic; even highly isolated states participate in some external trade or receive aid. Historical and contemporary examples include mercantilist Europe, Nazi Germany’s wartime policies, and North Korea’s juche-driven isolation. Economists warn autarky…

Australian Securities Exchange (ASX) The Australian Securities Exchange (ASX) is Australia’s primary securities exchange, headquartered in Sydney. It was formed in 2006 through the merger of the Australian Stock Exchange and the Sydney Futures Exchange. The ASX operates as a market operator and provides listing, trading, clearing and settlement, and payments services for a wide…

Austerity Measures: Purpose, Mechanisms, and Effects What is austerity? Austerity refers to fiscal policies governments use to reduce budget deficits and control public debt. Typical measures include cutting government spending, increasing taxes, or a mix of both. The objective is to restore creditor confidence, lower borrowing costs, and stabilize public finances—but these policies can also…

Augmented Product: Definition, How It Works, and Examples An augmented product is the base product plus additional services, benefits, or features a seller adds to differentiate the offering and enhance the customer experience. These augmentations—often intangible—do not change the physical product but increase perceived value, encourage purchase, and can justify a higher price or stronger…

Auditor’s Report An auditor’s report is a formal letter from an independent auditor that expresses an opinion about whether a company’s financial statements are presented fairly and in accordance with generally accepted accounting principles (GAAP). It accompanies a company’s financial statements and helps users—such as lenders, investors, and regulators—assess the reliability of those statements. Key…

Auditor’s Opinion: Definition, How It Works, and Types What is an auditor’s opinion? An auditor’s opinion is a formal statement issued by an independent auditor after examining a company’s financial records and procedures. It accompanies the financial statements and communicates whether, in the auditor’s view, those statements contain material misstatements or otherwise comply with applicable…

Auditor: Definition, Roles, Types, and Qualifications An auditor is a professional who examines and verifies financial records to ensure accuracy and compliance with laws and accounting standards. Audits help stakeholders — including investors, regulators, and management — assess a company’s financial position and internal controls. What auditors do Inspect accounting data, financial records, and operational…

Audit Risk Key takeaways * Audit risk is the risk that financial statements are materially incorrect even though the auditor issues an unqualified opinion. * It creates potential legal liability for the audit firm; firms commonly carry malpractice insurance to manage that exposure. * Audit risk has two main components: risk of material misstatement and…

Audit Committee An audit committee is a board-level committee responsible for overseeing a company’s financial reporting, disclosure, audit processes, internal controls, and related risk management. For U.S. publicly traded companies, a qualified audit committee—composed of independent directors and including at least one member with financial expertise—is required for stock exchange listing. Key points Oversees accuracy…

Audit: Meaning, Types, Process, and Key Considerations What is an audit? An audit is an independent, systematic examination of an organization’s financial records, transactions, and internal controls to determine whether financial statements fairly present its financial position and performance. Audits provide stakeholders—investors, creditors, regulators, and management—with reasonable assurance that reports are accurate, compliant with applicable…

Auction Market: Definition, How It Works, and Examples What is an auction market? An auction market is a trading environment where multiple buyers submit competitive bids and multiple sellers submit competitive offers simultaneously. Trades occur when a buyer’s bid matches a seller’s ask; the trade price reflects the highest price a buyer is willing to…

Understanding Attrition in Business: Definitions, Types, Calculation, and Management What is attrition? Attrition is the gradual reduction of a company’s workforce when employees leave and are not replaced. It can be intentional (used as a staffing strategy) or a natural outcome of resignations and retirements. The term also applies to customer loss (customer attrition or…

What Is Attribution Analysis? Attribution analysis (also called performance or return attribution) breaks down a portfolio’s returns to identify where excess returns—alpha—came from. It answers whether a manager’s outperformance relative to a benchmark was driven by asset-allocation decisions, individual security selection, investment style, or market timing. Why it matters * Helps investors and managers understand…

Attorney-in-Fact: Types, Powers, and Responsibilities Key takeaways * An attorney-in-fact (agent) is a person authorized by a power of attorney (POA) to act on behalf of a principal in legal, financial, or personal matters. * A POA can be general (broad authority) or limited/special (restricted to specific acts). * A durable POA remains effective if…

At the Money (ATM) Options: Definition and Key Points At the money (ATM) options have a strike price equal (or very close) to the current market price of the underlying security. ATM options play a central role in options trading because they are highly sensitive to price movements and risk factors, making them useful building…

What is an Atomic Swap? An atomic swap (or cross-chain atomic swap) is a peer-to-peer method for exchanging cryptocurrencies across different blockchains without a centralized intermediary. The term “atomic” means the exchange either completes in full or not at all—there are no partial outcomes—so neither party can lose funds if the counterparty fails to fulfill…

At Par What “At Par” Means “At par” means a security is trading at its face (par) value. For bonds and preferred stocks, par value is the fixed amount assigned when the security is issued. A market price equal to par means the investor would pay 100% of that face value. Prices above par are…

Asymmetric information Asymmetric information occurs when one party in a transaction has more or better information than the other. This imbalance influences decisions, prices, and the allocation of resources in many markets. It can spur efficiency through specialization but also cause market failures, fraud, and unfair outcomes. How it works — common examples Sale of…

Assurance Services Assurance services are independent professional engagements—typically provided by certified or chartered accountants—that improve the reliability, relevance, and usefulness of information used for decision-making. By reducing information risk, assurance services help stakeholders (investors, managers, customers, regulators) make better-informed judgments about an organization’s transactions, systems, controls, and performance. Why assurance matters Reduces information risk by…

Assurance in Business: Definition, Types, and Key Examples What is assurance? Assurance refers to two related concepts: – Financial coverage for an event that is certain to occur (commonly called life assurance). – Professional services that increase confidence in the reliability, accuracy, or completeness of information (commonly provided by accountants and auditors). In the professional-services…

Assumable Mortgage An assumable mortgage lets a homebuyer take over the seller’s existing mortgage, including its remaining principal balance, interest rate, and repayment term. This can offer a shortcut to homeownership and potential interest-rate savings, but it requires lender approval and may involve significant cash or a second loan to cover the difference between the…

Assortment Strategies What is an assortment strategy? An assortment strategy defines the variety and depth of products a retailer offers to optimize sales and meet customer demand. It is built on two core dimensions: * Depth — how many variations of a single product (sizes, colors, flavors) a retailer stocks. * Breadth (width) — how…

Assignment: Definition, How It Works, and Examples What is an assignment? An assignment is the transfer of rights, property, or contractual obligations from one party to another. In finance, the term commonly refers to: The transfer of ownership or contractual rights (for example, deeds, trademarks, leases, or the right to collect payment). The specific event…

Assets Under Management (AUM) Key takeaways Assets under management (AUM) is the total market value of investments that a manager or firm oversees on behalf of clients. AUM fluctuates with market performance, investor inflows and outflows, and reinvested earnings. Large AUM often implies greater liquidity and perceived stability, but it does not guarantee better returns….

Asset Valuation: Methods, Examples, and Key Insights Key takeaways * Asset valuation determines the fair market or present value of tangible and intangible assets using different frameworks. * Absolute valuation models (e.g., discounted cash flow, discounted dividends, residual income) value an asset based on its own expected cash flows and required returns. * Relative valuation…

Asset Turnover Ratio What it measures The asset turnover ratio shows how efficiently a company uses its assets to generate revenue. It indicates the dollars of sales produced for each dollar invested in assets — higher values mean greater efficiency. Formula and calculation Asset Turnover = Total Sales (or Revenue) / Average Total Assets Explore…

Asset Swapped Convertible Option Transaction (ASCOT) Overview An asset swapped convertible option transaction (ASCOT) is a structured strategy that separates a convertible bond into two distinct components: the fixed‑income (bond/credit) piece and the equity (option) piece. The separation is achieved by using an option on the convertible bond so that one party owns the bond’s…

Asset Swaps: Understanding Fixed‑ and Floating‑Rate Exchanges What is an asset swap? An asset swap is an over‑the‑counter (OTC) derivative contract in which two parties combine a bond (or other fixed‑rate asset) with an interest rate swap so that the economic exposure is converted from fixed to floating (or vice versa). These transactions are used…

Asset Retirement Obligation (ARO) Definition An asset retirement obligation (ARO) is a legal obligation tied to the retirement of a tangible, long‑lived asset that requires a company to remove equipment or remediate a site at some future date. AROs are recorded on the financial statements so a company’s reported value reflects the expected costs of…

Asset Protection: Definition and Essentials Asset protection is the use of legal strategies to shield wealth from seizure, creditor claims, or other losses. It is a component of financial planning that seeks to limit creditors’ access to certain assets while staying within debtor–creditor law. Effective asset protection emphasizes lawful structuring and timing—implementing measures before a…

Asset Management Company (AMC) What is an AMC? An asset management company (AMC) pools client capital and invests it across assets such as stocks, bonds, real estate, and alternative investments. AMCs serve a range of clients—high‑net‑worth individuals, pension funds, institutions, and retail investors—often by offering mutual funds, ETFs, separately managed accounts, and other pooled products….

Asset Management Key takeaways Asset management involves investing and overseeing assets to grow value while managing risk according to a client’s goals and tolerance. Clients range from individuals and families to corporations, government entities, and institutional investors. Many asset managers have a fiduciary duty to act in the client’s best interest; fee structure and legal…

Asset/Liability Management (ALM) Asset/liability management (ALM) is the process of identifying, measuring and managing the timing and risk of a firm’s assets and liabilities so the business can meet its obligations as they come due. ALM aims to reduce risks—especially liquidity risk and interest rate risk—by ensuring assets and cash flows are available to cover…

Asset-Liability Committee (ALCO) An Asset-Liability Committee (ALCO) is a supervisory group—typically at the board or senior management level—responsible for coordinating and overseeing the management of an institution’s assets and liabilities. Its primary goals are to manage liquidity and interest-rate risk, align balance-sheet strategy with the board’s risk appetite, and help ensure adequate returns and overall…