Asset Allocation

Asset allocation is the process of distributing a portfolio's assets according to an individual's goals, risk tolerance, and investment horizon. The three main asset classes—stocks, fixed income, and cash equivalents—have different levels of risk and return, and therefore, they perform differently over time.

Written-Down Value

Written-down value is the value of an asset after accounting for depreciation or amortization. In short, it reflects the present worth of a resource owned by a company from an accounting perspective. This value is included on the company's balance sheet in its financial statements.Written-down value is also called book value or net book value.

Asset Swap

An asset swap is a derivative contract between two parties that swap fixed and floating assets. The transactions are done over-the-counter based on an amount and terms agreed upon by both sides of the transaction. Essentially, asset swaps can be used to substitute the fixed coupon interest rates of a bond with LIBOR-adjusted floating rates. The goal of the swap is to change the form of the cash flow on the reference asset to hedge against different types of risks. The risks include interest risk, credit risk, and more.

Asset Management

Asset management is the practice of increasing total wealth over time by acquiring, maintaining, and trading investments that have the potential to grow in value.

Asset Valuation

Asset valuation is the process of determining the fair market or present value of assets, using book values, absolute valuation models like discounted cash flow analysis, option pricing models or comparables. Such assets include investments in marketable securities such as stocks, bonds and options; tangible assets like buildings and equipment; or intangible assets such as brands, patents and trademarks.

Capital Leases

A capital lease is a contract entitling a renter to the temporary use of an asset and has the economic characteristics of asset ownership for accounting purposes.

Capital Budgeting

Capital budgeting is a process that businesses use to evaluate potential major projects or investments. As part of capital budgeting, a company might assess a prospective project's lifetime cash inflows and outflows to determine whether the potential returns it would generate meet a sufficient target benchmark. The capital budgeting process is also known as investment appraisal.

Capital Project

A capital project is a long-term, capital-intensive investment to build upon, add to, or improve a capital asset. Capital projects are defined by their large scale and large cost relative to other investments that involve less planning and resources.

Capital Markets

Capital markets are where savings and investments are channeled between suppliers and those in need. Suppliers are people or institutions with capital to lend or invest and typically include banks and investors. Those who seek capital in this market are businesses, governments, and individuals. Capital markets are composed of primary and secondary markets. The most common capital markets are the stock market and the bond market. They seek to improve transactional efficiencies by bringing suppliers together with those seeking capital and providing a place where they can exchange securities.

Capital Structure

Capital structure is the particular combination of debt and equity used by a company to finance its overall operations and growth.Equity capital arises from ownership shares in a company and claims to its future cash flows and profits.

Capitalization Rate

Capitalization rate is commonly used in real estate and refers to the rate of return on a property based on the net operating income (NOI) that the property generates. In other words, capitalization rate is a return metric that is used to determine the potential return on investment or payback of capital.

Capital Improvement

A capital improvement is the addition of a permanent structural change or the restoration of some aspect of a property that will either enhance the property's overall value, prolong its useful life, or adapt it to new uses.Individuals, businesses, and cities can make capital improvements to the property they own. Some capital improvements are given favorable tax treatment and may be exempted from sales tax in certain jurisdictions.In a business or corporate finance, this process is similar to investments in capital expenditures (CAPEX).

Preservation Of Capital

Preservation of capital is a conservative investment strategy where the primary goal is to preserve capital and prevent loss in a portfolio.

Barriers To Entry

Barriers to entry is an economics and business term describing factors that can prevent or impede newcomers into a market or industry sector, and so limit competition. These can include high start-up costs, regulatory hurdles, or other obstacles that prevent new competitors from easily entering a business sector. Barriers to entry benefit existing firms because they protect their market share and ability to generate revenues and profits.Common barriers to entry include special tax benefits to existing firms, patent protections, strong brand identity, customer loyalty, and high customer switching costs. Other barriers include the need for new companies to obtain licenses or regulatory clearance before operation.

Reserve Ratio

The reserve ratio is the portion of reservable liabilities that commercial banks must hold onto, rather than lend out or invest. This is a requirement determined by the country's central bank, which in the United States is the Federal Reserve. It is also known as the cash reserve ratio.The minimum amount of reserves that a bank must hold on to is referred to as the reserve requirement, and is sometimes used synonymously with the reserve ratio. The reserve ratio is specified by the Federal Reserve Board’s Regulation D. Regulation D created a set of uniform reserve requirements for all depository institutions with transaction accounts, and requires banks to provide regular reports to the Federal Reserve.

Trailing Stop

A trailing stop is a modification of a typical stop order that can be set at a defined percentage or dollar amount away from a security's current market price. For a long position, an investor places a trailing stop loss below the current market price. For a short position, an investor places the trailing stop above the current market price.A trailing stop is designed to protect gains by enabling a trade to remain open and continue to profit as long as the price is moving in the investor’s favor. The order closes the trade if the price changes direction by a specified percentage or dollar amount.A trailing stop is typically placed at the same time the initial trade is placed, although it may also be placed after the trade.

Tracking Stock

A tracking stock is a special equity offering issued by a parent company that tracks the financial performance of a particular segment or division. Tracking stocks will trade in the open market separately from the parent company's stock.Tracking stocks allow larger companies to isolate the financial performance of a higher growth segment. In turn, tracking stocks give investors the ability to gain exposure to a specific aspect of a larger company's business (e.g., the mobile division within a large telecom provider).A common example of tracking stocks is those issued by technology companies to distinguish their cloud computing business from their traditional hardware business. Another example is multinational companies issuing tracking stocks so that investors can choose to invest in business operations in specific regions or markets.

Recourse Loan

The term recourse loan refers to a type of loan that can help a lender recoup its investment if a borrower fails to pay and the value of the underlying asset is not enough to cover it. A recourse loan is a form of secured financing. It lets the lender go after the debtor's other assets that were not used as loan collateral or to take legal action in case of default in order to pay off the full debt.

Transfer Payment

A transfer payment is a one-way payment to a person or organization which has given or exchanged no goods or services for it. This contrasts with a simple "payment," which in economics refers to a transfer of money in exchange for a product or service.Generally, the phrase "transfer payment" is used to describe government payments to individuals through social programs such as welfare, student grants, and even Social Security. However, government payments to corporations—including unconditional bailouts and subsidies—are not commonly described as transfer payments.

Transfer Pricing

Transfer pricing is an accounting practice that represents the price that one division in a company charges another division for goods and services provided.Transfer pricing allows for the establishment of prices for the goods and services exchanged between subsidiaries, affiliates, or commonly controlled companies that are part of the same larger enterprise. Transfer pricing can lead to tax savings for corporations, though tax authorities may contest their claims.

Transfer Price

Transfer price, also known as transfer cost, is the price at which related parties transact with each other, such as during the trade of supplies or labor between departments. Transfer prices may be used in transactions between a company and its subsidiaries, or between divisions of the same company in different countries.