You did WHAT with a WHAT after talking to a WHAT??? If you don’t know jargon and talk to financial people their statements may be no more informative than the first line of this paragraph.

Every industry has jargon. Education has NCLB and IDEA, lawyers have quid pro quo and nole contendere (to name a few) and finance has the words of Wall Street. Learn the jargon and you fit in with the others speaking it, you sound more intelligent, and, well, you can at least make sense of what Wall Street analysts are saying. Who knows, maybe the jargon will help you interpret the Wall Street Journal, that new regulatory bill that Congress passed or your own financial advisor. The point is, there is lots to know and a good place to start is with the list below.

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Accrual Accounting: The method of recording revenues as they are accrued or incurred (i.e. upon sale, not collection of payment) and expenses as they are accrued – either upon sale of goods (for cost of goods sold expense) or on a schedule such as with depreciation of property.Amortization: Similar to depreciation but used only for intangible assets such as patents or goodwill. The expense account associated with the declining value of an intangible asset over time and used in an attempt to record the use of that asset as an expense in the period in which the asset is used rather than upon acquisition of the asset.Assets: The total allocations of a company’s liabilities and owner’s equity. Assets include cash, inventory, buildings, equipment, prepaid insurance premiums and many other accounts.

Balance Sheet: One of the three major financial statements published by companies (in the 10k for public companies). It records account totals but – contrary to expectations – is given its name not because it shows “account balances” but because the sheet must “balance.” In order to “balance” the sheet must show assets equal to the sum of liabilities and owners’ equity (Assets = Liabilities + Owner’s Equity). This will naturally occur with the use of double-entry accounting methods as required by GAAP. As with the income statement, this report is largely subject to accounting methodologies, which vary from one company to another (and sometimes one reporting period to the next) so caution should be used when reading it.Book Value: The value of assets as recorded on the balance sheet. The book value is a historical value in that it is based on purchase prices (adjusted for depreciation) and does not reflect market value. Thus, book value is often less than actual market value for assets held by a company.Budget Deficit: Loss that results from spending more each accounting cycle (typically a year) than is taken in. Governments often operate at budget deficits by borrowing money adding to their overall debt.Bulge Bracket: The largest investment banking firms on Wall Street as defined by “League Tables” such as those published by S&P and Forbe’s. Historically, the term comes from the manner in which the names of the underwriting banks in a particular deal “bulged” out of the list of all involved banks on the “tombstone.”

Capital Raising: Advisory services offered by the investment banking division of an investment bank involving both IPO advising as well as debt raising etc.CAPM: Capital Asset Pricing Model – the Nobel Prize winning method for computing a discount value for equity-based investments. It combines both the risk-free market return with an investor’s expected return for the equity investment, adjusted for risk, as determined by a stock’s beta coefficient.

CDS: Credit Default Swap. Similar to insurance; generally purchased from financial institutions by lenders to hedge risk on loans that they have granted. The purchasers of the CDS pay principle payments regularly to the institution from which they purchase the security and, in the event that debtors default on their loan payments, receive some compensation from the selling institution.

CMO: Collateralized Mortgage Obligation. A security that functions much like a corporate bond but is based upon mortgages; mortgage payment rights are split up to investors who are paid as the underlying mortgages are paid. The mortgages are grouped and split by maturity dates, risk, interest rate, type of payment (interest or principle) and beginning and ending payment dates / rights.

Cost of Goods Sold: The accrual accounting based matching (costing) of products sold. The costs generally include expenses associated with raw materials, manufacturing and sales, though not usually with other operating expenses associated with running a company.

DCA: Dollar Cost Averaging. An investment strategy in which someone decides to invest a set amount every month, regardless of stock price or market swings, in order to lower the average cost per share. For more about DCA read here.

DCF: Discounted Cash Flow analysis for corporate valuation. A way to measure the present value of future free cash flows that a corporation is expected to generate. See DCF page.

Debt: The total of liabilities owed for borrowed capital. For governments it is frequently increased with budget deficits though it can be increased even in times of profitability as is often the case with companies.

Depreciation: The accrual accounting method of matching operating (fixed costs) to the appropriate period in which they were incurred. Purchases of property, plant, and equipment assets are not recorded as expenses upon acquiring them but rather upon their use over time. Depreciation methods vary, but the intent is to represent the declining value of an asset over time and record that change as the expense of that asset for the period.

EBIT(DA): Earnings Before Interest and Taxes (Depreciation and Amortization). A figure reported on a company’s income statement that represents their net income plus expenses associated with interest expense (on loans), taxes and in some cases depreciation and amortization of assets. Because of complex tax rules and flexibility in recording depreciation expense and amortization, EBITDA is often a more accurate approximation of Cash Flow than net income.

EMRP: Equity Market Risk Premium. The additional annual gains expected by equity investors to compensate for the additional risk taken on. Used in Discounted Cash Flow Analyses and in the Capital Asset Pricing Model.

Equity: Invested capital of an owner in a company. An owner’s claim to assets of a company (e.g. shareholder’s equity).

Expenses: The costs associated with operating a company and producing and selling goods or providing services. This figure is reported on the income statement.

FIFO: First In First Out accrual accounting method of costing. The prices of goods first received in inventory are the prices used to establish cost of goods sold expense as products are sold. If prices rise over time, a FIFO accounting method will result in an overall higher inventory value (and lower cost of goods sold) than the LIFO method.

GAAP: Generally Accepted Accounting Principles. The rules of accounting used in the US (in most cases unless stated otherwise) as established by the Financial Accounting Standards Board (FASB).


Income Statement: One of the three major financial statements published by companies (in the 10k for public companies). It records changes over the reporting period on certain accounts and is the document on which one would find the bottom line “net income” (profit or loss, informally). This document, however, is largely subject to accounting practices and given flexibility in accounting rules may vary or be skewed simply by accounting choices.

Inflation: Increase in the cost (and related decrease in the value) of money over a period of time. Typically, currencies are subject to annual inflation such that it takes more of that currency to purchase the same goods year over year. Inflation varies from country to country, currency to currency, but in the U.S. is typically between 2-3 percent a year in times of relative economic stability.

Investment Banker: An employee of an investment bank. More specifically, an individual who is in one of two departments / roles at a bank: Sales and Trading or Capital Raising Advisory Services (M&A and IPO advising).



Leverage: The use of borrowed capital (debt). A highly leveraged company is one with a high proportion of borrowed capital (debt) to invested capital (equity).

Liabilities: Lent capital and other claims by lenders / creditors to a company’s assets. If a company purchases goods on credit, it incurs the liability to pay that charge at a later date. If a company borrows money, it incurs the liability of the repayment of that debt.

LIFO: Last In First Out method of accrual accounting of costing. The prices of goods last received into inventory are the prices used to establish cost of goods sold expense as products are sold. If prices rise over time, a LIFO accounting method will result in an overall lower inventory value (and higher cost of goods sold) than the FIFO method.

Liquidity: The ability of a company to cover its debt exposure and other liabilities with assets that are quickly and easily converted to cash.

LLC: Limited Liability Corporation. Limits the risk exposure of owners of a company such that creditors or others cannot seize any assets beyond those of the company (i.e. they cannot hold an owner’s personal assets liable for company expenses).

M&A: Mergers and Acquisitions – part of capital raising functions and advisory services of the investment banking division. The purchase or combination of two or more companies to create one larger company.

Margin: The figure reported on a company’s income statement that represents revenue from sales or services minus cost of goods sold.

Market Capitalization: Equivalent to the Market Value of a company (shares outstanding x share price).

Market Share: Proportion of a company’s hold on an industry. Equal to the company’s revenue from a given product or in a given industry divided by the total revenue for that type of product or that industry.

Market Value: The price that the market will currently pay for a given item. The market value of a company is the number of shares outstanding multiplied by the current selling price of a share of its stock.

Net Income: Informally referred to as profit or loss, net income is the bottom line figure reported by a corporation on its income statement. It is the accounting rules based determination of revenue minus expenses.


Profit: The informal name for net income; the bottom line figure of a company reported on its income statement. Profits typically refer to positive net income while losses are typically negative.


Revenue: The gross recorded income or capital received for goods sold or services provided or other money-making activities before expenses are deducted. This figure is reported on the income statement.

Sales and Trading: The portion – often of investment banks – with the function of trading the firm’s and clients’ capital in order to make a profit.

Statement of Cash Flows: One of the three major financial statements published by companies (in the 10k for public companies). It shows actual cash flows over the reporting period; in other words it shows the amount of cash that a company paid out and the amount it actually collected. It is, therefore, far less subject to accounting choices and is less easily manipulated without outright accounting fraud. It is split into three sections: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.



Value Investing: The method of investing in stocks that are undervalued in the hopes that over time, market value will rise to meet the intrinsic value of the company; it was pioneered by Benjamin Graham and David Dodd who – at the time – taught at the Columbia University Business School. The method is currently practiced by many successful investors including Warren Buffett who studied under Graham and Dodd while he was at Columbia. Learn more about Value Investing here.

WACC: Weighted Average Cost of Capital method of a Discounted Cash Flow, DCF. It is used to compute a discounted value based on all capital (debt and equity) that a corporation controls based on the variable cost of each, weighted by the proportion of total corporate value that each (debt and equity) make up. See DCF.