Glossary
Every term, defined in about 90 seconds.
174 definitions written the way we write everything: the point first, a real number second. Each term links to the guide where the concept gets the full treatment.
174 terms
10-K
The annual report a US public company files with the SEC, typically 60 to 120 pages. The face of the statements is the summary; the notes carry the leases, the debt maturities, the tax reconciliation, and the segment detail that makes the business legible.
401(k)
An employer retirement plan funded straight from payroll. The 2026 employee limit is $24,500, and many employers match a slice of what you put in. Contribute at least to the full match before anything else.
50/30/20 rule
A starter budget: 50% of take-home pay to needs, 30% to wants, 20% to savings and debt payoff. The ratios are a diagnostic, and the 20% is the line to defend.
Accounts payable
Money the company owes suppliers for goods already received. Payables rising is a source of cash, because the company is holding inventory it has not paid for. Target owed suppliers $12,622M at the end of fiscal 2025 against $12,304M of inventory, so its suppliers finance the entire shelf.
Accounts receivable
Money customers owe for goods already delivered. Receivables rising faster than revenue is the classic warning sign: the company is booking sales it is not collecting. A $50 sale on credit adds $50 to receivables and nothing to cash.
Accretion / dilution
Whether an acquisition raises or lowers the acquirer's earnings per share. In an all-stock deal, an acquirer with a higher P/E than it pays for the target is accretive. It measures accounting arithmetic, not whether value was created.
Accrual accounting
Recording revenue when it is earned and expenses when they are incurred, regardless of when cash moves. A $50 sale on credit is revenue today and cash in 45 days. Cash accounting would show nothing until the money arrives, which is simpler and useless for a business with inventory.
ACH
The batch payment network behind direct deposit and most bank transfers. Free at most banks and settles in 1 to 3 business days. The default rail for anything that is not urgent.
Amortization
The schedule that splits each fixed loan payment between interest and principal. Early payments are mostly interest: in year one of a 30-year mortgage at 6.5%, roughly 85 cents of each dollar is interest.
Amortization of intangibles
Depreciation for intangible assets with a finite life: patents, developed software, acquired customer relationships. Goodwill is the exception. It is tested for impairment rather than amortized, which is why an impairment arrives all at once instead of a little each year.
APR
Annual percentage rate: the yearly cost of borrowing, before compounding. Card issuers divide APR by 365 and charge that daily, so a 24% APR costs about 0.066% per day on whatever you owe.
APY
Annual percentage yield: what a deposit account actually pays over a year, with compounding counted. A 4% APY on $10,000 pays about $400 in year one. Compare savings accounts by APY, never by the flat rate.
Asset allocation
The split of your portfolio across stocks, bonds, and cash. It sets most of your risk and return before you pick a single fund. A common starting point for a 22-year-old is heavy in stocks, since the money has decades to recover from crashes.
Avalanche method
Paying minimums on everything and every spare dollar at the highest-APR debt first. Mathematically the cheapest payoff order. The snowball (smallest balance first) costs a bit more and quits less.
Balance sheet
A photograph of what a company owns and owes on one specific day. Assets equal liabilities plus equity by construction, so a balance sheet that does not balance is a broken model rather than a discovery. Target's totalled $59,490M of assets on 31 January 2026.
Beta
The sensitivity of a stock's returns to the market's. Beta above one means larger swings than the index; below one means smaller. It is measured on historical returns, which is why it describes the past more reliably than the future.
Bitcoin
The first and largest cryptocurrency, capped at 21 million coins by its protocol. Its price routinely rises or falls 50% in a year, so position sizing, keeping it a small slice, is the whole risk plan.
Blockchain
A public ledger of transactions maintained by many computers instead of one company, secured so past entries are effectively unchangeable. It is the bookkeeping under every cryptocurrency.
Bond
A loan you make to a government or company that pays interest and returns the principal at maturity. Bond prices fall when interest rates rise, which surprises people who bought them to be safe. A $1,000 par bond paying a 5% annual coupon over three years is worth $973.27 once the market demands 6%.
Brokerage account
The account you buy investments through. A standard taxable brokerage has no contribution limit and no withdrawal rules; retirement accounts like IRAs trade flexibility for tax breaks.
Buy side
Institutions that invest capital rather than intermediate it: asset managers, hedge funds, pension funds, private equity firms. Their work is deciding what to own, which is a different job from the sell side's work of finding and pricing transactions.
Call option
The right, not the obligation, to buy an asset at a set strike price before expiry. Below the strike it expires worthless and the buyer loses the premium. Above it, the payoff rises one for one with the underlying, which is where the hockey stick comes from.
Capital expenditures
Cash spent on long-lived assets like stores, warehouses, and equipment. It appears in investing activities and on the balance sheet, never on the income statement, and reaches earnings only as depreciation. Target spent $3,727M in fiscal 2025 against $3,134M of depreciation.
Capital gains
The profit from selling an investment for more than you paid. Hold over a year and the gain is taxed at long-term rates of 0%, 15%, or 20%; sell within a year and it is taxed like salary.
Capital structure
The mix of debt and equity a company is funded with, and the seniority order among them. Debt is cheaper and contractual; equity is expensive and residual. The choice changes the risk of the equity without changing the business at all.
CAPM
The capital asset pricing model, which estimates cost of equity as the risk-free rate plus beta times the equity risk premium. It is imperfect and universally used, which is a fair summary of most valuation practice.
Cash conversion cycle
Days of inventory plus days of receivables minus days of payables. A negative cycle means suppliers fund the business, which is why retailers with fast inventory and slow payables can grow without raising money.
Cash flow statement
The reconciliation between net income and the change in the cash balance, split into operating, investing, and financing. It exists because profit and cash are different things, and the gap between them is where most accounting questions live. Target earned $3,705M and generated $6,562M of operating cash in fiscal 2025.
Certificate of deposit (CD)
A deposit locked for a fixed term, from 3 months to 5 years, in exchange for a fixed rate. Withdraw early and you forfeit some interest. A CD ladder staggers maturities so some cash frees up regularly.
Circular reference
A formula loop that a spreadsheet cannot resolve in one pass. In a debt schedule, interest depends on average debt, average debt depends on cash flow, and cash flow depends on interest. Fixes are iterative calculation with a circuit breaker, or an interest calculation on beginning balances that avoids the loop.
Closing costs
The fees to finalize a real estate purchase: lender, title, appraisal, escrow, taxes. Typically 2% to 5% of the price, due in cash at closing, and a main reason buying only pays off if you stay put for years.
Cold storage
Keeping crypto keys on a device that never touches the internet, usually a hardware wallet. Coins on an exchange are an IOU from that exchange; cold storage is actual custody, with you as the single point of failure.
Compound interest
Interest earned on interest you already earned. $1,000 at 7% becomes $1,967 in 10 years and $7,612 in 30, because each year's growth builds on the last. Time in the market is the biggest input.
Control premium
The amount an acquirer pays above the unaffected market price to gain control. It buys the right to change management, capital structure, and strategy, and it is why precedent transaction multiples sit above trading multiples.
Convexity
The second-order term in the price-yield relationship. Because the curve bends, a bond gains more when yields fall than it loses when yields rise by the same amount. Convexity is always in the bondholder's favor for plain bonds, and it is why duration alone understates gains.
Cost of debt
The rate a company would pay to borrow today, after the tax deduction on interest. Use the market yield on its bonds rather than the average coupon on existing debt, because the old coupon reflects the rates of the year it was issued.
Cost of equity
The return equity investors require given the risk. It is always above the cost of debt because shareholders rank behind lenders and their return is not contractual. CAPM is the usual estimate, and it is an estimate.
Cost of goods sold
What the products sold in the period cost to buy or make. It excludes the cost of running the stores and the head office, which sit in operating expenses. Target's was $75,511M on $104,780M of revenue, a 27.9% gross margin.
Coupon
The interest a bond pays, quoted as an annual percentage of face value and usually paid semiannually. The coupon is fixed at issue. The yield moves with the price, which is how the market reprices a fixed payment stream.
Credit report
The file of your borrowing history kept by Equifax, Experian, and TransUnion. Scores are computed from it, errors on it are common, and you can pull each bureau's report free every week at annualcreditreport.com.
Credit score
A number, usually FICO 300 to 850, that predicts how likely you are to repay. Payment history (35%) and utilization (30%) drive most of it. Above roughly 740 you get a lender's best rates.
Credit spread
The yield difference between a corporate bond and a government bond of the same maturity, which compensates for default risk and lower liquidity. Spreads widen when the market gets nervous, often faster than the underlying credit actually deteriorates.
Credit utilization
The share of your credit limits you are using, and 30% of a FICO score. $300 carried on a $1,000 limit is 30% utilization; keeping it under 10% scores best. It resets monthly, so high utilization has no memory once paid down.
Days sales outstanding
Average days between making a sale and collecting the cash, calculated as receivables divided by revenue times 365. Rising DSO with flat revenue means collection is slipping, which shows up in cash before it shows up in earnings.
Debt schedule
The section of a model that tracks each debt tranche through the forecast, with beginning balance, scheduled amortization, optional prepayment from excess cash, interest, and ending balance. It is where circular references appear and where most model errors hide.
Debt-to-income ratio
Monthly debt payments divided by gross monthly income. Mortgage lenders like the total under 36% and get strict above 43%. It is the number that decides how much house a bank thinks you can afford.
Deductible (insurance)
What you pay out of pocket before insurance pays. A $500 to $1,000 deductible against a real emergency fund usually beats paying a fatter premium to insure amounts you could cover yourself.
Deferred revenue
Cash collected for something not yet delivered. It is a liability because the company owes the customer goods or services. Target carried $1,197M of contract liabilities at the end of fiscal 2025, most of it unredeemed gift cards.
Deferred taxes
The gap between the tax a company reports and the tax it pays, created when book and tax rules recognize the same item in different years. Accelerated depreciation on the tax return is the usual cause: cash taxes fall now and a deferred tax liability records the bill postponed to later.
Depreciation
Spreading the cost of a physical asset across the years it is used. The cash left when the asset was bought; depreciation is the accounting catching up. A $10 increase at a 25% tax rate cuts net income by $7.50 and raises cash by $2.50, because the only real event is the tax deduction.
Diluted shares
Shares outstanding plus the net new shares that in-the-money options, restricted stock, and convertibles would create. Options are counted by the treasury stock method, which assumes the exercise proceeds buy back stock at the market price.
Dilution
The reduction in each existing shareholder's proportional claim when new shares are issued, whether for compensation, acquisitions, or capital raising. No cash leaves the company, which is exactly why the cost is easy to miss.
Discount rate
The annual return an investor requires to accept a future cash flow instead of cash today. It compresses the time value of money and risk into one number, which is convenient and hides a lot. Small changes move a valuation more than most people expect.
Discounted cash flow
Valuing a business as the present value of the cash it will generate, discounted at the cost of that capital. Its virtue is that every assumption is visible. Its weakness is that most of the answer usually sits in the terminal value, which is the assumption you can defend least.
Diversification
Spreading money across many investments so no single failure sinks you. One stock can go to zero; all 500 S&P companies going to zero at once is a different planet. Index funds buy diversification in one purchase.
Dividend
Cash a company pays shareholders from its profits, usually quarterly. Reinvested dividends are a large share of the stock market's long-run return, and they are taxable in a regular brokerage account even if reinvested.
Dollar-cost averaging
Investing a fixed amount on a schedule regardless of price, like $200 every payday. It removes timing decisions and buys more shares when prices are low. With a lump sum, investing immediately beats averaging in about 67% of the time.
Down payment
The cash you put toward a home purchase up front. 20% avoids PMI, but many first-time buyers put down 3% to 10% and pay PMI as the price of starting sooner. Closing costs add 2% to 5% on top.
Duration
The sensitivity of a bond's price to yield, in years. Macaulay duration is the weighted average time to receive the cash flows; modified duration converts that into a percentage price move per percentage point of yield. Longer maturity and lower coupon both mean higher duration.
Earnings per share
Net income divided by shares outstanding. Always use diluted, which counts the shares that options, restricted stock, and convertibles will eventually create. Basic EPS flatters companies that pay their people in equity.
EBITDA
Operating income with depreciation and amortization added back, used as a rough proxy for operating cash before capital costs. Its weakness is the thing it removes: a retailer that must spend $3.7B a year on stores does not get to ignore the cost of them.
Effective tax rate
Total tax divided by total income: the rate you actually paid across all brackets. It always sits below the marginal rate, which is why saying you are in the 22% bracket overstates most tax bills. For a company it is tax expense over pretax income, and it differs from the 21% statutory rate because of state taxes, foreign income, and permanent differences.
Emergency fund
Cash for genuine surprises, parked in high-yield savings. A common target is 3 to 6 months of expenses; even a starter $1,000 keeps a car repair off a 24% APR credit card.
Employer match
Free retirement money: an employer adds to your 401(k) when you contribute, commonly 50 cents per dollar up to 6% of salary. Skipping the match is turning down part of your pay.
Enterprise value
The value of a company's operations, regardless of how they were financed. Market capitalization plus debt minus cash, with adjustments for preferred stock and minority interest. It is what a buyer pays for the business itself, before deciding who funds it.
Equity
What you own free and clear: the asset's value minus what you owe on it. A $300,000 home with a $240,000 mortgage is $60,000 of equity. It grows from paying principal and from the price rising.
Equity risk premium
The extra annual return investors require for holding equities instead of government bonds. Estimates run from roughly 4% to 6% for the US depending on method, and the choice moves a DCF materially. Naming which estimate you used is part of the answer.
Equity value
What is left for common shareholders after everyone with a prior claim is paid. Start at enterprise value, subtract net debt, preferred stock, and minority interest, add non-operating investments, and divide by diluted shares to get a price.
Escrow
A neutral third-party account that holds money mid-transaction, and, after closing, the account your lender uses to collect and pay property taxes and insurance inside the monthly payment.
ETF
Exchange-traded fund: a basket of investments that trades on an exchange like a single stock. Most beginner-friendly ETFs are index funds in ETF form, with expense ratios as low as 0.03%.
EV/EBITDA
Enterprise value divided by EBITDA, the most used multiple in corporate finance because it is unaffected by leverage, tax rate, and depreciation policy. That last one is also its weakness: it treats a capital-hungry retailer and an asset-light distributor as if their cash needs were the same.
EV/Revenue
Enterprise value divided by revenue, used when earnings are negative or too volatile to compare. It ignores whether the revenue is profitable, so it only means something across companies with similar margins.
Exit multiple
A terminal value method that values the final forecast year at a multiple, usually EV/EBITDA. It feels grounded because the multiple comes from the market, and it smuggles in today's pricing for a business several years from now. Cross-check it against the perpetuity growth it implies.
Expense ratio
The yearly fee a fund charges, taken silently out of the balance. The difference between 0.04% and 1% sounds tiny and costs a six-figure sum over a 40-year career, because the fee compounds against you.
FDIC insurance
Federal insurance that repays bank deposits if the bank fails, up to $250,000 per depositor, per bank, per ownership category. It has never lost an insured depositor a dollar since 1933. Credit unions have the same deal through the NCUA.
Federal funds rate
The overnight rate the Federal Reserve targets, reset roughly every six weeks. It anchors most other rates: when it moves, savings APYs, card APRs, and mortgage rates follow.
FICA
The payroll tax funding Social Security and Medicare: 7.65% out of your check, matched by your employer. It applies from the first dollar, which is why a first paycheck is smaller than the hourly math promised.
Fiduciary
An advisor legally required to put your interests first. Many financial salespeople are not fiduciaries and only owe you a 'suitable' product. Ask the question directly and get the answer in writing.
FIRE
Financial independence, retire early: saving aggressively until about 25 times annual spending is invested, at which point a 4% withdrawal rate can cover life. The useful part for most people is the math, not the retirement date.
Football field
A chart that stacks each valuation method as a horizontal bar showing its range, with the current share price as a vertical line. Its value is in showing which methods disagree and by how much, rather than pretending to a single number.
Free cash flow
Cash generated by operations after the capital spending needed to keep the business going. It is the number that funds dividends, buybacks, acquisitions, and debt repayment. Target produced $2,835M in fiscal 2025.
Free cash flow to equity
Cash available to shareholders after interest and debt repayments. It must be discounted at the cost of equity and it produces equity value directly, with no bridge. Mixing FCFE with WACC is the single most common valuation error.
Free cash flow to the firm
Cash available to all providers of capital, before any payment to lenders. Interest is excluded because the cost of debt is already inside WACC, and counting it twice would understate the business. Discount FCFF at WACC to reach enterprise value.
Goodwill
The premium paid in an acquisition over the fair value of the identifiable net assets acquired. It is an asset in the sense that the journal entry needs one. It is not amortized; it is tested each year, and a write-down says the acquisition disappointed.
Goodwill impairment
Writing goodwill down when the acquired business is worth less than the carrying value. It is non-cash, so it is added back in full on the cash flow statement, and it is usually not tax deductible, so net income falls by the entire charge with no tax shield.
Gross margin
Gross profit as a share of revenue, which measures the economics of the product itself before the cost of selling it. Retailers run in the twenties and thirties; software runs in the eighties, which is most of why the two are valued so differently.
Hard inquiry
The credit check that happens when you apply for new credit. One costs a few score points for under a year. Rate-shopping several mortgage or auto lenders within about 45 days counts as a single inquiry.
High-yield savings account
An FDIC-insured savings account, usually at an online bank, paying roughly 4% APY in mid-2026 while big-bank accounts pay about 0.01%. Same insurance, same access, about $400 more per year on $10,000.
HSA
Health savings account, available with a high-deductible health plan. The only triple tax break in the code: deductible going in, tax-free growth, tax-free out for medical costs. Invested and left alone, it moonlights as a retirement account.
Income statement
The record of what a company earned and spent over a period, ending in net income. It runs on accrual accounting, so revenue appears when it is earned and expenses when they are incurred, whichever period the cash actually moves in. Target reported $104,780M of revenue and $3,705M of net income in fiscal 2025.
Index fund
A fund that buys every stock in a list, like all 500 companies in the S&P 500, instead of paying a manager to pick. The result is average market performance at a rock-bottom fee, which beats most professionals over decades.
Inflation
The rate at which prices rise and cash loses buying power. At 3% a year, today's $100 buys about $74 worth in 10 years. It is the reason long-term money belongs in assets, and cash under a mattress quietly shrinks.
Intangible assets
Assets without physical form: patents, trademarks, developed software, customer relationships. Most on a balance sheet arrived through acquisitions, because internally developed intangibles are generally expensed as incurred. That asymmetry makes an acquisitive company look more asset-heavy than one that built the same thing.
Internal rate of return
The discount rate at which a project's net present value equals zero. It is time-sensitive in a way multiples are not: the same money doubled takes a very different IRR over three years than over seven.
Inventory
Goods bought or built but not yet sold, carried as a current asset. Buying it is not an expense, which surprises people: the cost sits on the balance sheet until the sale, then moves to cost of goods sold. Target held $12,304M at the end of fiscal 2025.
Leverage ratio
Total or net debt divided by EBITDA, quoted in turns. It is the standard measure of how much borrowing a business is carrying, and lenders write covenants against it. A stable business supports more turns than a cyclical one at the same margin.
Leveraged buyout
Acquiring a company using mostly debt, then using the company's own cash flow to pay that debt down before selling. Returns come from deleveraging, from growing profits, and from selling at a higher multiple than you paid, and only the first two are within a sponsor's control.
Levered beta
The beta observed on a traded stock, which mixes business risk with the amplification from debt. More leverage means a higher levered beta for the same underlying business, which is exactly what relevering formalises.
Lifestyle creep
Spending that rises to meet every raise, leaving the savings rate flat. The countermove is automatic: route a fixed slice of each raise to savings before it reaches checking.
Liquidity
How fast something converts to spendable cash without losing value. Savings are liquid same-day; a house can take months and 6% in fees. Emergencies need liquid money, which is why the emergency fund is not invested.
Maintenance capex
The share of capital spending needed to keep the business running at its current size, as opposed to growing it. Companies do not disclose the split, so analysts approximate it with depreciation, which is a rough guess that gets rougher the faster the company is growing.
Marginal tax rate
The rate on your next dollar of income, set by your top bracket. A raise into a higher bracket only taxes the dollars above the line, so a raise never lowers take-home pay.
Market cap
A company's share price times its share count: the market's price tag for the whole business. It is why a $900 stock can be a smaller company than a $150 one, and why price alone tells you almost nothing. It prices the equity only, so a company carrying debt costs more to buy outright than its market cap suggests.
MD&A
Management's discussion and analysis, the section where the company explains its own results. Its value is in the framing: which metrics management leads with, which comparisons they pick, and which line item they explain at length because it moved the wrong way.
Mid-year convention
Discounting each forecast year from its midpoint instead of its end, on the reasoning that cash arrives through the year rather than in a single December payment. It raises a valuation by roughly half a year of the discount rate, and it should be stated rather than assumed.
Minimum payment
The smallest card payment that avoids a late fee, typically 1% to 2% of the balance plus interest. Paying only minimums on $3,000 at 24% APR takes over a decade to clear. The minimum is a floor, never a plan.
MoIC
Exit equity value divided by the equity invested. It answers how many times the money came back and says nothing about how long it took. A 3.0x over seven years is a 17.0% IRR; a 2.2x over three years is 30.1%.
Money market account
A savings account variant that may add check-writing or a debit card, with rates similar to high-yield savings. Distinct from money market funds at a brokerage, which are investments, not FDIC-insured deposits.
Mutual fund
A pooled fund you buy directly from the fund company, priced once a day after the market closes. Index mutual funds and index ETFs do the same job; fees matter far more than the wrapper.
Net debt
Total debt less cash and equivalents, on the reasoning that an acquirer would use the acquired cash to retire debt immediately. A company with more cash than debt has negative net debt, and its enterprise value is below its market capitalization.
Net income
What is left for shareholders after every cost, including interest and tax. It flows to two places: the top of the cash flow statement, and retained earnings on the balance sheet. That double landing is the mechanical reason the statements link.
Net present value
The present value of a project's cash flows, including the upfront cost. A positive NPV means the project earns more than the required return. The rule is clean; the difficulty is always the forecast and the rate, never the arithmetic.
Net worth
Everything you own minus everything you owe: the single number that tracks financial progress. Income is not it; a high earner with higher spending can be worth less than a careful student.
Non-cash charge
An expense that reduces reported profit without moving cash, added back on the cash flow statement. The list matters for interviews: depreciation and amortization, impairments, inventory write-downs, stock-based compensation, and deferred taxes.
NOPAT
Operating income taxed at the company's rate, calculated as if it had no debt at all. It strips out the tax benefit of interest, which belongs in WACC rather than in the cash flow, and it is where an unlevered free cash flow build starts.
Operating income
Profit from running the business, before interest and taxes. Valuation starts here rather than at net income because operating income belongs to debt and equity holders together, and that is what enterprise value measures.
Operating lease
A rental agreement for property or equipment. Since 2019 it appears on the balance sheet as a right-of-use asset and a matching liability. Whether to treat that liability as debt in an enterprise value calculation is a genuine disagreement, and the answer changes the multiple.
Operating margin
Operating income as a share of revenue. Retail runs thin: Target's 4.9% means that a one point move in gross margin roughly changes operating profit by a fifth. That leverage is why retail earnings swing so much on small changes in demand.
Opportunity cost
What money could have earned in its best alternative use. $100 a month of takeout is also roughly $120,000 of index-fund balance after 30 years at 7%. Neither answer is wrong; the lens is the point.
Option premium
The price paid to buy an option, made up of intrinsic value and time value. For the buyer it is the whole downside. For the seller it is the whole upside, against a loss that can be much larger.
Overdraft
Spending more than your available checking balance. Banks that still charge for it take $25 to $35 per overdraft. Turn off overdraft coverage and a card simply declines instead, which is free.
P/E ratio
Share price divided by earnings per share, which prices the equity rather than the business. Because net income is after interest, two identical companies with different debt loads get different P/Es, which is why enterprise value multiples are preferred for comparison.
Par value
The amount repaid at maturity, conventionally $1,000 for corporate bonds. A bond trades above par when its coupon beats current yields and below par when it does not, which is the entire mechanism of bond price movement.
Perpetuity growth rate
The rate at which cash flows grow forever after the forecast period. It must sit below the discount rate for the formula to converge, and below long-run nominal GDP growth to be economically sensible, because a company growing faster than the economy forever eventually becomes the economy.
PITI
Principal, interest, taxes, insurance: the real monthly cost of owning a home. Taxes and insurance commonly add 25% or more on top of the loan payment, and maintenance rides on top of that.
PMI
Private mortgage insurance, charged when a down payment is under 20%. It protects the lender, costs roughly 0.5% to 1.5% of the loan per year, and can be removed once you reach about 20% equity.
Precedent transactions
Valuing a company by the multiples paid in past acquisitions of similar businesses. They run above trading multiples because buyers pay for control and expected synergies, and they go stale, because a deal struck in a different rate environment priced a different world.
Preferred stock
A class of equity ranking above common stock, typically paying a fixed dividend and carrying no vote. It sits between debt and common in the payment order, and it is subtracted in the bridge from enterprise value to equity value.
Premium (insurance)
The recurring price of an insurance policy, monthly or yearly. Raising your deductible lowers the premium; the right trade depends on the size of your emergency fund.
Present value
What a future amount is worth today, once discounted at an appropriate rate. Everything else in valuation is bookkeeping around this: forecast the cash, pick the rate, discount, add up.
Principal
The amount you actually borrowed, as opposed to the interest charged on it. Every debt payment splits between the two; extra payments that hit principal directly are what shorten a loan.
Purchase price allocation
Splitting what an acquirer paid across the acquired assets and liabilities, each marked to fair value. Intangibles get identified and given useful lives, which creates future amortization, and the unallocated remainder becomes goodwill.
Put option
The right, not the obligation, to sell an asset at a set strike price before expiry. It gains value as the underlying falls, which makes it the standard way to insure a position without selling it.
Refinancing
Replacing a loan with a new one at a better rate or term. Worth checking when rates drop about a point below what you pay, after counting the closing costs of the new loan.
Retained earnings
Every dollar of profit the company has ever earned and not paid out as dividends. Each year it grows by net income and shrinks by dividends and buybacks. It is the balance sheet's memory of the income statement.
Returns bridge
The attribution of a buyout's equity gain across deleveraging, EBITDA growth, multiple change, and fees. It is the honest version of an LBO result, because a return that came entirely from multiple expansion was a bet on the market rather than on the business.
Revenue recognition
The rule for when a sale counts as revenue. Under ASC 606, revenue lands when control passes to the customer, which can be a moment or a period. A gym that sells a 12-month membership for $600 recognizes $50 a month and holds the rest as deferred revenue.
Revolver
A revolving credit facility the company can draw and repay as needed. In a model it acts as the cash sweep's counterpart: excess cash pays debt down, and a shortfall draws the revolver, which keeps the cash balance from going impossibly negative.
Risk-free rate
The yield on a government security with negligible default risk, matched to the horizon being valued. For a US DCF that is the ten-year Treasury, because a perpetual business is better matched by a long bond than a three-month bill.
Robo-advisor
Software that builds and rebalances an index portfolio for a fee, usually about 0.25% a year on top of fund fees. It buys convenience; a target-date fund does most of the same job for less.
Roth IRA
A retirement account funded with money you already paid tax on. Growth and qualified withdrawals are tax-free, and you can withdraw contributions (never earnings) anytime without penalty. The 2026 contribution limit is $7,500.
Rule of 72
A shortcut for doubling time: divide 72 by the annual return. At 8%, money doubles in about 9 years; at 3%, about 24. It also works in reverse for inflation eating your cash.
Savings rate
The share of income you keep. It matters more than returns early on, and it drives the whole financial-independence math: save 10% and work about 50 years, save 50% and about 17.
Secured credit card
A starter credit card backed by a refundable deposit, usually $200 to $500, which becomes the limit. The standard first rung for building credit from zero; use it lightly, pay in full, upgrade in a year.
Segment reporting
The note that splits revenue and profit by business line or region, defined by how management internally reviews performance. It is often the only place a conglomerate's economics are visible, and a company that reports one segment is telling you something too.
Sell side
Investment banks, brokers, and research houses that advise companies, underwrite securities, and publish research. Investment banking analysts sit here, which is why the technical questions are what they are.
Seniority
The order claims are paid when a company runs out of money: secured lenders, then unsecured, then subordinated debt, then preferred stock, then common equity. Being last is why equity returns are higher when things go well.
Shareholders' equity
Assets minus liabilities, the accounting residual owners have a claim on. It is a historical cost figure, so it says almost nothing about market value. Target's book equity was $16,165M against a market capitalization near $69B.
Sinking fund
Saving monthly for a known future expense, like $50 a month toward $600 holiday spending. It turns predictable lump sums into a budget line so they stop being 'emergencies.'
Snowball method
Paying the smallest debt first for the quick win, then rolling its payment into the next one. It costs somewhat more interest than the avalanche and keeps more people on the plan, which is the point.
Sources and uses
The table listing where transaction funding comes from (debt, sponsor equity, cash on hand) and what it pays for (the purchase price, refinanced debt, fees). The two sides are equal by construction, and the sponsor equity line is usually the plug.
Stablecoin
A crypto token designed to hold a fixed value, usually $1, backed by reserves. Useful as crypto's cash drawer, but it pays no interest by default and is only as good as the issuer's reserves.
Standard deduction
Income the IRS ignores before brackets apply, with no receipts needed. Around nine in ten filers take it instead of itemizing. It is why a first part-time job often owes no federal income tax at all.
Stock-based compensation
Paying employees in equity instead of cash. It is expensed on the income statement, added back on the cash flow statement because no cash left, and contested because the shareholder still paid, in dilution. Target expensed $281M in fiscal 2025.
Strike price
The price at which an option holder can buy (call) or sell (put) the underlying. An option is in the money when exercising beats the market price, and out of the money when it does not.
Synergies
The benefits an acquirer expects from combining two companies. Cost synergies (closing duplicate facilities, cutting overlapping roles) are estimable and often delivered. Revenue synergies are much harder to realize, and a deal that needs them to work usually does not.
Target-date fund
A single fund that holds a full portfolio and shifts from stocks toward bonds as a retirement year approaches. A one-decision option: pick the year, keep contributing, ignore the news.
Tax-loss harvesting
Selling a losing investment to book the loss against gains or up to $3,000 of income, then buying something similar (waiting 31 days if it is 'substantially identical' to dodge the wash-sale rule).
Term life insurance
Pure life coverage for a fixed period, like $500,000 for 20 years, at a fraction of whole-life's price. If no one depends on your income, you likely do not need life insurance at all yet.
Terminal value
The value of all cash flows beyond the explicit forecast, calculated either by growing the final year forever or by applying an exit multiple. It typically carries 60% to 80% of a DCF's total value, so a model that argues about year three and waves at terminal value has its attention in the wrong place.
Three-statement model
A spreadsheet linking the three statements so that one assumption flows through all of them and the balance sheet still balances. Building one is the standard test of whether someone understands accounting or has memorized definitions.
Trading comparables
Valuing a company by the multiples similar public companies trade at. It is fast and reflects real prices, and it inherits every mistake in the comp set. One badly chosen peer can move a median enough to change the answer.
Traditional IRA
A retirement account funded with pre-tax money: contributions may reduce this year's tax bill, and withdrawals in retirement are taxed as income. The Roth-vs-traditional call comes down to your tax rate now vs later.
Treasury stock method
The rule for turning options into share count. Assume every in-the-money option is exercised, then assume the company uses the exercise proceeds to repurchase shares at the current price. Only the net new shares count, and out-of-the-money options count for nothing.
Unlevered beta
Beta with the effect of the company's capital structure removed, leaving only business risk. Unlevering a set of comparables and relevering the median at the target's own capital structure is how you get a beta for a company whose own history is short or noisy.
Vesting
The schedule on which employer contributions become truly yours. A three-year vest means leaving after two forfeits some or all of the match. Your own contributions are always 100% yours.
Volatility
How violently a price swings. The S&P 500 drops 10% about once a year on average and still compounds near 10% annually over decades; crypto routinely halves. Volatility is the toll for long-run returns.
WACC
The blended return that debt and equity providers require, weighted by the market value of each. Debt is cheaper because interest is tax deductible and lenders rank ahead of shareholders. It is the discount rate for cash flows that belong to the whole firm.
Wire transfer
A same-day, effectively irreversible bank transfer costing about $15 to $35. Required for real estate closings; overkill for nearly everything else. Wire fraud works because wires do not come back.
Withholding
Tax your employer sends the IRS from each paycheck, steered by your W-4. A big refund means you over-withheld and lent the government money at 0% all year. Adjust the W-4, keep the difference monthly.
Working capital
Current assets less current liabilities, which measures the cash tied up in running the business day to day. In a model, only the operating pieces count: receivables, inventory, payables, accruals. Cash and debt are excluded because they are the thing being measured.
Yield
The income an investment pays as a percentage of its price. A bond bought at $1,000 paying $45 a year yields 4.5%. Chasing the highest yield usually means buying the most risk.
Yield curve
Government bond yields plotted against maturity. Normally it slopes up, because longer money carries more uncertainty. An inverted curve, where short yields exceed long ones, has preceded most US recessions, though the lag has run from months to years.
Yield to maturity
The one discount rate that sets the present value of a bond's remaining payments equal to its market price. It is the bond's internal rate of return assuming you hold to maturity and reinvest coupons at the same rate, which is an assumption worth remembering.