Financial Terms and Definitions

Question 1

Assets = Liabilities + Owner’s Equity

Answer 1

Accounting Equation

Question 2

Debts of a company for goods and services purchased that must be paid within one year. These debts are listed as a current liability on the company’s balance sheet.

Answer 2

Accounts Payable

Question 3

Money owed to a company for goods and services it has sold. Payment is expected within one year. This money is listed as a current asset on the company’s balance sheet.

Answer 3

Accounts Receivable

Question 4

A method of accounting in which expenses and revenue are recorded in the time period during which they occur. This differs from “cash accounting,” which records transactions only when money changes hands.

Answer 4

Accrual Investors

Question 5

An investor who invests in a company in order to influence a company’s decisions or change its direction.

Answer 5

Activity Investors

Question 6

Electronic stock trading that occurs after the regular market has closed.

Answer 6

After Hours Trading

Question 7

A securities purchase that must be completed exactly as specified. If the conditions cannot be met, the order is cancelled. For example, if you place an AON order for 1,000 shares of XYZ Corp. at $10 per share your order can be completed only when the broker has assembled 1,000 shares of XYZ at $10 per share. If he or she secures 900 shares at $10 and 100 shares at $10.10, the order will not be filled. Brokers generally give preference to filling orders without such conditions.

Answer 7

All or Nothing (AON)

Question 8

Speculative investors who make substantial investments in Ricky businesses - frequently before they have generated any revenue or sold any products. As a rule, these business are start-ups or small companies that don’t have access to regular capital markets.

Answer 8

Anti-Takeover Measure

Question 9

Exploring differences in the price of an asset bu simultaneously buying and selling it. In the process the arbitrageur pockets a risk-free return

Answer 9

Arbitrage

Question 10

The lowest price an owner of a security will accept for it. When the bid price and ask price coincide, the transaction is completed.

Answer 10

Ask Price

Question 11

Everything a company or person owns or is owed, such as money, securities, equipment and buildings. Assets are listed on a company’s balance sheet.

Answer 11

Assets

Question 12

Verification of the accuracy of accounting and finical records by a member of the Chartered Professional Accountants of Canada. In some provinces, Certified General Accountants and Certified Management Accountants may also act as company auditors.

Answer 12

Audit

Question 13

Statistical tools that measure the state of the stock market or the economy, based on the performance of stocks, bonds or other components. The Dow Jones Industrial Average and the S&P?TSX Composite Index.

Answer 13

Averages, Indexes or Indices

Question 14

A financial statement showing a company’s assets, liabilities and shareholders’ equity on a given date. It shows what the company owns, the debts it owes and what belongs to the shareholders.

Answer 14

Balance Sheet

Question 15

The central bank of Canada, founded in the 1930’s to facilitate the functioning of the financial system. The Bank of Canada issues and removes bank notes, acts as the federal government’s financial advisor on debt management and foreign exchange and conducts monetary policy to regulate the growth of the country’s money supply and influence interest rates.

Answer 15

Bank of Canada

Question 16

A market in which prices are declining. A “bear” is a person who expects that the market or the price of a particular security will decline.

Answer 16

Bear Market

Question 17

The highest amount a purchaser of a security is willing to pay for it. When the bid price and ask price coincide, the transaction is completed.

Answer 17

Bid Price

Question 18

Bonds are debt instruments. When you buy a bond you essentially loam money to a government or corporation for a fixed term at a pre-set interest rate.

Answer 18

Bonds

Question 19

A market in which prices are rising. A “bull” is a person who expects that the market or the price of a particular security will rise.

Answer 19

Bull Market

Question 20

Although not strictly a financial term, cap and trade has a significant impact on the financial performance of businesses and the overall health of the environment. Simply defined, cap and trade uses market forces to regulate environmental pollution caused by the industry. “Cap” refers to a limit on the amount of pollutant(s) a company may issue. Companies purchase permits (sometimes called credits or allowances) giving them the right to discharges specific amounts of particular pollutants. If they choose to, or are forced to, exceed their limits they must purchase unused capacity held by other companies.

Answer 20

Cap and Trade

Question 21

A method of accounting in which transactions are recorded only when money changes hands. This differs from “accrual accounting” which records both revenue and expenses during the time period in which they occur.

Answer 21

Cash Accounting

Question 22

A company’s net income for a stated period plus any deductions that are not paid out in actual cash, such as depreciation, amortization, deferred income taxes and minority interest. Cash flow can provide a broader picture if a company’s earning power than the net earnings alone. Cash flow is important to investors as it shows the company’s ability to pay dividends and finance expansion.

Answer 22

Cash Flow

Question 23

A body established by a national government to regulate currency and monetary policy on a national and international level. In Canada, it is the Bank of Canada. In the United States, it is the Federal Reserve Board and in the United Kingdom, it is the Bank of England.

Answer 23

Central Bank

Question 24

Securities, which represent ownership in a company and carry voting privileges. Common shareholders may be paid dividends but only after preferred shareholders arepaid. Common shareholders are last in line after creditors, debt holders and preferred shareholders to claim any of a company’s assets in the event of liquidation.

Answer 24

Common Shares

Question 25

A major inflation measure computed by Statistics Canada. It measures the change in prices of a fixed basket of a variety of goods and services in the previous month. This basket of goods is supposed to reflect the average needs of a Canadian family.

Answer 25

Consumer Price Index (CPI)

Question 26

A convention concerning the application of accounting rules. It states that accountantsshould always exercise caution when making projections, evaluating assets etc.

Answer 26

Conservatism

Question 27

Using an Internet portal, such as Kickstarter, to solicit money from a large number ofdonors. The funds are used by businesses, non-profit organizations and individuals for avariety of purposes, such as financing business start-ups, product launches etc.

Answer 27

Crowdfunding

Question 28

Cash and assets such as accounts receivable and inventories, which in the normal courseof business can be converted into cash within a year. Current assets are found on the company’s balance sheet.

Answer 28

Current Assets

Question 29

Money owed to the company and due to be paid within a year, such as accounts payable.Current liabilities are found on the company’s balance sheet.

Answer 29

Current Liabilities

Question 30

Private forums for trading securities. Traders use dark pools to avoid the risk that other traders will manipulate prices up or down to take advantage of these large orders. Their lack of transparency is a matter of concern to operators and regulators of public stock markets

Answer 30

Dark pools

Question 31

Buying and selling financial instruments within the same trading day. All positions are closed before the market closes for the trading day.

Answer 31

Day Trading

Question 32

Contracts that derive their value from underlying assets.

Answer 32

Derivatives

Question 33

Person elected by voting common shareholders at the annual meeting to direct company policies

Answer 33

Director

Question 34

An amount distributed out of a company’s profits to its shareholders in proportion to thenumber of shares they hold. A preferred dividend usually is for a fixed amount, while acommon dividend may fluctuate with the profits of the company. A company is under no legal obligation to pay either preferred or common dividends.

Answer 34

Dividend

Question 35

An average made up of 30 blue chip stocks that trade daily on the New York StockExchange. The DJIA is used as an overall indicator of market performance although criticism is periodically raised over how it is calculated, as well as the fact that so few companies are included so that it may not be a truly representative indicator of market activity.

Answer 35

Dow Jones Industrial Average (DIJA)

Question 36

A financial statement, which shows a company’s revenues and expenditures resulting in either a profit or loss during a financial period.

Answer 36

Earnings or Income Statement

Question 37

The portion of after-tax profits of a company attributable to a single common share.

Answer 37

Earnings per common share

Question 38

The stock, or ownership of shareholders, in a company.

Answer 38

Equities

Question 39

The central bank of the U.S.

Answer 39

Federal Reserve

Question 40

The prospectus, which supersedes the preliminary prospectus and is accepted for filingby the applicable provincial securities commissions. The final prospectus shows allrequired information pertinent to a new issue and a copy must be given to each buyer ofa new issue.

Answer 40

Final Prospectus

Question 41

Usually a non-dividend paying common stock of a company with expansion potential.The corporate funds that would normally be paid to shareholders are put back into thecompany to pay for expansion. Growth stocks have the potential for capital gains ratherthan income

Answer 41

Growth Stock

Question 42

Total market value of all final goods and services produced in a country in a given year.Equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports.

Answer 42

Gross Domestic Product (GDP)

Question 43

Like mutual funds, hedge funds pool the resources of a number of investors and areprofessionally managed. However, there are several differences. Hedge funds typically pursue highly aggressive strategies, are largely unregulated and have minimum investment requirements that restrict them to those with very large amounts of capital to invest.

Answer 43

Hedge Funds

Question 44

A financial statement showing a company’s revenue and expenses for a certain period, typically a year or a quarter.

Answer 44

Income Statement

Question 45

A common stock that pays, or is expected to pay, an attractive dividend to shareholders.Usually stock from a more mature company that does not expect expansion or growth—therefore money is not required internally for equipment etc.

Answer 45

Income Stock

Question 46

A new issue of securities offered to the public for investment for the first time.

Answer 46

Initial Public Offering (IPO)

Question 47

Directors and senior officers of corporations; also anyone who owns 10% of a company’s voting shares.

Answer 47

insiders

Question 48

A criminal offense that occurs when someone in a position of trust takes advantage ofmaterial information that has not been made public in order to make a profit or avoid aloss. Insiders can legally buy or sell shares after material changes have been announcedto the public.

Answer 48

Insider Trading

Question 49

The sales department of a securities firm serves two categories of clients. Theinstitutional segment deals with banks, insurance companies, trust companies, pensionfund managers and large corporations. The retail branch deals with individual investors.

Answer 49

Institutional Clients

Question 50

Multidisciplinary teams of police, forensic accountants, lawyers, securities regulators etc. who investigate and prosecute suspected cases of fraud in Canadian capital markets.There are 10 IMETS currently.

Answer 50

Integrated Market Enforcement Teams (IMETS)

Question 51

These are the debts and obligations of a company. Current liabilities are debts due andpayable within one year. Long-term liabilities are those payable after one year.Liabilities are found on a company’s balance sheet.

Answer 51

Liabilities