Financial Management Glossary

Jul 17, 2026

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Comprehensive glossary defining key concepts used in financial management, including capital structure and market pricing foundations, investment risk measures, and performance evaluation metrics. Entries cover agency costs, alpha and beta, information asymmetry, basis risk, and business risk, along with core frameworks such as CAPM, efficient markets, and dividend irrelevance. The glossary also explains practical instruments and corporate finance mechanisms like bonds, convertible debt, certificates of deposit, bonus issues, and capital rationing, plus methods such as discounted payback and valuation models that support exam-style mastery.

LanguageEnglish

CategoryExam

FormatPDF

Pages4

Reading Time10 min

AccessFree to download

Glossary Words highlighted by italics within an entry C indicate other entries under which further explanation or information can be found. A Accounting Rate of Return (ARR)—the average annual operating profit generated by a project expressed as a percentage of the initial (or average) investment. Also referred as Return On Investment (ROI) or Return on Capital Employed (ROCE) . Adjusted payback—see discounted payback. Agency costs—the reduction in shareholders'returns below the maximum possible level due to company managers following personal objectives not in the best interests of shareholders. Alpha—a measure of abnormal return from a security (i.e. where the forecast return is higher or lower than expected by CAPM) . Asset beta—measures the risk created by operating the firm's assets (i.e. business risk) . Asymmetry of information—the fact that potential investors know less about a company than its managers and may therefore overestimate the risk of providing finance. This can be a particular problem for SMEs. B Basis risk—the risk that interest rates on assets and liabilities are referenced to a different benchmark. Beta factor—a measure of the sensitivity of asecurity's returns to systematic risk. Bill of exchange—a document containing an instruction to a third party to pay a stated sum of money at a designated future date or on demand. Mainly used in foreign transactions and is usually negotiable (i.e. the holder of the bill can resell it at a discount) . Bird in the hand theory—suggest that shareholders may prefer the certainty of a cash dividend today rather than reinvestment of profits to create an uncertain capital gain in the future. Bond—a written acknowledgement of a firm's debt. Also referred to as a debenture or loan stock. Bonus issue—issue of new shares to existing shareholders, without any subscription of new funds. Also referred to as a scrip issue. Business risk—the volatility of operating profits, caused by the volatility of revenues and the level of operational gearing. CAPM—Capital Asset Pricing Model. A model that relates the systematic risk of an investment to the required return. Cap—an agreement that fixes a maximum rate of interest. Capital allowances—tax allowable deductions given on capital expenditure. Also known as writing down allowances. Capital rationing—where insufficient finance is available to undertake all available positive NPV projects. Cash conversion cycle—time period between paying suppliers and receiving cash from customers. Also known as the cash operating cycle or working capital cycle. Certificate of deposit—a tradable security issued by banks to investors who deposit a fixed amount for a fixed period. Clientele theory—suggest that a company's historical dividend pattern may have attracted particular investors. Changing the pattern in future may cause this "clientele" to sell their holdings and lead to a fall in share price. Collar—an agreement that kee

Jul 17, 2026

Upload by Ezra