Glossary J - Q


Joint and several liability

A liability in which a creditor may sue one or more parties to a liability separately or all together.

Joint tenants with rights to survivorship

A form of ownership where the person shares the asset equally with one or more joint owners and at an owner's death the assets automatically trnsfer to the other joint owner(s). In this form of title, if one of the parties dies, the other joint owners have title to the property and the property does not get tied up in probate and an owner cannot generaly sell property without the consent of the other joint owners.

Joint venture

A partnership or a corporation that is formed by two or more entities for a specific business purpose.

Junk bond

See speculative grade debt.




Debt obligation.

Liability insurance

Insurance that protects the insured against losses from legal actions.

Limited liability company (LLC)

A form of business permitted in some (but not all) states that is a hybrid of the partnership and corporate forms. The LLC is taxed as a partnership (that is, the business' taxable income flows through to the owners' income), yet has limited liability similar to a corporation.

Limited partnership

A partnership in which one or more of the partners has limited liability.

Liquidity ratio

A ratio that conveys the ability of a business to satisfy its immediate obligations.

Living trust

A trust created during the lifetime of the grantor, with assets being transferred to the trust during the grantor's lifetime.

Loan amortization

The process of determining the payments necessary to pay off a loan, considering the compounding of interest.

Loan credit

Credit (borrowing) created by a financial institution.

Long term debt to assets ratio

The ratio of a firm's long-term debt (i.e., debt due beyond one year) to its total assets; a measure of a firm's financial leverage.

Long term debt to equity ratio

The ratio of a firm's long-term debt (i.e., debt obligations due beyond one year) to its shareholders' equity.

Long-term liabilities

Debt obligations that are due beyond one year into the future.



See modified accelerated cost recovery system.

Marginal tax rate

The rate of tax on next dollar of taxable income.

Marketable securities

Securities that may be readily sold.

Market capitalization

The value of the equity interest; the product of the market price per share of stock and the number of shares of stock outstanding.

Market equilibrium

A situation in a market where assets are bought and sold such that buying and selling are in balance.

Market portfolio

The portfolio of assets that includes all investable assets; often proxied by the Standard and Poor's 500 stock index.

Market risk

Non-diversifiable risk; the risk that is systematic across assets.

Market risk premium

The additional compensation required by investors for bearing market risk.

Market value

The current price of an asset, as determined in a market.

Market value added

the difference between the market value of a firm's capital and

Market value of equity

The current value of the ownership interest. In the case of a corporation, the product of the market price of a share of stock and the number of shares outstanding.

Master limited partnership

A limited partnership in which the ownership units are traded in the public security market.

Modern portfolio theory

The collection of theories that address the reduction of risk that results from the combination of investments in a portfolio whose returns are not perfectly, positively correlated with one another.

Modified accelerated cost recovery system (MACRS)

A depreciation system used in U.S. tax law that is based on a double declining balance system with a half-year convention and no salvage value.

Modified internal rate of return, MIRR

The return or yields on an investment that considers the reinvestment of any cash flows generated from the investment at a specified rate.

Monitoring costs

Costs incurred by an principal in an agency relationship for monitoring the actions of an agent.


A loan secured by real estate.

Municipal bond

A debt security issued by a state or local government.

Mutual fund

An investment company that raises funds by selling stock to the public and then investing the proceeds in other securities. The value of the stock of the mutual fund fluctuates with the value of the individual securities that make up its investment portfolio.

Mutual savings bank

A financial institution that is owned by its members (its depositors) and that provides consumer loans and accepts interest earning savings accounts.

Mutually exclusive projects

In the context of capital budgeting, projects in which the acceptance of one precludes the acceptance of the other(s).


Net cash flow (NCF)

In the context of capital budgeting, the sum of the investment cash flow and operating cash flow for a given period.

Net operating cycle

The length of time that it takes for a business to turn its investment of cash in goods and services back into cash considering that both sales and purchases are made on credit.

Net operating loss

An excess of deductions over gross income from business operations.

Net plant and equipment

The difference between the gross plant and equipment and the accumulated depreciation; the book value of physical assets.

Net present value

The difference between the present value of the future cash inflows and the present value of the cash outflows of a project, where all cash flows are discounted at the cost of capital for the project.

Net present value profile

A graphical representation of the net present value of a project for different discount rates. Also referred to as the investment profile.

Net profit margin

The ratio of net income to sales; a measure of a firm's profitability.

Net working capital to sales ratio

The ratio of net working capital (i.e., current assets minus current liabilities) to sales; a measure of liquidity.

Nominal interest rate

A rate of interest that is quoted without regard to compounding of interest within the specified period of time (e.g., within a year); also known as the stated rate.

Nominal return

See nominal interest rate.

Non-investment grade debt

See speculative grade debt.

Normal profit

The minimum return suppliers of capital demand for the use of their funds.

Notes payable

Debt obligations of a business evidenced by promissory notes.

Number of days of inventory

The number of days worth of inventory on hand, on average, throughout the period; the ratio of the balance in inventory to the average day's cost of goods sold.

Number of days of payables

The number of days of payables due, on average, throughout the period; the ratio of the balance in accounts payable to the average day's purchases.

Number of days of receivables

The number of days of receivables, on average, throughout the period; the ratio of the balance in accounts receivable to the average day's credit sales.


Operating cycle The length of time it takes to turn the investment of cash in goods and services back into cash in terms of collections from customers.

Operating profit margin

The ratio of operating income (i.e., earnings before interest and taxes) to sales; a measure of a firm's profitability.


The right to buy (call option) or sell (put option) a specified asset at a specified price within a specified period of time.

Ordinary annuity

A set of periodic, even cash flows in which the first cash flow occurs one period in the future.



A business enterprise owned by two or more persons who share the income and liability of the business.

Par value

Face value of a security; for a share of stock, a nominal amount assigned per share according to the company's charter; for a debt obligation, the amount owed.

Payback period

The number of periods in which it takes the original investment to be paid off in terms of expected future cash flows. Also referred to as the capital recovery period and the payoff period.

Payoff period

See payback period.


A series of even cash flows that continue ad infinitum (i.e., forever).

Plant assets

Assets that have a physical existence, such as a building or a piece of equipment.


A collection of investments.

Pour-over trust

A trust that combines aspects of the living and testamentary trust; the trust is created during the life of the grantor, yet the trust receives assets at the time of the granotr's death (e.g., life insurance proceeds).

Prepayment risk

The uncertainty regarding whether a loan will be paid off early, resulting in an immediate need to reinvest the loan proceeds in another investment vehicle.

Premium bond

A bond that has a price below the par or face value; bonds whose coupon rate is greater than the yield-to-maturity on the bond.

Present value

The current value of a cash flow or a series of cash flows.

Present value annuity factor

The sum of discount factors that is used to translate an annuity (i.e., a series of even, periodic cash flows) into a value today.

Price-earnings ratio (P/E)

The ratio of the market price per share of stock to the earnings per share of a corporation.

Primary market

A market in which a security is first sold, raising funds for the issuer.


In a loan situation, the amount borrowed. In an agency relationship, the party that gives another party (the agent) authority to act in the principal's interest.

Probability distribution

The possible outcomes to an uncertain event and their respective likelihoods of occurence.

Principle of indemnity

The concept that an insured party cannot be compensated for more than the economic loss suffered.

Professional corporation

A corporation in which the owners have unlimited liability.

Profitability ratio

A ratio of income to sales; example: the net profit margin is the ratio of net profit to sales.

Profitability index

The ratio of the present value of a project's cash inflows to the present value of a project's cash outflows.

Property insurance

Insurance that protects against losses of real or personal property from event such as fire, wind, and theft.

Purchasing power risk

The uncertainty associated with unanticipated changes in inflation (and, hence, purchasing power).


Quick ratio

The ratio of current assets less inventory to current liabilities; a measure of the firm's ability to meet its most immediate obligations.

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