Debt-To-Equity Ratio The debt-to-equity ratio compares how much a company finances with borrowed money versus owners’ equity. It is total liabilities divided by total equity. A lower ratio generally means a safer balance sheet, but the typical level varies by industry. Capital-intensive businesses, such as utilities, often carry more debt. Analysts compare a company with Read More…

Debt Settlement The act of negotiating with a creditor to pay off less than the total amount owed. Settling a debt instead of fully paying it off is recorded in a person’s credit report but is considered much better than defaulting on a loan. Related Lessons

Debt Management Plan A step-by-step action plan to pay off one’s debt over a specific time horizon. Related Lessons

Debt Consolidation The act of taking out one large loan to pay off many smaller loans to simplify payments, and usually reduce total interest owed. Click Here for our lesson on Consolidating Debt

Debt The state of owing money to another person or institution, typically with interest. Related Lessons

Debit Card A financial tool that allows spenders to make purchases deducting money from their checking account instead of writing a physical check. Related Lessons

Day Trading The act of buying and selling a stock or other security multiple times in the same day. Click Here for our lesson on Building an Investing Strategy

Cyclical Unemployment The fraction of all unemployment that is due to shifts in the business cycle. Related Lessons

Customer Profiles A customer profile is a fictional sample buyer used to represent one person inside a market segment. A segment profile describes the whole group; a customer profile makes one typical buyer concrete for marketing decisions. Teams use it to test messages and features. It is a planning tool, not a real customer’s private Read More…

Custodian A person or business who has legal responsibility for another person, particularly financially.

Current Ratio The current ratio measures a company’s ability to cover short-term debts. It is current assets divided by current liabilities, using numbers from the balance sheet. A higher ratio means more liquid assets are available to meet upcoming obligations. A ratio of 2 or higher is often seen as safe, but the right level Read More…

Current Liabilities Current liabilities are debts a company must pay within one year. They appear on the right side of the balance sheet and typically include accounts payable, accrued expenses, and the portion of long-term debt due in the next 12 months. These short-term obligations are a key part of liquidity analysis. Analysts compare them Read More…

Currency A medium of exchange that facilitates trade between people and businesses.

Cryptocurrency A financial instrument that exists entirely digitally, supported by blockchain technology to prevent fraud. Cryptocurrencies can be used as currencies, as investment vehicles, or as a mechanism as part of an unrelated system to assist with resource allocation.

Creditor An institution who lends money to another person or business.

Credit Union A type of financial institution owned by all depositors. Credit unions specialize in lending to individuals, with relatively low amounts of business loans. A credit union, called a caisse populaire in some communities, especially in Quebec, is a member-owned alternative to a chartered bank for everyday banking. Profits are meant to benefit members Read More…

Credit Terms The agreement under which a person is given credit. This would include the credit limit, interest rate, and how frequently payments need to be made.

Credit Score A credit score is a single number, often a FICO score, that summarizes how well you have managed credit. It is calculated from your credit report, using factors such as payment history, amounts owed, length of credit history, new credit, and credit mix. A higher score generally means lenders see you as more Read More…

Credit Report A credit report is a detailed summary of how you have used credit. It shows accounts you have opened, whether you pay on time, how much you owe, and negative items such as collections or bankruptcies. In the United States, Experian, TransUnion, and Equifax compile these reports. Most items stay on the report Read More…

Credit Rating A rating that an agency issues to a government or corporation on how likely they are to pay back bonds. Low credit ratings means that governments and corporations need to pay higher interest to investors in order to get them to lend money. Click Here for our lesson on Bonds

Credit Limit A credit limit is the maximum amount a lender will let you borrow on a particular account, such as a credit card. The lender sets it based on your ability to repay. With revolving credit, you can borrow again as you pay the balance down. If you reach the limit, you cannot make Read More…

Credit History A record of a person’s usage of credit, and sometimes other recurring expenses, over time. Credit reports are used by potential lenders to determine how risky it is to lend someone money.

Credit Counselling A professional service aimed to helping people improve their credit. This can include recommendations of debt consolidation, negotiation, or even bankruptcy.

Credit Card A basic unsecured line of credit offered to consumers. Credit cards allow borrowing money at interest for every day purchases, typically with interest not needing to be paid during the “grace period.” Related Lessons

Credit The act of borrowing money.

Crash A phenomenon where many investors exit the market at the same time due to falling investor confidence, causing a surplus of sellers and shortage of buyers, with rapidly falling prices.

Covered Call The act of selling a “call” contract while owning the underlying stocks.

Coverage Limit The maximum an insurance company will pay out over the course of a single year on a single policy.

Coupon Rate The interest rate that determines a bond’s coupon payment. Click Here for our lesson on Bonds

Coupon The annual interest payment a bondholder receives until the bond expires. Click Here for our lesson on Bonds

Cottage Industry An economic system where finished goods are produced small scale at home, typically during winter months while farmers are not needed in the fields.

Cost-Volume-Profit (CVP) Cost-volume-profit (CVP) analysis is a way to estimate how profit will change if a company sells more or fewer units. It treats every cost as either fixed or variable and uses this formula: Pre-Tax Profit = Revenue – Variable Costs – Fixed Costs. Managers use it to project results at different output levels Read More…

Costs The total amount of resources required for a business to operate and produce valuable output.

Cost Of Goods Sold (COGS) Cost of goods sold (COGS) is what a company spends to obtain or make the goods it sells. For a retailer, that is often the price paid to the supplier. For a manufacturer, it usually includes materials and production labor. On the income statement, COGS is subtracted from sales to Read More…

Cost Allocations An accounting concept of how to divide the costs of doing business across different categories to calculate profit, particularly direct vs indirect costs.

Corporation A corporation is a form of business ownership that is a legal entity separate from its owners. Shareholders have limited liability, so their personal assets are generally protected from business debts. A board of directors oversees the company on their behalf. Corporations can raise money by selling stock, but they face more regulation than Read More…

Corporate Debt Loans taken out by businesses, usually to fund growth. This can either be in the form of loans from banks, or by issuing corporate bonds. Related Lessons

Corporate Culture The interior atmosphere of a company and how they do business. The corporate culture defines the day-to-day life of their employees and general attitude of their management team.

Corporate Bond A formal debt instrument issued by a company to raise money. Corporate bonds are typically issued in denominations of $1000 and pay out a fixed interest payment at regular intervals. At the expiration of the bond, the final interest payment is made, plus the original $1000 returned. Click Here for our lesson on Read More…

Co-Payment A concept in insurance where the insured person would make a small payment (usually a fixed dollar amount) for a service, with the remainder of the total cost covered by the insurance company.

Contractor A person or business hired by another person or business as a vendor who provides a specific good or service over a specific period of time. This does not grant the same rights and privileges as a full employee but does grant greater independence. Click Here for our lesson on Employer and Employee Rights Read More…

Contract A legal document that binds to or more parties together to exchange some good, services, and payment (known as “consideration”). Click Here for our lesson on Contracts

Consumerism A concept as part of a market economy where the consumers or purchasers of goods and services are the primary drivers of the economy and have certain expectations to make reasonable decisions. Related Lessons

Consumer Surplus An economic concept that measures the total value of goods or services that are purchased by consumers at a price below the maximum price they would have been willing to pay.

Consumer Price Index (CPI) A method to measure inflation, which is based on taking a “basket” of goods and comparing its prices over time. Click Here for our lesson on Major Economic Indicators

Consumer Finance Protection Bureau The Consumer Financial Protection Bureau (CFPB) is a U.S. government agency that oversees consumer financial products and services, such as credit cards, loans, mortgages, and bank accounts. It was created after the 2008 financial crisis by the Dodd-Frank Act. The CFPB takes consumer complaints, supervises companies, and enforces federal consumer financial Read More…

Consideration The payment or reward, an essential part of a contract. To make a legally binding contract, both parties must exchange something, called consideration. If one party just agrees to give something to the other party, this would be a gift and is not legally enforceable.

Consensus Estimate The average of all professionally issued earnings estimates for a company. This is “Wall Street’s Best Guess” of what a company will announce in the next quarter’s earnings call.

Comprehensive Coverage (Car Insurance) A premium type of car insurance that includes liability and collision coverage, plus additional coverage for other types of damage (for example, if you simply damage your car by hitting a pole). Click Here for our lesson on Car Insurance

The Magic of Compound Interest Compound Interest is one of the most important concepts in the modern world, and a cornerstone of the financial system in every economy. The concept of “Compound Interest” is surprisingly simple, but incredibly powerful! Simple Interest Before we talk about the power of Compound Interest, we first need to understand Read More…

Competitive Advantage An advantage of one company over another’s in one aspect of operations or production. Companies in competition with each other try to improve their own competitive advantages and reduce the advantages held by other companies.

Competition A feature of a market economy where multiple producers of a similar good or service compete for customers and businesses. This usually results in lower prices and more innovation than systems where there is only one producer.

Comparative Advantage An advantage one country or economy has over another in terms of the production of one type of good or raw material. By exploiting comparative advantages and engaging in trade, multiple countries can increase their total wealth compared to trying to produce everything themselves.

Company A for-profit business. A company can be organized as a sole proprietorship (owned by one person), partnership (owned by a handful of people), or corporation (which sells stock to many small owners).

Communism A type of command economy based in principle on common ownership of all assets in a country, with resource allocation determined by a central planning agency.

Common Stock Common stock is the most common form of ownership share in a company and is what most people buy in a brokerage account. Owners usually get voting rights on certain decisions and a claim on future profits, but dividends are not guaranteed. If the company goes bankrupt, debt holders and preferred shareholders are Read More…

Commodity ETF An exchange traded fund invested in a specific commodity, and companies that produce these commodities. This is a mechanism for which an investor that can only trade stocks and ETFs can add commodities to their portfolio.

Commodity A fundamental input of production, which generally is of the same quality wherever it comes from. This can include things like lumber, crude oil, refined copper, cattle, and many other raw inputs.

Commissions A transaction cost charged by many brokerages in exchange for executing a trade. Commissions can be a flat fee per trade, a fee per share traded, or a percent value of the total transaction amount.

Commercial Paper Commercial paper is a short-term debt instrument a company issues as an IOU to a bank, another company, or a wealthy individual to raise cash quickly. It usually matures in 270 days or less, so it does not have to be registered with the SEC. On the balance sheet it typically appears as Read More…

Commercial Loan A type of loan issued from a bank to a business to finance growth. These are most common with small to medium sized businesses. Click Here for our lesson on Corporate Debt

Command Economy An economic system that bases production based on directions from a central planning agency, rather than market forces and prices.

Collision Coverage Collision coverage is auto insurance that pays to repair or replace your own vehicle after a crash, regardless of who is at fault. Liability coverage does not do this; it pays for damage and injuries you cause to other people. Collision is optional in many cases, but drivers with expensive cars often buy Read More…

Collateral Collateral is an asset a borrower pledges to back a loan. If the borrower fails to repay, the lender can take the asset and sell it to recover the debt. A home can be collateral for a mortgage, a car for an auto loan, or inventory and accounts receivable for a business loan. Because Read More…

Co-Insurance A percentage of the cost of covering an expense that is paid by the insured person. This is most common in health insurance, where after the deductible is fully paid the insured person will still pay some amount (typically 20%) of the healthcare costs until their out-of-pocket maximum. Click Here for our lesson on Read More…

Closing Costs The fees incurred as part of closing a loan, typically a mortgage. This can include legal fees and recorder fees. Depending on the type of loan, this can be a considerable addition to the total cost of the loan. Click Here for our lesson on Mortgages

Classes Of Stock Types of stock offered by a company to raise money for growth. Common Stock is the most frequent and is what is purchased by individual investors. This gives voting rights for some important management decisions. Preferred Stock is usually held by the company’s original management team and has preference for dividends. However, Read More…

Children’s Health Insurance Program (CHIP) A federally sponsored health insurance program for children, specifically for families that earn too much money to qualify for Medicaid. Click Here for our lesson on Health Insurance

Chicago Mercantile Exchange (CME) A securities exchange based in Chicago that trades in commodities and futures contracts.

Chicago Board Options Exchange (CBOE) A securities exchange based in Chicago that focuses exclusively on option contracts. Click Here for the Investing101 Chapter on an Introduction to Options (30 min)

Checks A document used to provide authorization to transfer money out of one’s checking account to some other bank account. It includes the account to be transferred from, the amount to be transferred, the name of the person or company to transfer to, and a signature for authorization.

Checking Account A type of bank account used for ease of making transactions. Checking accounts are “demand deposits”, designed for frequent deposits and withdrawals. Related Lessons

Check Clearing The act of a system of banks to transfer funds from one account to another based on the instructions on a check.

Charles Schwab The first “Discount Broker” that focused on providing no-frills, low-cost stock investing brokerage accounts for individual investors.

Charity A non-profit organization or religious group with an operating goal of some societal good, not earning profits and growth. Click Here for our lesson on Charity

Charitable Giving The act of giving away money or assets to non-profit charitable organizations or religious groups. Click Here for our lesson on Charity

Chapter 7 Bankruptcy A type of bankruptcy where your assets and income are taken over by a trustee, who sells off some assets and garnishes some income to pay off your debts. After as much of the debt as possible is paid, the remainder is discharged. Related Lessons

Chapter 13 Bankruptcy A type of bankruptcy where your assets are not sold off. Instead, you must create a payment plan approved by a court, and for several years all income is seized to enforce the payment plan. Related Lessons

Day’s Change The amount a stock’s price changes from the previous day’s closing price. Related Lessons

Certified Public Accountant (CPA) A professional designation for accountants showing a high level of expertise and ethical training. A CPA designation is required to create financial statements accepted by investors. Click Here for our lesson on Certifications in the Finance Industry

Certified Financial Planner (CFP) A professional certification that allows the certified person to legally give investment and wealth management advice and planning services. Click Here for our lesson on Certifications in the Finance Industry

Chartered Financial Analyst (CFA) A professional certification offered by the CFA institute that focuses on advanced investment analysis. Click Here for our lesson on Certifications in the Finance Industry

Certificate Of Deposit A certificate of deposit (CD) is a deposit account at a bank or credit union where you agree to leave your money for a set period, often from a few months to several years. In return, it usually pays a higher interest rate than a regular savings account. CDs may require a Read More…

Centralized Management A management style that focuses all decision making in a small group of upper management, with the rest of the organization executing the plans made at the top.

Catch A Falling Knife The concept stating that investors must be wary when trying to “buy low” and should wait until a stock’s price and stops falling before “buying in”. Related Lessons

Cash Flow Statement A cash flow statement shows how cash moved into and out of a company over a period of time, such as a quarter or a year. Unlike the income statement, it does not measure profit. Unlike the balance sheet, it is not a snapshot. It explains the change in cash by grouping Read More…

Cash Basis Accounting A method of accounting based only on when cash transactions occur, regardless of when it was “earned”. For example, if you conduct some work in January but are only paid in February, you will recognize the transaction in February.

Cash Advance The action of converting your credit card’s line of credit into cash. Unlike most types of credit card purchases, cash advances usually start accumulating interest immediately, instead of after a grace period. Click Here for our lesson on Credit Cards

Cash This can refer to actual physical currency (like dollar bills and coins), but also on-demand bank deposits that can be immediately spent.

Cartel A cartel is a group of independent producers in the same market who agree, officially or unofficially, not to compete with each other. They may set minimum prices, divide territories, or limit production to raise prices. That helps the members, but buyers usually face higher prices and less choice. Private cartels are illegal in Read More…

Career Plan An action plan to build one’s career. This usually includes identifying a long-term goal (such as a dream job), and a series of milestones one would need to achieve to get there.

Career The road a person takes through their professional life. This includes both the actual jobs held, but also education and other training you acquire.

Card Verification Value (CVV) A security feature on both credit and debit cards. This is an extra 3- or 4-numbers on the back on a credit card that must be entered for most types of online purchases as an additional verification mechanism. Related Lessons

CARD Act The Credit Card Accountability Responsibility and Disclosure Act. This law introduced a number of consumer protections specific to credit cards, such as increasing interest rates with no notice, excessive fees, and confusing billing cycles. It also restricts credit cards for people under 21. Click Here for our lesson on Credit Cards

Car Loan A type of amortized loan used to purchase a vehicle. Compared to a mortgage, the loan term is typically much shorter, and interest rates higher. Related Lessons

Car Insurance A type of insurance covering cars. It includes, at minimum, liability insurance in case you cause damage to another person, property, or vehicle, but can also include additional coverage to protect you from damage caused by others. Click Here for our lesson on Car Insurance

Capitalism An economic system based on a market economy and an emphasis on continuous re-investment of profits in future growth.

Capital Property Rights The legal protection of investments and other assets from government seizure. Strong capital property rights are necessary to encourage investment, as people are unlikely to invest if they fear government seizure.

Capital Preservation The concept that an investor should be principally concerned with not losing their initial investment, more than chasing gains.

Capital Investment The purchase of an asset with an aim for growth. This usually involves purchasing stock in a company.