Dictionary of Financial and Business Terms (Part 1)

Abandonment option: The option of terminating an investment earlier than originally planned.

Abnormal returns: Part of the return that is not due to systematic influences (market wide influences). In other words, abnormal returns are above those predicted by the market movement alone. Related: excess returns.

Absolute priority: Rule in bankruptcy proceedings whereby senior creditors are required to be paid in full before junior creditors receive any payment.

Accelerated cost recovery system (ACRS): Schedule of depreciation rates allowed for tax purposes.

Accelerated depreciation: Any depreciation method that produces larger deductions for depreciation in the early years of a project's life. Accelerated cost recovery system (ACRS), which is a depreciation schedule allowed for tax purposes, is one such example.

Accounting exposure: The change in the value of a firm's foreign currency denominated accounts due to a change in exchange rates.

Accounting earnings: Earnings of a firm as reported on its income statement.

Accounting insolvency: Total liabilities exceed total assets. A firm with a negative net worth is insolvent on the books.

Accounting liquidity: The ease and quickness with which assets can be converted to cash.

Accounts payable: Money owed to suppliers.

Accounts receivable: Money owed by customers.

Accounts receivable turnover: The ratio of net credit sales to average accounts receivable, a measure of howquickly customers pay their bills.

Accretion (of a discount): In portfolio accounting, a straight-line accumulation of capital gains on discount bond in anticipation of receipt of par at maturity.

Accrual bond: A bond on which interest accrues, but is not paid to the investor during the time of accrual. The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity.

Accrued interest: The accumulated coupon interest earned but not yet paid to the seller of a bond by the buyer (unless the bond is in default).

Accumulated Benefit Obligation (ABO): An approximate measure of the liability of a plan in the event of a termination at the date the calculation is performed. Related: projected benefit obligation.

Acid-test ratio: Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid items to current liabilities.

Acquiree: A firm that is being acquired.

Acquirer: A firm or individual that is acquiring something.

Acquisition of assets: A merger or consolidation in which an acquirer purchases the selling firm's assets.

Acquisition of stock: A merger or consolidation in which an acquirer purchases the acquiree's stock.