A

accounts payable Current liabilities or debts of a business which must be paid in the near future (within one year).

accounts receivable Amounts due to a company for merchandise or services sold on credit. These are short-term assets.

acquisitions The process of buying or acquiring some asset. The term can refer to the purchase of a block of stock or, more often, to the acquisition of an entire company.

agricultural parity The ratio between the price a farmer buys and sells, calculated from the same base period when farm incomes were considered equivalent to income standards of the economy.

antitrust Any law or policy designed to encourage competition by curtailing monopolistic power and unfair business practices.

appreciation Increase in value of property, as opposed to depreciation.

arbitrage Buying currency, commercial bills or securities in one market and selling them at the same time in another to make a profit on the price discrepancy.

asset Current cash and other items readily converted into cash, usually within one year.

asset, fixed Plant, land, equipment, long-term investments that cannot be readily liquefied without disturbing the operation of the business.

B

balance sheet A listing of assets, liabilities and net worth showing the financial position of a company at the specific time. A bank balance sheet is generally referred to as a statement of condition.

balloon mortgage A mortgage whose amortization schedule will not extinguish the debt by the end of the mortgage term, leaving a large payment (called balloon payment) of the remaining principal balance to be paid at that time.

bankruptcy An individual or organization, acting voluntarily or by court order, liquidates its assets and distributes the proceeds to creditors.

Various filings under U.S. Bankruptcy Code:

Chapter 7 — Sometimes referred to as straight bankruptcy, this filing usually leads to liquidation of a company. A company in Chapter 7 proceedings is able to continue to operate under the direction of a court trustee until the matter is settled. If the company can resolve its problems and settle with creditors in the interim, it may not have to be liquidated.

Chapter 11 — The most common form of bankruptcy, this action frees a company from the threat of creditors’ lawsuits while it reorganizes its finances. The debtor’s reorganization plan must be accepted by a majority of its creditors. Unless the court rules otherwise, the debtor remains in control of the business and its assets.

Chapter 12 — This is an extension of Chapter 11, designed to help debt-burdened family farms. It allows family farmers to operate under bankruptcy court protection while paying off creditors.

Chapter 13 — Called the “wage earner” bankruptcy, this is available to individuals who promise to repay as many debtors as possible from available income.

basis point The movement of interest rates or yields expressed in hundredths of a percent.

bear market A period of generally declining stock prices.

bearer bond A bond for which the owner’s name is not registered on the books of the issuing company. Interest and principal is thus payable to the bond holder.

bearer stock Stock certificates that are not registered in any name. They are negotiable without endorsement and transferable by delivery.

Big Board Acceptable on second reference for the New York Stock Exchange.

blue chip stock Stock company known for its long-established record of making money and paying dividends.

bond ratings Grades assigned by credit-rating agencies to corporate and municipal debt securities, based on the borrower’s expected ability to repay. The higher the grade, the lower the interest rate a borrower must pay.

The two major Wall Street credit rating firms are Moody’s Investors Service Inc. and Standard & Poor’s bond ratings. Both issue a variety of grades. Standard & Poor’s bond ratings, for example, include 10 basic grades: in order, AAA, AA, A and BBB, given to borrowers with the strongest ability to repay; BB, B, CCC, CC and C, for more speculative securities, and D, for securities that are in payment default.

bonds See loan terminology.

book value The difference between a company’s assets and liabilities.

The book value per share of common stock is the book value divided by the number of common shares outstanding.

brand names When they are used, capitalize them.

Brand names normally should be used only if they are essential to a story.

Sometimes, however, the use of a brand name may not be essential but is acceptable because it lends an air of reality to a story: He fished a Camel from his shirt pocket may be preferable to the less specific cigarette.

Brand name is a non-legal term for service mark or trademark. See entries under those words in the main section.

bull market A period of generally increasing market prices.

bullion Unminted precious metals of standards suitable for coining.

C

capital When used in a financial sense, capital describes money, equipment or property used in a business by a person or corporation.

capital gain, capital loss The difference between what a capital asset cost and the price it brought when sold.

cents Spell out the word cents and lowercase, using numerals for amounts less than a dollar: 5 cents, 12 cents. Use the $ sign and decimal system for larger amounts: $1.01, $2.50.

central bank A bank having responsibility for controlling a country’s monetary policy.

charge off A loan that no longer is expected to be repaid and is written off as a bad debt.

Chicago Board of Trade The largest commodity trading market in the United States.

Chicago Board of Options Exchange (CBOE) An exchange set up by the Chicago Board of Trade.

closely held corporation A corporation in which stock shares and voting control are concentrated in the hands of a small number of investors, but for which some shares are available and traded on the market.

Co. See company.

collateral Stock or other property that a borrower is obliged to turn over to a lender if unable to repay a loan.

See loan terminology.

commercial paper One of the various types of short-term negotiable instruments whereby industrial or finance companies obtain cash after agreeing to pay a specific amount of money on the date due.

commodity The products of mining or agriculture before they have undergone extensive processing.

commodities futures contract A contract to purchase or sell a specific amount of a given commodity at a specified future date.

common stock, preferred stock An ownership interest in a corporation.

If other classes of stock are outstanding, the holders of common stock are the last to receive dividends and the last to receive payments if a corporation is dissolved. The company may raise or lower common stock dividends as its earnings rise or fall.

When preferred stock is outstanding and company earnings are sufficient, a fixed dividend is paid. If a company is liquidated, holders of preferred stock receive payments up to a set amount before any money is distributed to holders of common stock.

company, companies Use Co. or Cos. when a business uses either word at the end of its proper name: Ford Motor Co., American Broadcasting Cos. But: Aluminum Company of America.

If company or companies appears alone in second reference, spell the word out.

The forms for possessives: Ford Motor Co.’s profits, American Broadcasting Cos.’ profits.

See main section for specific company names.

company names Consult the company or Standard & Poor’s Register of Corporations if in doubt about a formal name. Do not, however, use a comma before Inc. or Ltd.

Do not use all capital letter names unless the letters are individually pronounced: CRX, USX. Others should be uppercase and lowercase.

conglomerate A corporation that has diversified its operations, usually by acquiring enterprises in widely varied industries.

consumer credit Loans extended to individuals or small businesses usually on an unsecured basis, and providing for monthly repayment. Also referred to as installment credit or personal loans.

convertible bond See loan terminology.

Corp. See corporation.

corporate names See company names.

corporation An entity that is treated as a person in the eyes of the law. It is able to own property, incur debts, sue and be sued.

Abbreviate corporation as Corp. when a company or government agency uses the word at the end of its name: Gulf Oil Corp., the Federal Deposit Insurance Corp.

Spell out corporation when it occurs elsewhere in a name: the Corporation for Public Broadcasting.

Spell out and lowercase corporation whenever it stands alone.

The form for possessives: Gulf Oil Corp.’s profits.

cost-plus

coupon See loan terminology for its meaning in a financial sense.

cross rate The rate of exchange between two currencies calculated by referring to the rates between each and a third currency.

D

debt service The outlay necessary to meet all interest and principal payments during a given period.

default The failure to meet a financial obligation, the failure to make payment either of principal or interest when due or a breach or nonperformance of the terms of a note or mortgage.

deflation A decrease in the general price level, which results from a decrease in total spending relative to the supply of available goods on the market. Deflation’s immediate effect is to increase purchasing power.

depreciation The reduction in the value of capital goods due to wear and tear or obsolescence.

Estimated depreciation may be deducted from income each year as one of the costs of doing business.

discount Interest withheld when a note, draft or bill is purchased.

discount rate The rate of interest charged by the Federal Reserve on loans it makes to member banks. This rate has an influence on the rates banks then charge their customers.

dividend In a financial sense, the word describes the payment per share that a corporation distributes to its stockholders as their return on the money they have invested in its stock.

See profit terminology.

dollars Always lowercase. Use figures and the $ sign in all except casual references or amounts without a figure: The book cost $4. Dad, please give me a dollar. Dollars are flowing overseas.

For specified amounts, the word takes a singular verb: He said $500,000 is what they want.

For amounts of more than $1 million, use up to two decimal places. Do not link the numerals and the word by a hyphen: He is worth $4.35 million. He is worth exactly $4,351,242. He proposed a $300 billion budget.

The form for amounts less than $1 million: $4, $25, $500, $1,000, $650,000.

See cents.

Dow Jones & Co. The company publishes the Wall Street Journal and Barron’s National Business and Financial Weekly. It also operates the Dow Jones News Service.

For stock market watchers, it provides the Dow Jones industrial average, the Dow Jones transportation average, the Dow Jones utility average, and the Dow Jones composite average.

Headquarters is in New York.

downside risk The probability that the price of an investment will fall.

dumping The selling of a product in a foreign market at a price lower than the domestic price. It is usually done by a monopoly when it has such a large output that selling entirely in the domestic market would substantially reduce the price.

durable goods Long-lasting goods such as appliances that are bought by consumers.

E

employee Not employe.

equity When used in a financial sense, equity means the value of property beyond the amount that is owed on it.

A stockholder’s equity in a corporation is the value of the shares he holds.

A homeowner’s equity is the difference between the value of the house and the amount of the unpaid mortgage.

Eurodollar A U.S. dollar on deposit in a European bank, including foreign branches of U.S. banks.

extraordinary loss, extraordinary income See profit terminology.

F

factor A financial organization whose primary business is purchasing the accounts receivable of other firms, at a discount, and taking the risk and responsibilities of making collection.

Federal Farm Credit System The federally chartered cooperative banking system that provides most of the nation’s agricultural loans. The system is cooperatively owned by its farm borrowers and is made up of the regional banks that issue operating and mortgage loans through local land bank associations and production credit associations.

federal funds, federal funds rate Money in excess of what the Federal Reserve says a bank must have on hand to back up deposits. The excess can be lent overnight to banks that need more cash on hand to meet their reserve requirements. The interest rate of these loans is the federal funds rate.

Federal National Mortgage Association (Fannie Mae) and Federal Home Mortgage Corp. (Freddie Mac) Two government-chartered organizations formed to help provide money for home mortgages by buying mortgages from lenders such as banks and repackaging them as investment securities.

Fannie Mae, a publicly held company traded on the New York Stock Exchange, mostly packages Federal Housing Administration mortgages.

Freddie Mac, a publicly held company traded on the New York Stock Exchange, packages conventional mortgages as well as FHA mortgages.

firm A business partnership is correctly referred to as a firm: He joined a law firm.

Do not use firm in references to an incorporated business entity. Use the company or the corporation instead.

fiscal, monetary Fiscal applies to budgetary matters.

Monetary applies to money supply.

fiscal year The 12-month period that a corporation or governmental body uses for bookkeeping purposes.

The federal government’s fiscal year starts three months ahead of the calendar year — fiscal 1984, for example, ran from Oct. 1, 1983, to Sept. 30, 1984.

float Money that has been committed but not yet credited to an account, like a check that has been written but has not yet cleared.

f.o.b. Acceptable on first reference for free on board.

force majeure A condition permitting a company to depart from the strict terms of a contract because of an event or effect that can’t be reasonably controlled.

freely floating Describes an exchange rate that is allowed to fluctuate in response to supply and demand in the foreign markets.

full faith and credit bond See loan terminology.

futures Futures contracts are agreements to deliver a quantity of goods, generally commodities, at a specified price at a certain time in the future. Options, which also are widely traded on the nation’s commodities exchanges, give buyers the right but not the obligation to buy or sell something at a certain price within a specified period.

The purpose of the futures exchanges is to transfer the risk of price fluctuations from people who don’t want the risk, such as farmers or metals processors, to speculators who are willing to take a gamble on making big profits.

Major U.S. commodities markets are the Chicago Board of Trade, Chicago Mercantile Exchange, New York Mercantile Exchange, the Commodity Exchange in New York, the New York Cotton Exchange, and the Coffee, Sugar and Cocoa Exchange.

G

general obligation bond See loan terminology.

H

hedging A method of selling for future delivery whereby a dealer protects himself from falling prices between the time he buys a product and the time he resells or processes it. A miller, for example, who buys wheat to convert to flour, will sell a similar quantity of wheat he doesn’t own at near the price at which he bought his own. He will agree to deliver it at the same time his flour is ready for market. If at that time the price of wheat and therefore flour has fallen, he will lose on the flour but can buy the wheat at a low price and deliver it at a profit. If prices have risen, he will make an extra profit on his flour which he will have to sacrifice to buy the wheat for delivery. But either way he has protected his profit.

holding company A company whose principal assets are the securities it owns in companies that actually provide goods or services.

The usual reason for forming a holding company is to enable one corporation and its directors to control several companies by holding a majority of their stock.

I

Inc. See incorporated.

income See profit terminology.

incorporated Abbreviate and capitalize as Inc. when used as a part of a corporate name. It usually is not needed, but when it is used, do not set off with commas: J.C. Penney Co. Inc. announced...

See company names.

Index of Leading Economic Indicators A composite of 10 economic measurements developed to help forecast shifts in the direction of the U.S. economy.

It is compiled by the Conference Board, a private business-sponsored research group, which took it over from the Commerce Department in 1995.

inflation A sustained increase in prices. The result is a decrease in the purchasing power of money.

There are two basic types of inflation:

Cost-push inflation occurs when rising costs are the chief reason for the increased prices.

Demand-pull inflation occurs when the amount of money available exceeds the amount of goods and services available for sale.

infrastructure An economy’s capital in the form of roads, railways, water supplies, educational facilities, health services, etc., without which investment in factories can’t be fully productive.

International Monetary Fund IMF is acceptable on second reference. Headquarters is in Washington.

A supply of money supported by subscriptions of member nations, for the purpose of stabilizing international exchange and promoting orderly and balanced trade. Member nations may obtain foreign currency needed, making it possible to correct temporary maladjustments in their balance of payments without currency depreciation.

L

leverage The use of borrowed assets by a business to enhance the return of the owner’s equity. The expectation is that the interest rate charged will be lower than the earnings made on the money.

leveraged buyout A corporate acquisition in which the bulk of the purchase price is paid with borrowed money. The debt then is repaid with the acquired company’s cash flow, with money raised by the sale of its assets or by the later sale of the entire company.

liabilities When used in a financial sense, the word means all the claims against a corporation.

They include accounts payable, wages and salaries due but not paid, dividends declared payable, taxes payable, and fixed or long-term obligations such as bonds, debentures and bank loans.

See assets.

liquidation When used in a financial sense, the word means the process of converting stock or other assets into cash.

When a company is liquidated, the cash obtained is first used to pay debts and obligations to holders of bonds and preferred stock. Whatever cash remains is distributed on a per-share basis to the holders of common stock.

liquidity The ease with which assets can be converted to cash without loss in value.

loan terminology Note the meanings of these terms in describing loans by governments and corporations:

bond A certificate issued by a corporation or government stating the amount of a loan, the interest to be paid, the time for repayment and the collateral pledged if payment cannot be made. Repayment generally is not due for a long period, usually seven years or more.

collateral Stock or other property that a borrower is obligated to turn over to a lender if unable to repay a loan.

commercial paper A document describing the details of a short-term loan between corporations.

convertible bond A bond carrying the stipulation that it may be exchanged for a specific amount of stock in the company that issued it.

coupon A slip of paper attached to a bond that the bondholder clips at specified times and returns to the issuer for payment of the interest due.

debenture A certificate stating the amount of a loan, the interest to be paid and the time for repayment, but not providing collateral. It is backed only by the corporation’s reputation and promise to pay.

default A person, corporation or government is in default if it fails to meet the terms for repayment.

full faith and credit bond An alternate term for general obligation bond, often used to contrast such a bond with a moral obligation bond.

general obligation bond A bond that has had the formal approval of either the voters or their legislature. The government’s promise to repay the principal and pay the interest is constitutionally guaranteed on the strength of its ability to tax the population.

maturity The date on which a bond, debenture or note must be repaid.

moral obligation bond A government bond that has not had the formal approval of either the voters or their legislature. It is backed only by the government’s "moral obligation" to repay the principal and interest on time.

municipal bond A general obligation bond issued by a state, country, city, town, village, possession or territory, or a bond issued by an agency or authority set up by one of these governmental units. In general, interest paid on municipal bonds is exempt from federal income taxes. It also usually is exempt from state and local taxes if held by someone living within the state of issue.

note A certificate issued by a corporation or government stating the amount of a loan, the interest to be paid and the collateral pledged in the event payment cannot be made. The date for repayment is generally more than a year after issue but not more than seven or eight years later. The shorter interval for repayment is the principal difference between a note and a bond.

revenue bond A bond backed only by the revenue of the airport, turnpike or other facility that was built with the money it raised.

Treasury borrowing A Treasury bill is a certificate representing a loan to the federal government that matures in three, six or 12 months. A Treasury note may mature in one to 10 years or more. A Treasury bond matures in seven years or more.

M

margin The practice of purchasing securities in part with borrowed money, using the purchased securities as collateral in anticipation of an advance in the market price. If the advance occurs, the purchaser may be able to repay the loan and make a profit. If the price declines, the stock may have to be sold to settle the loan. The margin is the difference between the amount of the loan and the value of the securities used as collateral.

monetary See the fiscal, monetary entry.

moral obligation bond See loan terminology.

municipal bond See loan terminology.

N

National Labor Relations Board NLRB is acceptable on second reference.

net income, net profit See profit terminology.

New York Stock Exchange NYSE is acceptable on second reference as an adjective. Use the stock exchange or the exchange for other references.

note For use in a financial sense, see loan terminology.

O

option The word means an agreement to buy or sell something, such as shares of stock, within a stipulated time and for a certain price.

A put option gives the holder the right to sell blocks of 100 shares of stock within a specified time at an agreed-upon price.

A call option gives the holder the right to buy blocks of 100 shares of stock within a specified time at an agreed-upon price.

over the counter A term for the method of trading when securities are not listed on a recognized securities exchange.

P

preferred stock See the common stock, preferred stock entry.

price-earnings ratio The price of a share of stock divided by earnings per share for a 12-month period. Ratios in AP stock tables reflect earnings for the most recent 12 months.

For example, a stock selling for $60 per share and earning $6 per share would be selling at a price-earnings ratio of 10-to-1.

See profit terminology.

prime rate A benchmark rate used by banks to set interest charges on a variety of corporate and consumer loans, including some adjustable home mortgages, revolving credit cards and business loans. Banks set the rate based on their borrowing costs, as reflected by the interest on short-term Treasury securities in the bond market.

profit-taking (n. and adj.) Avoid this term. It means selling a security after a recent rapid rise in price. It is inaccurate if the seller bought the security at a higher price, watched it fall, then sold it after a recent rise but for less than he bought it. In that case, he would be cutting his losses, not taking his profit.

profit terminology Note the meanings of the following terms in reporting a company’s financial status. Always be careful to specify whether the figures given apply to quarterly or annual results.

The terms, listed in the order in which they might occur in analyzing a company’s financial condition:

revenue The amount of money a company took in, including interest earned and receipts from sales, services provided, rents and royalties.

The figure also may include excise taxes and sales taxes collected for the government. If it does, the fact should be noted in any report on revenue.

sales The money a company received for the goods and services it sold.

In some cases the figure includes receipts from rents and royalties. In others, particularly when rentals and royalties make up a large portion of a company’s income, figures for these activities are listed separately.

gross profit The difference between the sales price of an item or service and the expenses directly attributed to it, such as the cost of raw materials, labor and overhead linked to the production effort.

income before taxes Gross profits minus company-wide expenses not directly attributed to specific products or services. These expenses typically include interest costs, advertising and sales costs, and general administrative overhead.

net income, profit, earnings The amount left after taxes have been paid.

A portion may be committed to pay preferred dividends. Some of what remains may be paid in dividends to holders of common stocks. The rest may be invested to obtain interest revenue or spent to acquire new buildings or equipment to increase the company’s ability to make further profits.

To avoid confusion, do not use the word income alone — always specify whether the figure is income before taxes or net income.

The terms profit and earnings commonly are interpreted as meaning the amount left after taxes. The terms net profit and net earnings are acceptable synonyms.

earnings per share (or loss per share, for companies posting a net loss) The figure obtained by dividing the number of outstanding shares of common stock into the amount left after dividends have been paid on any preferred stock.

dividend The amount paid per share per year to holders of common stock. Payments generally are made in quarterly installments.

The dividend usually is a portion of the earnings per share. However, if a company shows no profit during a given period, it may be able to use earnings retained from profitable periods to pay its dividend on schedule.

return on investment A percentage figure obtained by dividing the company’s assets into its net income.

extraordinary loss, extraordinary income An expense or source of income that does not occur on a regular basis, such as a loss due to a major fire or the revenue from the sale of a subsidiary. Extraordinary items should be identified in any report on the company’s financial status to avoid creating the false impression that its overall profit trend has suddenly plunged or soared.

protective tariff A duty high enough to assure domestic producers against any effective competition from foreign producers.

R

receivership A legal action in which a court appoints a receiver to manage a business while the court tries to resolve problems that could ruin the business such as insolvency. Receivership is often used in federal bankruptcy court proceedings. But it also can be used for non-financial troubles such as an ownership dispute.

In bankruptcy proceedings, the court appoints a trustee called a receiver who attempts to settle the financial difficulties of the company while under protection from creditors.

recession A falling-off of economic activity that may be a temporary phenomenon or could continue into a depression.

retail sales The sales of retail stores, including merchandise sold and receipts for repairs and similar services.

A business is considered a retail store if it is engaged primarily in selling merchandise for personal, household or farm consumption.

revenue See profit terminology.

revenue bond See loan terminology.

revolving credit Describes an account on which the payment is any amount less than the total balance, and the remaining balance carried forward is subject to finance charges.

rollover The selling of new securities to pay off old ones coming due or the refinancing of an existing loan.

S

savings and loan associations They are not banks. Use the association on second reference.

service mark A brand, symbol, word, etc. used by a supplier of services and protected by law to prevent a competitor from using it: Realtor, for a member of the National Association of Realtors, for example.

When a service mark is used, capitalize it.

The preferred form, however, is to use a generic term unless the service mark is essential to the story.

See brand names and trademark.

short An investment term used to describe the position held by individuals who sell stock that they do not yet own by borrowing from their broker in order to deliver to the purchaser.

A person selling short is betting that the price of the stock will fall.

short covering The purchase of a security to repay shares of a security borrowed from a broker.

short sale A sale of securities that are not owned by the sellers at the time of sale but which they intend to purchase or borrow in time to make delivery.

small-business man

spinoff (n.) A distribution that occurs when the company forms a separate company out of a division, a subsidiary or other holdings. The shares of the new company are distributed proportionately to the parent company holders.

spot market A market for buying or selling commodities or foreign exchange for immediate delivery and for cash payment.

spot price The price of a commodity available for immediate sale and delivery. The term is also used to refer to foreign exchange transactions.

Standard & Poor’s Register of Corporations The source for determining the formal name of a business. See company names.

The register is published by Standard & Poor’s Corp. of New York.

stockbroker

stock index futures Futures contracts valued on the basis of indexes that track the prices of a specific group of stocks. The most widely traded is the future based on the Standard & Poor’s 500-stock index. Speculators also trade options on index futures.

stock market prices Use fractions rather than decimals, spelling out the fraction if it is not linked with a figure: The stock went up three-quarters of a point. The stock went up 1 1/2 points.

T

trademark A trademark is a brand, symbol, word, etc., used by a manufacturer or dealer and protected by law to prevent a competitor from using it: AstroTurf, for a type of artificial grass, for example.

In general, use a generic equivalent unless the trademark name is essential to the story.

When a trademark is used, capitalize it.

Many trademarks are listed separately in this book, together with generic equivalents.

The U.S. Trademark Association, located in New York, is a helpful source of information about trademarks.

See brand names and service marks.

Treasury bills, Treasury bonds, Treasury notes See loan terminology.

U

union names The formal names of unions may be condensed to conventionally accepted short forms that capitalize characteristic words from the full name followed by union in lowercase.

Follow union practice in the use of the word worker in shortened forms. Among major unions, all except the United Steelworkers use two words: United Auto Workers, United Mine Workers, etc.

See entry in main section for more detail and references.

W

Wall Street When the reference is to the entire complex of financial institutions in the area rather than the actual street itself, the Street is an acceptable short form.

See capitalization.

wholesale price index A measurement of the changes in the average price that businesses pay for a selected group of industrial commodities, farm products, processed foods and feed for animals.

Capitalize when referring to the U.S. index, issued monthly by the Bureau of Labor Statistics, an agency of the Labor Department.

Y

yield In a financial sense, the annual rate of return on an investment, as paid in dividends or interest. It is expressed as a percentage obtained by dividing the market price for a stock or bond into the dividend or interest paid in the preceding 12 months.

See profit terminology.