Captivating, fast-paced and challenging, the slick world of finance holds incredible appeal for prospective graduates. Despite its clear allure, beating the competition to break into the industry can feel incredibly intimidating. Not to mention how tough it can be to get around your head around all the jargon. Whilst this list can’t hope to cover it, our breakdown of common finance terms should make snagging the job of your dreams seem a little less scary.

Acid Test—A measure of whether a company has enough short-term assets to cover its immediate liabilities without having to sell its stock. Usually calculated as a ratio. Companies with ratios of less than 1 are unable to pay their current liabilities.

Bear –Someone who thinks the market will decline.

Bear Market – A declining market.

Bond – An IOU that a company sells to raise their debt capital— capital a business raises by taking out a loan. By selling a bond, a company is promising the bondholder they will pay back the value of the loan on the bond’s expiration date, as well as a specified amount of interest over a length of time.

Bull – Someone who thinks the market will rise.

Bull Market – An advancing market.

Blue Chip Stock –Shares of large companies that are usually established and successful, and expected to achieve further success. These companies have a strong history of earnings, growth and dividend payments. 

Capital Appreciation—An increase of an asset’s value based on an increase in market price. When the amount invested has increased in value, the capital appreciation portion of the investment is the value that exceeds the amount originally paid.

Common Stock –Shares of a public corporation usually purchased to gain returns via capital appreciation.

Consumer Price Index (CPI)— The price of a hypothetical collection of goods selected to represent purchases by typical consumers.  The CPI is used to measure inflation.

Debenture—A debt instrument used by companies to borrow money.

Equity—This term can have a slightly different meaning depending on the context it’s used in, but in finance it generally refers to ownership in an asset after all debts linked to that asset have been paid off. An item with no outstanding debt that can be sold for cash is considered equity. Stocks are considered equity.

Face Value—The amount the issuing company promises to pay on a bond when it expires. Face value does not indicate the market value of the bond.

FOB (‘free on board’) –A term that refers to the point at which responsibility for the goods passes from the seller to the buyer.

Gross Margin—The percentage of total sales revenue a company keeps for each dollar of sales. If a company’s gross margin is at 25 percent, this means that for every dollar of revenue the company keeps $0.25 before paying costs such as overheads, salaries and rent.

Hedge—A strategy used to minimize risk by completing transactions that oppose an existing position, or asserting a position that opposes one already held by the company.

Leverage—Commonly refers to the amount of money borrowed that is used to run the business. Being classed ‘highly leveraged’ means that you have more debt than equity.

Purchasing Power—The value of currency based on the amount of goods or services that one unit of its money can buy.  It is important because inflation decreases the amount of goods or services you would be able to buy. Also used in terms of investment to signify the dollar amount of credit available to a customer to buy additional assets.

Return on Investment (ROI)—A measurement of a company’s profitability based on their income in a fiscal year divided by their stock equity and debt.

Risk—The amount a portfolio’s value varies over time. Also defined as the difference between an actual return and an expected return.

Risk Profiles—An investor’s risk profile expresses their views on specific investment risks they are comfortable in taking to achieve their investment goals.

Working Capital—Also known as ‘net working capital.’ A measure of a company’s short-term financial health and overall efficiency. Calculated by subtracting the value of a company’s current liabilities from its current assets.

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