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Glossary of Important Financial Terms

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Term Definition
Balance Sheet

Refers to a financial table which lists the values of a company's assets, liabilities and shareholders' equity. A "strong" balance sheet usually refers to one which has a low level of liabilities relative to assets and/or a low level of accounts receivables relative to total assets. A high level of inventory as a proportion of assets is also often seen as a sign of a "weak" balance sheet.


One-hundredth of a percent (as applied to changes in interest rates)


A type of debt instrument issued by companies, which promise to repay the holder the principle value of the bond at maturity, plus interest at pre-determined intervals. However, bond holders may choose to sell the bonds at any time on the open market instead of holding it to maturity. Bonds are often rated by agencies, for the likelihood that the issuers have the ability to redeem the bonds. An issuing company which does not have the ability to pay bond holders is said to be in "default".

Book Value

Refers to the valuation of assets according to a company balance sheet. This may be different to real/actual value as companies do not routinely re-mark their assets to market values. Over time, it may be possible for a company’s assets to be marked at an unrealistically low or high level compared to the market values.

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