Glossary

In an oligopoly market, when two or more participants in a non-cooperative game have no incentive to deviate from their respective equilibrium strategies given their opponent’s strategies.

Software to analyse and interpret human language. Speech recognition and language translation are among the uses of natural language processing. The advantage of NLP is that it can process large amounts of data at a fraction of the time that humans will need to manually go through all the data.  

An ESG investment style that focuses on the exclusion of certain sectors, companies, or practices in a fund or portfolio on the basis of specific ESG criteria. A portfolio manager excludes companies based on some of the ESG factors. For example, some specific mining, oil extraction,  transport and tobacco may be excluded due to poor track records on corruption and ...

Neoclassical economists believe that the economy has a strong tendency toward full-employment equilibrium, so in theory, business cycles should not exist.  However, they do acknowledge that changes in technology can greatly affect certain industries that are displaced by the technology, and that can cause limited short-term lowering of aggregate demand, resulting in a recession. Nevertheless, Neoclassical economists believe that such ...

The remaining (undepreciated) balance of an asset’s purchase/acquisition cost. Net book value = Cost – Accumulated depreciation

Net income = Revenue – Expenses + Other income – Other expenses + Gains – Losses – Minority interest

In the context of commercial property, the amount of cash flow from the property available to make debt service payments. NOI = Rental income – Cash operating expenses

Under a defined benefit plan, employer records a net pension asset on its balance sheet if the plan is overfunded (i.e. fair value of pension assets > pension liabilities) Compare: Net pension liability

Under a defined benefit plan, employer records a net pension liability on its balance sheet if the plan is underfunded (i.e. fair value of pension assets < pension liabilities) Compare: Net pension asset

Net PP&E = Gross PP&E – Accumulated Depreciation Some balance sheets report Net PP&E instead of Gross PP&E.

The present value of an investment’s cash inflows minus the present value of its cash outflows. For a project with positive NPV, it means that the rate of return of the project exceed the required rate of return. See also: IRR

Net Profit Margin = Net Profit / Revenue

Estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. NRV = Estimated selling price – Cost of completion – Selling cost

The neutral interest rate is the growth rate of the money supply that neither increases nor decreases the economic growth rate, and can be estimated by adding the central bank’s inflation target to the real trend rate of economic growth.  Also called the trend rate, this is the economy’s long-term sustainable real growth rate.  The trend rate is not directly ...

New Classical models do not include money, but that business cycles are caused by real factors, such as changes in technology and external shocks.  Such models are called Real Business Cycle models.  New classical economists believe that expansions and contractions represent efficient operation of the economy in response to external real shocks and technological changes.  This again, is justification that ...

The value of goods and services measured at current prices (non-inflation adjusted). See also: Real GDP, and GDP Deflator

Nominal risk-free rate = Real risk-free rate + Inflation premium

A measurement scale that categorises data but does not rank them.

US securities issued by private entities that are not guaranteed by a federal agency or Fannie Mae / Freddie Mac. Non-agency RMBS use credit enhancements (e.g. credit branching, Overcollateralisation, reserve account) to reduce credit risk. Compare: Agency RMBS

A write down or expense that does not involve cash. (e.g. depreciation, amortisation, impairments, stock-based compensation)

Preference shares for which dividends that are not paid in the current or subsequent periods are forfeited permanently. Compare: Cumulative preference shares

Assets that are expected to benefit the company over an extended period of time (e.g. PP&E, investment property, intangible assets, financial assets) Compare: Current assets

Obligations that do not meet the criteria of current liabilities. Compare: Current liabilities

A company whose performance is largely independent of the business cycle. Non-cyclical companies produce goods or services for which demand remains relatively stable throughout the business cycle. Examples of non-cyclical industries include food and beverage, household and personal care products. Non-cyclical industries can be further separated into growth or defensive industries. Growth industries have demand so strong they are largely unaffected ...

Bonds rated BB+ or lower (S&P, Fitch) Bonds rated Ba1 or lower (Moody’s) Non-investment grade bonds can be viewed as a hybrid between investment grade bonds and equity.  While their price and spread movements are influenced by interest rate changes, it is to a lesser extent than investment grade bonds.   On the other hand, they show greater correlation with ...

Income statement items that do not result from a firm’s operating activities. (eg. interest income, interest expense) Note: For financial service companies, interest income and expense are likely components of operating activities

Non-participating preference shares have fixed dividends and the claim in the event of liquidation is equal to the par value. Compare: Participating preference shares

Type of mortgage loan where the lender has no claim against the assets of the borrower, except for the collateral property itself. Compare: Recourse loan

Items that are clearly not expected to continue in the future periods. e.g Discontinued operations, Extraordinary items Unusual or infrequent items require judgement as to whether they should be considered recurring or non-recurring.

A bond issued by a government below the national level, such as a province, region, state, or city. (e.g. California Municipal Bonds) They can be issued to fund local budgets, or sometimes to fund projects such as the construction of railroads or airports. Payments on the bonds may be supported by the revenues of the specific projects,  from special taxes or ...

In capital budgeting, the cash flows can change signs more than one time.  For example, a project might have an initial investment outflow, a series of cash inflows, and a cash outflow for asset retirement costs at the end of the project’s life.   Compare: Conventional cash flow

A test that is not concerned with a parameter, or that makes minimal assumptions about the population from which a sample comes.

A continuous, symmetric probability distribution that is completely described by its mean and variance. See also: Skewed distribution

Goods/services that are consumed in greater quantities as consumer income increases. Compare: Inferior good

Practice by rating agencies of assigning different ratings to different bonds of the same issuer. Notching is based on several factors, including seniority of the bonds and its impact on potential loss severity.  See also: Corporate Credit Rating

Obligations in the form of promissory notes owed to creditors and lenders. Notes payable can also be reported as non-current liabilities if their maturities are greater than one year.

The length of time (typically 30–90 days) in advance that investors may be required to notify a fund of their intent to redeem some or all of their investment. See also: Lockup period

H0, the hypothesis to be tested. See also: Alternative hypothesis

An activity ratio which is an estimate of the number of days a company ties up funds in inventory. DOH = 365 / Inventory turnover

An activity ratio which is an estimate of the average number of days it takes a company to pay its suppliers. Number of days of payables = 365 / Payables turnover

An activity ratio which is an estimate of the average number of days it takes to collect on credit accounts. DSO = 365 / Receivables turnover