Refers to the financial assets, or resources, that a company has to fund its business operations.
Capital at risk
The risk an investor faces that he or she may lose all or part of the assets invested.
Occurs when the current value of an investment is greater than the initial amount invested.
The term for the gain or loss derived from an investment over a particular period. Capital return includes capital gain or loss only and excludes income (in the form of interest or dividend payments).
The composition of a firm's liabilities - refers to the way a firm finances its assets through a combination of equity, which refers to raising funds by selling shares, and debt. Often when capital structure is referred to, the focus is on the firm's debt-to-equity ratio, which is an indicator of how risky a company is.
The total market value of all of a company's outstanding shares.
Deposits or investments with similar characteristics to cash.
Consumer Prices Index (CPI)
An index used to measure inflation, which is the rate of change of prices for a basket of goods and services. The contents of the basket are meant to be representative of products and services we typically spend our money on.
Fixed income securities that can be exchanged for predetermined amounts of company shares at certain times during their life.
Security issued by a corporation (as opposed to a government) promising to pay interest to the holder of the bond until it is redeemed at maturity when the principal amount is repaid. Also referred to as credit.
The interest paid by the government or company that has raised a loan by selling bonds.
Non-government bonds, including corporate bonds.
Credit default swaps (CDS)
Are a type of derivative, namely financial instruments whose value, and price, are dependent on one or more underlying assets. CDS are insurance-like contracts that allow investors to transfer the risk of a fixed income security defaulting to another investor.
An independent assessment of a borrower's ability to repay its debts. A high rating indicates that the credit rating agency considers the issuer to be at low risk of default; likewise, a low rating indicates high risk of default. Standard & Poor's, Fitch and Moody’s are the three most prominent credit rating agencies. Default means that a company or government is unable to meet interest payments or repay the inital investment amount at the end of security's life.
Credit rating agency
A company that analyses the financial strength of issuers of fixed income securities and attaches a rating to their debt. Examples include Standard & Poor's and Moody's.
The process of evaluating a fixed income security, also called a bond, in order to ascertain the ability of the borrower to meet its debt obligations. This research seeks to identify the appropriate level of default risk associated with investing in that particular bond.
The risk of a company defaulting on its debt by missing capital (principal) or interest (coupon) payments.
Difference in the yield available on a corporate bond compared to a Government bond of similar maturity. Credit spreads will generally be higher for companies with lower credit ratings to compensate investors for the additional risk undertaken.
Refers to the means of making loans; a set of regulations and institutions involved in making loans on a commercial basis.