Finance

Absolute advantage	A firm, person, organization or country has an absolute advantage if it can obtain a benefit at a lower cost than other firms, people, organizations or countries. For example, Costa Rica has an absolute advantage in the growing of bananas vis-à-visEurope.
Allotment	In a new issue of shares, if more shares are demanded at the price than are available, they may be apportioned (allotted) between the applicants.
Amortization of assets	The reduction in book value of an intangible asset such as goodwill.
Audit committee	A committee of company directors responsible for validating their company’s financial figures, e.g. by appointing effective external auditors.
Business angels	Wealthy individuals prepared to invest between £10,000 and £250,000 in a start-up, early-stage or developing firm. They often have managerial and/or technical experience to offer the management team as well as equity and debt finance. Medium- to long-term investment in high-risk situation.
Business risk	The risk associated with the underlying operations of a business. The variability of the firm’s operating income, before interest income: this dispersion is caused purely by business-related factors and not by the debt burden.
Call option	This gives the purchaser the right, but not the obligation, to buy a fixed quantity of a commodity, financial instrument or some other underlying asset at a given price, at or before a specified date.
Cost of capital	The rates of return that a company has to offer finance providers to induce them to buy and hold a financial security.
Demerge	The separation of companies or business units that are currently under one corporate umbrella. It applies particularly to the unraveling of a merger.
Dividend cover	The number of times net profits available for distribution exceed the dividend actually paid or declared. Earnings per share divided by gross dividend per share ortotal post-tax profits divided by total dividend payout.
Factoring	To borrow against the security of trade debtors. Factoring companies also provide additional services such as sales ledger administration and credit insurance.
Flat rate	The rate of interest quoted by a hire purchase company (or other lender) to a hiree. This fails to reflect properly the true interest rate being charged as measured by the annual percentage rate (APR).
Joint stock enterprise	The capital is divided into small units, permitting a number of investors to contribute varying amounts to the total. Profits are divided between stockholders in proportion to the number of shares they own.
Merger	The combining of two business entities under common ownership.
Net present value (NPV)	The present value of the expected cash flows associated with a project after discounting at a rate which reflects the value of the alternative use of the funds.
Newstrack	A small company news service and a place where share prices for companies trading on OFEX are posted.
Nominal return	The return on an investment including inflation. If the return necessary to compensate for the decline in purchasing power of money (inflation) is deducted from the nominal return we have the real rate of return.
Open offer	New shares are sold to a wide range of external investors (not existing shareholders). However, under claw back provisions existing shareholders can buy the shares at the offer price if they wish.
Option premium	The amount paid by an option purchaser (holder) to obtain the rights under an option contract.
Pension holiday	When a pension fund does not need additional contributions for a time, it may grant the contributors, e.g. companies and/or members, a break from making payments.
Portfolio theory	Formal mathematical model for calculating risk returns trade-offs as securities are combined is a portfolio.
Revolving credit	An arrangement whereby a borrower can draw down short-term loans as the need arises, to a maximum over a period of years.
Sale and leaseback	Assets (e.g. land and buildings) are sold to another firm (e.g. bank, insurance company) with a simultaneous agreement for the vendor to lease the asset back for a stated period under specific terms.
Securitization	Financial payments (e.g. a claim to a number of mortgage payments) which are not tradeable can be repackaged into other securities (e.g. a bond) and then sold. These are called asset-backed securities.
Share option scheme	Employees are offered the right to buy shares in their company at a modest price some time in the future.