EBITDA is earnings before interest, taxes, depreciation, and amortization. EBITDA serves as an indicator of financial performance and comparative metric. EBITDA is a non-GAAP metric (GAAP = generally accepted accounting principles), partially because it is not calculated in a defined way for all companies.
EBITDA = Revenue - Expenses (not including taxes, interest, depreciation, and amortization)
A basis point is 1/100th of a percent. That is, one basis point is equal to .01%. Basis points are the method for communicating interest rates in finance. If the interest rate on a loan is 4.75%, an individual would say the loan has a rate of 475 bps (basis points). This unit of measurement is especially convenient when rates of less than 1% are being discussed, as it is more convenient to say 53 bps than .53%.
LIBOR, or the London Interbank Offered Rate, is a benchmark interest rate intended to represent the cost of short-term lending between banks. That is, the LIBOR rate is what banks would charge each other to borrow money - presumably, a lower rate than what they would charge companies or individuals. LIBOR is the most widely used benchmark rate in the world - over $360 trillion of financial products are tied to it.
The net asset value (NAV) of something is its actualized value, that is, total assets minus total liabilities. This can also be known as book value.
NAV = [Assets - Liabilities]
For example, if you own a home worth $300,000, but have $50,000 of debt outstanding on the home, the NAV is $250,000.
An exchange-traded fund, typically known as an ETF, is a security that tracks a group of assets, a market index, currency, or commodity, but is traded like a stock. ETFs have grown to be a popular alternative to mutual funds within the last few years. ETFs can come in many different forms.
Contrary to my belief at a young age, a mutual fund is not when you and a friend decide to buy something together. A mutual fund is a professionally managed pool of securities (stocks) that investors can buy shares in. Mutual funds are not traded on a stock exchange, though their portfolios often are. Mutual funds pay out the money they make to investors via dividends or interest. Mutual funds come in many shapes and sizes, and can be focused on one industry area, or cover a wide range of global securities.
A prospectus is a legal document frequently seen in finance. Prospectuses contain all the information potential investors or existing investors need in order to make an educated investment decision. Depending on what the prospectus is for, this could include disclosure of what a mutual fund is invested in (or what their strategy is), information about an initial public offering, or details on a bond. Reading the prospectus before investing in a fund, offering, or bond is very important to ensure one makes an informed investment decision.
In finance (and most of the world), capital refers to wealth, whether it be stocks, bonds, cash, or gold. In economics, capital refers to any non-financial asset that can be used towards production. So what does that mean? A factory owner would possess capital like machinery, generators, and other technology.
The opportunity cost of something is what you give up to get it. Economics is all about opportunity costs, that is, trade-offs that individuals face in their decision making. Opportunity costs can be factored into the cost of making a decision.
The spot price of something refers to the current price it can be bought at. This price is used to determine the pricing for some futures contracts.
When a futures contract is priced at the spot price, it is called a spot contract. This means the purchaser will pay based on the current price for goods they will receive at contract expiry. In contrast, a forward contract is a futures contract where the terms are agreed upon now, but the price payed will be the spot price at time of contract expiration.
A future (formally known as a futures contract) is a kind of derivative often used to take “bets” on the price of something increasing or decreasing. If an individual believed the price of something [a commodity or stock, for example] was going to change in the future, they could buy a future for that item and make money if the change in price occured.
A derivative is a financial product that functions very similarly to a stock. Anyone can buy a derivative, and the value of it depends on the value of the underlying asset. For example, the value of a gold derivative is derived from the price of gold. If the price of gold increases, the value of the gold derivative increases.
A commodity is a common good, typically which people will buy regardless of who provides it. Few, if any, people demand a certain kind/brand of wheat or oil--they will accept this good from any producer, as it looks and functions exactly the same. There are different kinds of commodities...
