Finance Glossary

In economic policy, a free rider, is a type of market failure in which a person or entity takes advantage of a public good without paying for it, like a bus passenger that does not pay their ticket. The free rider problem only applies when supply is not significantly diminished by the number of people […]

Over-the-Counter refers to much more than just the aspirin you buy at a convenience store. In investing, over-the-counter (or OTC) refers to a security traded outside of a formal exchange like the NYSE. Usually these stocks are traded via a dealer network rather than a formal stock exchange. Although Nasdaq operates like a dealer network, […]

Equilibrium refers to a balance in supply and demand, resulting in stability in prices. In classical economics, free markets naturally tend toward a state of equilibrium: lowered supply creates higher prices, which in turn sparks reduced demand. This principle also works in reverse: excessive supply leads to cheaper prices, increasing demand. In the long term, […]

Summer is a time for fun in the sun, though about this time of year the sun usually gets a bit excessive for most people. Drink fluids and wear plenty of sunscreen! Or alternatively you could stay indoors and read up on your macroeconomic terms. Overheating also happens to be a phenomenon in that happens […]

In today’s tech world, you will hear many of the hottest companies referred to as “unicorns.” But what exactly is a unicorn, and what do unicorns mean for the economy?   The term “unicorn” was first coined in 2013 by venture capitalist Aileen Lee, founder of Cowboy Ventures. In a popular article, Lee discussed software […]

  A dividend reinvestment plan (DRIP) refers to an investment feature in which shareholder dividends are automatically reinvested in stock of the same company. This reinvestment happens in lieu of a quarterly cash dividend payment (The income is still taxed). Often DRIPs will feature added benefits such as discounted shares and coverage of broker’s fees. […]

Amazon’s recent acquisition of Whole Foods was in large part due to pressure on Whole Foods co-founder John Mackey from activist investor Jana Partners. But just what is an activist investor? The rise of the activist investor, or activist shareholder, occurred during the 1980s. Investors like Carl Icahn and T. Boone Pickens began buying stock […]

In general economic terms, elasticity refers to how responsive a variable is to another variable. Most often, the term elasticity is applied to how demand for a product changes depending on the price.  Mathematically, this is expressed as a ratio of the change in price to  the change in quantity demanded.   Elasticity =  Percent […]

In investing, an expense ratio refers to an annual fee that an investment company will charge to cover the operating costs of managing a mutual fund. An expense ratio will typically be calculated annually by dividing a fund’s operating expenses by the average dollar value of assets under management. The expense ratio not only includes […]

Free cash flow, often abbreviated as FCF, is a common measure of a company’s financial performance. It is determined by subtracting capital expenditures from operating cashflow. Specifically, the formula commonly used for FCF is as follows: Earnings before interest and taxes (1-tax rate) + (depreciation) + (amortization) – (change in networking capital) – (capital expenditure) […]