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AAA

AAA is the highest possible rating that can be assigned to an issuer’s bonds by any of the major credit rating agencies. AAA-rated bonds have the highest degree of creditworthiness.

TAKEAWAYS:

  • AAA is the highest possible rating a bond may achieve

  • AAA bonds are viewed as the least likely to default because their issuers are easily able to meet financial commitments

  • All three major credit rating agencies use the term “AAA”

Accelerated Depreciation

Accelerated depreciation is any method of depreciation, specifically those used for accounting or income tax purposes, that allows for greater depreciation expenses in the early years of the life of an asset.

TAKEAWAYS:

  • The key accelerated depreciation methods include double-declining balance and sum of the years’ digits (SYD)

  • Accelerated depreciation is unlike the straight-line depreciation method, whereas that method tends to spread the depreciation expenses evenly over the life of the asset 

  • Companies will sometimes use accelerated depreciation for tax purposes, as these methods result in a deferment of tax liabilities since income is lower in earlier periods

80-20 rule

The 80-20 rule (also known as the Pareto principle) is a theory that 80% of outputs will result from 20% of inputs. For example, 80% of a business’ total profits will come from 20% of customers.

TAKEAWAYS:

  • The 80-20 rule states that 80% of outputs will result from 20% of inputs

  • In the 80-20 rule, you prioritize the 20% of factors that will produce optimal results

  • The “rule” is more of a heuristic than a hard-and-fast mathematical law

Adjusted EBITDA

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is a measure computed for a company that takes its earnings and adds back interest expenses, taxes, and depreciation charges, plus other adjustments to the metric.

TAKEAWAYS:

  • The adjusted EBITDA measurement removes non-recurring, irregular and one-time items that may distort EBITDA

  • Public companies report standard EBITDA in financial statement filings as Adjusted EBITDA is not required in GAAP financial statements

Adjusted Funds From Operations 

Adjusted funds from operations (AFFO) is a financial performance measure most often used when analyzing real estate investment funds (REITs). AFFO is equal to the funds from operations. Sometimes adjustments are made for recurring expenditures used to maintain assets.

TAKEAWAYS:

  • Adjusted funds from operations (AFFO) is a measure most often used to estimate the value of a real estate investment trust (REIT)

  • AFFO is based on funds from operations but is considered preferable because it takes costs into consideration

 

Adjusted Gross Income

Adjusted gross income (AGI) is a measure of income, usually calculated from your gross income, for the purpose of determining how much of your income is taxable.

TAKEAWAYS:

  • AGI, an official statistic reported on the IRS Form 1040, comes into use when calculating an individual’s tax liability

  • AGI has a direct influence on whether or not a taxpayer has the eligibility to claim many of the deductions and credits available on the tax return

Adjusted Present Value

The adjusted present value (APV) is the net present value of a project or company, looking at the entity as if financed solely by equity, plus the present value of any financing benefits - which are the effects of debt

TAKEAWAYS:

  • The formula for APV is APV = Unlevered Firm Value + NE, where NE = net effect of debt

  • APV is the net present value of a company if financed solely by equity, then you add the present value of finance benefits

  • APV shows investors the benefit of tax shields from tax-deductible interest payments

Algorithmic Trading 

A process for executing orders utilizing automated trading instructions to account for variables such as price, timing and volume. The algorithm runs the numbers and determines the best course of action for every stock, operating at an efficiency far beyond that of any human trader.

TAKEAWAYS:

  • Algorithmic trading is the use of rules-based algorithms to conduct high efficiency stock transactions

  • Algorithmic trading can also tend to exacerbate the market's negative tendencies by causing flash crashes and immediate loss of liquidity

Analysis of Variance

Analysis of variance (ANOVA) is an analysis tool used in statistics. It splits an observed aggregate variability found inside a data set into two parts: systematic factors and random factors. The systematic factors have a statistical influence on the given data set; the random factors do not.

TAKEAWAYS:

  • The formula for ANOVA is F = MST/MSE,

    • F = ANOVA coefficient

    • MST = Mean sum of squares due to treatment

    • MSE = Mean sum of squares due to error

  • If no significant true variance exists between the groups, the ANOVA's F-ratio should equal close to 1

Annual Percentage Yield

Annual percentage yield (APY) is the rate of return earned on a savings deposit or investment when taking into account the effect of compounding interest.

TAKEAWAYS:

  • APY is the rate of return that will be earned in one year taking into account the assumption that the interest is compounded

  • The more often interest is compounded, the better the return will be for the investor

Antitrust

Antitrust laws are regulations that encourage competition by limiting the market power of any particular firm. These can take many forms, but are most often seen in the oversight of mergers to ensure that no one company is able to concentrate market power and form a monopoly.

TAKEAWAYS:

  • Antitrust laws are designed with the intent of promoting healthy competition within all sectors of the economy

  • Today, the Federal Trade Commission (FTC) is tasked with enforcing federal antitrust laws. In serious cases they may work in tandem with the Department of Justice (DoJ).

Arbitrage Pricing Theory

Arbitrage pricing theory (APT) is a multi-factor asset pricing model. It’s based on the idea that an asset's returns can be predicted using the linear relationship between an asset’s expected return and a number of macroeconomic variables that can accurately capture risks inherent to the system.

TAKEAWAYS:

  • The formula for APT is E(R)i=E(R)z+(E(I)-E(R)zn

    • E(R)i= Expected return on asset

    • Rz= Risk-free rate of return

    • n= Sensitivity of the asset price to factor n

    • Ei= Risk premium associate with factor i

  • APT assumes markets sometimes wrongly price securities before the market eventually corrects and securities move back to their correct value

Ask

The ask is the price point that a seller is fine selling security. This is often referred to as the offer price. Along with the price, the ask quote might also stipulate the total amount of the security available to be sold at the stated price.

TAKEAWAYS:

  • The offer price is another term for the ask price

  • A bid price is always lower than the ask price

Atomic Swaps

A smart contract technology that enables the exchange of one cryptocurrency for another without using centralized intermediaries, such as exchanges. Allows for trades directly between blockchains.

TAKEAWAYS:

  • Atomic swaps can take place directly between blockchains of different cryptocurrencies, or they can be conducted off-chain

  • Atomic swaps require both parties to acknowledge receipt of funds within a specified timeframe using a cryptographic hash function

At the money (Option Trading)

At the money (ATM) is a situation where an option's strike price is identical to the price of the underlying security. Both call and put options can be ATM. Options trading is the highest when options are ATM.

TAKEAWAYS:

  • At the money options have no intrinsic value, but they still have time value

  • At the money options are most coveted by traders when a stock is expected to experience a large amount of movement

Automated Clearing House

The Automated Clearing House (ACH) is an electronic funds-transfer system facilitated by NACHA since 1974. This payment system provides ACH transactions for use with payroll, direct deposit, tax refunds, consumer bills, tax payments, and a variety of other payment services.

TAKEAWAYS:

  • The ACH is run by the National Automated Clearing House Association (NACHA)

  • Changes to the rules made in the last few years have allowed most transactions made through the ACH to clear on the same business day

Autoregressive Integrated Moving Averages

An autoregressive integrated moving average (ARIMA) is a statistical analysis model. This mode uses time-series data to better understand the data set, and also to predict future trends. 

TAKEAWAYS:

  • a form of regression analysis that gauges the strength of one dependent variable relative to other changing variables

  • In an autoregressive integrated moving average model, the data is differentiated in order to make it stationary

Average Annual Growth Rate

Average annual growth rate (AAGR) is the average increase in the value of an individual investment, portfolio, asset, or cash stream over the period of a year. This number is calculated by finding the arithmetic mean of a series of growth rates.

TAKEAWAYS:

  • This ratio helps you figure out how much average return you've received over several periods of time

  • AAGR is a linear measure that does not account for the effects of compounding interest over the set period of time

Average Cost Basis 

A system of calculating the value of mutual fund positions held in a taxable account. It’s used to determine their individual profit or loss for tax reporting. Cost basis represents the initial value of a security or mutual fund that an investor owns.

TAKEAWAYS:

  • The average cost basis method is a simple way of calculating the value of mutual fund positions for the purpose of determining their profit or loss for tax reporting

  • The average cost formula is calculated by dividing the total amount in dollars invested in a mutual fund position by the number of shares owned

Written by: Sebastian Johnson
Published on: Thursday, December 10, 2020 2:46 PM

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