Finance Acronyms Dictionary

May 19, 2025 May 19, 2025

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Finance Acronyms: A Concise Dictionary

The world of finance is awash in acronyms, short-hand designations that can often feel like a secret language. This quick dictionary aims to demystify some of the most common finance acronyms, helping you navigate financial discussions and documents with greater confidence.

Investment & Trading

ROI: Return on Investment. Measures the profitability of an investment. (Net Profit / Cost of Investment) * 100.
EPS: Earnings Per Share. Indicates a company's profitability on a per-share basis. (Net Income - Preferred Dividends) / Weighted Average Common Shares Outstanding.
P/E Ratio: Price-to-Earnings Ratio. Compares a company's stock price to its earnings per share, indicating how much investors are willing to pay for each dollar of earnings. Current Stock Price / Earnings Per Share.
IPO: Initial Public Offering. The first time a company offers shares to the public.
NAV: Net Asset Value. The per-share value of a mutual fund or ETF's assets less its liabilities.
ETF: Exchange Traded Fund. A type of investment fund traded on stock exchanges, similar to stocks.
OTC: Over-the-Counter. A market where securities are traded directly between parties, rather than on an exchange.
SEC: Securities and Exchange Commission. The U.S. government agency that regulates the securities markets.
IRA: Individual Retirement Account. A tax-advantaged savings account for retirement.
401(k): A retirement savings plan sponsored by an employer.

Banking & Lending

APR: Annual Percentage Rate. The annual cost of a loan to a borrower, including fees and interest.
APY: Annual Percentage Yield. The effective annual rate of return, taking compounding into account.
CD: Certificate of Deposit. A savings account that holds a fixed amount of money for a fixed period of time.
ARM: Adjustable-Rate Mortgage. A mortgage with an interest rate that adjusts periodically based on a benchmark.
LTV: Loan-to-Value Ratio. The ratio of the loan amount to the appraised value of the asset being financed (e.g., a home).
FDIC: Federal Deposit Insurance Corporation. A U.S. government agency that insures deposits in banks and savings associations.

Accounting & Finance

GAAP: Generally Accepted Accounting Principles. A common set of accounting rules, standards, and procedures.
EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company's operating performance.
CAGR: Compound Annual Growth Rate. The year-over-year growth rate of an investment over a specified period of time.
NPV: Net Present Value. The present value of future cash flows, minus the initial investment.
IRR: Internal Rate of Return. The discount rate that makes the net present value of all cash flows from a particular project equal to zero.
ROI: Return on Investment. (Often used in accounting as well.)

This is not an exhaustive list, but it provides a solid foundation for understanding common finance acronyms. Remember to always seek clarification when unsure of an acronym's meaning, and use reliable resources to further your financial literacy.