Lexicon

Limited liability is a type of legal structure for an organization where a corporate loss will not exceed the amount invested in a partnership or limited liability company. In other words, investors' and owners' private assets are not at risk if the company fails. The limited liability feature is one of the biggest advantages of investing in publicly listed companies. While a shareholder can participate wholly in the growth of a company, his or her liability is restricted to the amount of the investment in the company, even if it subsequently goes bankrupt and has remaining debt obligations.

Liquidate means to convert assets into cash or cash equivalents by selling them on the open market. Liquidate is also a term used in bankruptcy procedures in which an entity chooses or is forced by a legal judgment or contract to turn assets into a "liquid" form (cash). In finance, an asset is an item that has value.

Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market at a price reflecting its intrinsic value. In other words: the ease of converting it to cash.

The value of all the outstanding stock of a company. Market capitalization is the quoted price per share of a stock multiplied by the number of shares outstanding. Thus, if Rocky and Bullwinkle Corporation has 100 million shares of outstanding stock and the quoted price per share is $20, the company has a market capitalization of $2 billion (100 million × $20).

Market share represents the percentage of an industry, or a market's total sales, that is earned by a particular company over a specified time period. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company in relation to its market and its competitors.

A merger is an agreement that unites two existing companies into one new company. There are several types of mergers and also several reasons why companies complete mergers. Mergers and acquisitions are commonly done to expand a company’s reach, expand into new segments, or gain market share. All of these are done to increase shareholder value. Often, during a merger, companies have a no-shop clause to prevent purchases or mergers by additional companies.

Monetary policy consists of the process of drafting, announcing, and implementing the plan of actions taken by the central bank, currency board, or other competent monetary authority of a country that controls the quantity of money in an economy and the channels by which new money is supplied. Monetary policy consists of management of money supply and interest rates, aimed at achieving macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity. These are achieved by actions such as modifying the interest rate, buying or selling government bonds, regulating foreign exchange rates, and changing the amount of money banks are required to maintain as reserves.

A mortgage is a debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments.

A portfolio of stocks, bonds, or other securities that is owned by numerous investors and managed by an investment company.

Net worth is a quantitative concept that measures the value of an entity and can be applicable to individuals, corporations, sectors and even countries. Simply stated, net worth is the difference between assets and liabilities. Positive net worth means that assets exceed liabilities while negative net worth describes the opposite scenario.

The Nikkei 225 is a stock market index for the Tokyo Stock Exchange (TSE). It has been calculated daily by the Nihon Keizai Shinbun (The Nikkei) newspaper since 1950. It is a price-weighted index, operating in the Japanese Yen (JP¥), and its components are reviewed once a year. The Nikkei measures the performance of 225 large, publicly owned companies in Japan from a wide array of industry sectors.

Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over another. While financial reports do not show opportunity cost, business owners can use it to make educated decisions when they have multiple options before them. Bottlenecks are often a cause of opportunity costs.

Because by definition they are unseen, opportunity costs can be easily overlooked if one is not careful. Understanding the potential missed opportunities foregone by choosing one investment over another allows for better decision-making.

The right to buy or sell a specific security (such as a stock) for a preset price during a specified period of time. Options differ from futures in that with an option, you pay a premium fee upfront and you can either exercise the option or let it expire. If the option expires worthless, you lose 100 percent of your original investment. The use of options is best left to companies as hedging tools. Investment managers may use options to reduce the risk in their investment portfolio. As with futures, when most individual investors buy an option, they’re doing so as a short-term gamble, not as an investment. For example: You have an option to buy 100 shares of Rocky and Bullwinkle Co. stock at $20 per share in the next six months. You pay $3 per share upfront as the premium. During this time period, R&B’s share price rises to $30, and you exercise your right to buy at $20. You then sell your shares at the market price of $30; you make a $10 profit per share, which is a return more than three times larger than your original investment.

Outsourcing is the business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in-house by the company's own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office.

A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides retirement income. Pension funds typically have large amounts of money to invest and are the major investors in listed and private companies. They are especially important to the stock market where large institutional investors dominate. The largest 300 pension funds collectively hold about $6 trillion in assets.