Refers to the financial assets, or resources, that a company has to fund its business operations.
Capital at risk
The risk an investor faces that he or she may lose all or part of the assets invested.
Occurs when the current value of an investment is greater than the initial amount invested.
The term for the gain or loss derived from an investment over a particular period. Capital return includes only capital gain or loss, and excludes income (in the form of interest or dividend payments).
The composition of a company’s liabilities. It refers to the way a company finances its assets through a combination of equity – which refers to raising funds by selling shares – and debt. Often when capital structure is referred to, the focus is on the company’s debt-to-equity ratio, which is an indicator of how risky the business is. The higher the ratio, the riskier the business.
The total market value of all of a company’s outstanding shares.
Deposits or investments with similar characteristics to cash.
Consumer Prices Index (CPI)
An index used to measure inflation, or the rate at which prices for a basket of goods and services bought by households change. The contents of the basket are meant to be representative of products and services consumers typically spend money on, and are updated regularly.
Contingent convertible securities (CoCos)
CoCos are debt securities that can be exchanged for company shares if certain conditions are met. They are also known as ‘hybrid securities’.
Fixed income securities (bonds) that can be exchanged for predetermined amounts of company shares at certain times during their life.
Fixed income securities issued by a company. They are also known as bonds and can offer higher interest payments than bonds issued by governments as they are often considered more risky. Also referred to by investors as “credit.”
When the price of an asset, security or index falls by up to 10%, usually following a bull, in other words rising, market.
The interest paid by the government or company that has raised a loan by selling bonds. It is usually a fixed amount, calculated as a percentage of the total loan and paid out at regular intervals.
The borrowing capacity of an individual, company or government. The term is also used by investors as a synonym for fixed income securities issued by companies (corporate bonds) and for any type of loan given to a company.
Credit default swaps (CDS)
An insurance-like contract that allows an investor to transfer the default risk of a bond to another investor. The buyer of the CDS pays regular premiums to the seller, who has to reimburse the buyer in the event of the underlying bond defaulting. A CDS is a type of derivative – a financial instrument whose value and price is dependent on the underlying asset.
An assessment by a credit rating agency of a borrower’s ability to repay its debts. A high rating indicates that the credit rating agency considers the issuer to be at low risk of non-payment. A low rating indicates high risk of non-payment. Standard & Poor’s, Fitch and Moody’s are the three most prominent credit rating agencies
Credit rating agency
A company that analyses the financial strength of issuers of fixed income securities (bonds) and attaches a rating to their debt. Examples include Standard & Poor’s, Moody’s and Fitch.
The process of evaluating a fixed income security (bond) in order to ascertain the ability of the borrower to meet its debt obligations. This research seeks to identify the appropriate level of risk of non-payment associated with investing in that particular bond.
Risk that a financial obligation will not be paid and a loss will result for the lender.
The decision whether to extend credit and how much, ie the decision whether or not to buy a particular fixed income security (bond).
The difference between the yield of a corporate bond (a fixed income security issued by a company) and a government bond of the same life span. Yield refers to the income received from an investment and is expressed as a percentage of the investment’s current market value.
A set of regulations and institutions involved in making loans on a commercial basis.