Financial Glossary
Clear, concise definitions of financial terms used across our calculators.
A
APR (Annual Percentage Rate)
The annual rate charged for borrowing, expressed as a percentage. APR includes the interest rate plus any fees, giving you the true cost of borrowing. See our APR to APY Calculator.
APY (Annual Percentage Yield)
The effective annual rate of return accounting for compounding. APY is higher than the nominal APR when compounding occurs more than once per year.
Amortization
The process of paying off a loan through regular payments over time. Each payment splits between principal and interest. See our Amortization Calculator.
Alpha
A measure of an investment's excess return compared to a benchmark index. Positive alpha means outperformance. See our Alpha & Beta Calculator.
Annualized Return (CAGR)
The geometric average annual return of an investment over a specified period. It smooths out volatility. See our CAGR Calculator.
Asset Allocation
The distribution of investments across different asset classes (stocks, bonds, cash) to balance risk and return. See our Asset Allocation Calculator.
ARV (After Repair Value)
The estimated value of a property after renovations are complete. Used in house flipping to determine maximum purchase price. See our ARV Calculator.
B
Beta
A measure of a stock's volatility relative to the overall market. Beta of 1 means it moves with the market. Beta of 1.5 means it's 50% more volatile.
Break-Even Point
The point where total revenue equals total costs. Below this point you lose money; above it you make profit. See our Break-Even Calculator.
Bond Yield
The return an investor earns on a bond. Current yield = annual coupon / current price. YTM (Yield to Maturity) includes capital gains. See our Bond Yield Calculator.
C
CAGR (Compound Annual Growth Rate)
The average annual growth rate of an investment over a period longer than one year. It assumes profits are reinvested. See our CAGR Calculator.
Cap Rate (Capitalization Rate)
A real estate metric = Net Operating Income / Property Value. Used to compare investment properties. See our Cap Rate Calculator.
CLTV (Combined Loan-to-Value)
The total of all loans against a property divided by its value. Includes the first mortgage plus any HELOCs or second mortgages. See our HELOC Calculator.
Compound Interest
Interest earned on both the principal and previously earned interest. The most powerful force in investing. See our Compound Interest Calculator.
Correlation
A statistical measure of how two assets move in relation to each other. Ranges from -1 (move opposite) to +1 (move together). See our Asset Correlation Calculator.
D
DSCR (Debt Service Coverage Ratio)
A ratio of net operating income to total debt service. Lenders require at least 1.25 for commercial real estate. See our DSCR Calculator.
DTI (Debt-to-Income Ratio)
Monthly debt payments divided by gross monthly income. Lenders use this to assess mortgage affordability. See our DTI Calculator.
DCA (Dollar Cost Averaging)
Investing a fixed amount at regular intervals regardless of price. Reduces the impact of volatility. See our DCA vs Lump Sum Calculator.
Depreciation
The gradual decrease in value of an asset over time. Used for tax purposes to spread the cost of an asset over its useful life. See our Depreciation Calculator.
E
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company's operating performance. See our Adjusted EBITDA Calculator.
Effective Tax Rate
The average rate at which income is taxed. Total tax divided by total income. Usually lower than the marginal tax rate. See our Income Tax Calculator.
Equity
The difference between the market value of an asset and the amount owed on it. In real estate, home equity = home value - mortgage balance. See our Home Equity Calculator.
F
FIRE (Financial Independence, Retire Early)
A movement focused on saving aggressively (50-70% of income) to achieve financial independence and retire early. See our FIRE Calculator.
FV (Future Value)
The value of an investment at a specific date in the future, assuming compound growth. See our Future Value Calculator.
I
IRR (Internal Rate of Return)
The discount rate that makes the net present value (NPV) of all cash flows equal to zero. Used to evaluate investment profitability. See our IRR Calculator.
Inflation
The rate at which the general level of prices for goods and services rises, eroding purchasing power. See our Inflation Calculator.
L
LTV (Loan-to-Value)
The ratio of a loan to the value of the asset purchased. LTV below 80% typically avoids PMI. See our LTV Calculator.
LTV (Customer Lifetime Value)
The total revenue a business can expect from a single customer over the entire relationship. See our Customer LTV Calculator.
M
MIP (Mortgage Insurance Premium)
Insurance required on FHA loans. Includes an upfront premium (1.75%) and annual premium (0.55-0.85%) paid monthly. See our FHA Loan Calculator.
Marginal Tax Rate
The tax rate applied to your last dollar of income. In a progressive tax system, higher income is taxed at higher rates. See our Tax Bracket Calculator.
N
NPV (Net Present Value)
The difference between the present value of cash inflows and outflows. Positive NPV indicates a profitable investment. See our NPV Calculator.
Net Worth
Total assets minus total liabilities. The single best measure of financial health. See our Net Worth Calculator.
P
PV (Present Value)
The current value of a future sum of money, discounted at a specific rate. See our Present Value Calculator.
P/E Ratio
Price-to-Earnings ratio. Stock price divided by earnings per share. Used to value stocks. See our Stock Comparison Tool.
R
RMD (Required Minimum Distribution)
The minimum amount you must withdraw from traditional IRAs and 401(k)s starting at age 73. See our RMD Calculator.
ROI (Return on Investment)
A measure of profitability. ROI = (Gain - Cost) / Cost × 100. See our ROI Calculator.
RevPAR (Revenue Per Available Room)
A hotel metric = total room revenue / total available rooms. See our ADR Calculator.
S
Sharpe Ratio
A measure of risk-adjusted return. (Portfolio Return - Risk-Free Rate) / Standard Deviation. See our Sharpe Ratio Calculator.
Sortino Ratio
Similar to Sharpe but only considers downside volatility. Better for asymmetric risk profiles. See our Sortino Ratio Calculator.
Y
Yield on Cost
The annual dividend divided by the original purchase price, not the current price. Shows the return on your original investment. See our Dividend Calculator.
YTM (Yield to Maturity)
The total return expected on a bond if held to maturity. Includes all coupon payments and capital gain/loss. See our Bond Yield Calculator.