The A – Z of Commonly Used Financial Terms (F – I) Financial documents are full of strange terminology which can be intimidating to the reader. James Wright, Independent Financial Adviser, explains some of the most frequently used expressions. Financial Adviser A professional who helps individuals manage their finances by providing advice on areas including investments, insurance, mortgages, savings, taxes and retirement planning. A financial adviser should hold a recognised qualification from the Financial Conduct Authority (FCA) and also have a current and valid Statement of Professional Standing (SPS) which must be reviewed every year. Financial gearing The relative proportions of debt and equity that a company uses to support its operations. This information can be used to evaluate the risk of failure of a business. If there is a high proportion of debt to equity, a business is said to be highly geared. Financial risk The possibility that shareholders will lose money when they invest in a company that has debt, if the company’s cash flow cannot meet its financial obligations. Fixed asset A tangible piece of property or equipment that a firm owns and is used to produce income, which is not expected to be converted into cash for at least one year. Fixed capital The part of the funding of the business which equates to the fixed assets. Fixed term annuity A retirement contract with an insurance company which pays a guaranteed income for a specified term to the customer. At the end of the term, the investor receives the pre-agreed maturity proceeds to purchase further retirement benefits. Flexi-access drawdown Mostly used for pension funds, this is a means for people over 55 to access some of their pension income whilst the rest of their fund continues to grow (depending on how well their pension fund investments perform). Unlike capped income drawdown, the flexible drawdown option has no limit to the amount that can be withdrawn from a pension fund.
HMRC Her Majesty’s Revenue & Customs is a non-ministerial government department who, in their own words, ‘help the honest majority to get their tax right and make it hard for the dishonest minority to cheat the system’. Income tax A tax imposed by the government on financial income generated by unincorporated businesses and individuals. This includes income from employment, profits from self-employment, income from pensions and investments including trusts, dividends and rents. Income statement A financial statement that measures a company’s financial performance over a specific accounting period, formerly described as a profit and loss account. Incorporation The legal process used to form a corporate entity in order to operate a business. Index fund A type of mutual investment fund which matches or tracks a market index, as compared to an actively-managed mutual fund. Interest rate The cost of borrowing money, typically expressed as an annual percentage of the loan. For savers it is the rate that a bank or building society will pay the saver for ‘borrowing’ their money. Inventory Finished or unfinished materials, products and goods that form a portion of a business’s assets, and normally described as stocks. Investment fund A fund belonging to a group of investors and overseen by a fund manager which is used to collectively purchase securities, but in which each investor still controls their own shares. ISA Individual Savings Account. A way of saving and investing without paying income tax or capital gains tax. A number of ISA options are available, and can be used to save cash or to invest in stocks and shares.
FTSE The Financial Times Stock Exchange. A company (not a stock exchange) co-owned by the Financial Times and the London Stock Exchange, which researches and publishes indices which track securities and other investment vehicles. FTSE 100 The most well-known index maintained by the FTSE. It consists of the 100 largest publicly-traded companies listed on the London Stock Exchange, and is considered a prime indicator of the condition of the wider financial market. Fund manager The person or persons with responsibility for investing funds in line with the fund’s investment strategy and for managing its portfolio trading activities. Fund of funds An investment strategy in which a fund invests in other types of funds, resulting in a broad diversity of investments across a variety of fund categories. Futures A tradeable contract that commits you to taking delivery (if you buy), or making delivery (if you sell), of an agreed amount of something at an agreed time. Gift A transfer of money, property or assets from one person to another while receiving less than market value, or nothing, in return. Gilt A government bond, namely a gilt-edged security or stock, which pays a fixed rate of interest and is redeemable on a set date for a set amount. Going concern A firm is seen as a ‘going concern’ if it is believed it will stay in business for the ‘foreseeable future’. Goodwill An intangible (non-physical) asset, recognised in accounting terms as a result of the acquisition of one company by another. Intangible assets can include the company’s brand name, customer and employee relations. Gross income The total income of a person or organisation in a particular period, before tax or other deductions. Gross margin Sales revenue less the direct costs associated with producing the goods and services it sells, expressed as a percentage of sales revenue. Headline inflation The rate of total inflation calculated by the Office for National Statistics that includes fluctuating commodities, for example food and energy. Hedge fund An investment vehicle, mostly used by large companies, which uses a wide variety of strategies to earn a return for investors. Hedge funds vary significantly in terms of risk, returns and volatility, and are largely dependent on the competence of the hedge fund manager.
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