Finance Dictionary ( daily finance terms and concepts will be added and discussed)

Deep Discount Bond

A bond that has a Coupon Rate far below rates currently available on investments and whose value is at a significant discount from Par Value.
 
Default

(1) The failure to pay interest or Principal promptly when due. (2) The failure to perform on a Futures Contract as required by an exchange
 
Deferred Annuity


An annuity contract that delays payments of income, installments, or a lump sum until the investor elects to receive them.
 
Deferred Income Taxes


On the Balance Sheet, deferred taxes are a liability that result from income already earned and recognized for accounting purposes, but not for tax purposes.
 
Depreciation

(1) An expense recorded regularly on a company’s books to reduce the value of a long-term tangible asset. Since it is a non-cash expense, it increases Free Cash Flow while decreasing the amount of a company’s reported earnings. (2) A decrease in the value of a particular currency relative to other currencies.
 
Derivative

A security, like an Option or Future, whose value is derived from another underlying security. Futures contracts, forward contracts, and options are among the most common types of derivatives. Derivatives are generally used by institutional investors to increase overall portfolio return or to hedge portfolio risk.
 
Diluted Common Shares

The number of shares calculated when all Options, Warrants, Rights, or convertible securities are converted to common shares.
 
Diluted Earnings per Share


Since 1997 U.S. companies have been required to report diluted EPS as well as basic. Diluted EPS account for potential additional shares being distributed from Options, Warrants, or Rights that may be converted or exercised. If there is a choice, choose diluted EPS.
 
Dilution


A reduction in Earnings Per Share of common stock. Dilution occurs through the issuance of additional shares of common stock or the conversion of convertible securities. Dilution reduces earnings per share by increasing the number of shares potentially outstanding.
 
Direct Purchase Stock


Over one hundred companies have registered with the Securities and Exchange Commission to sell shares of their stock directly to investors. Investors typically participate in that company’s Dividend Reinvestment Plan.
 
Diversification


In order to reduce risk, it is wise to own the best company in at least 10 industries, depending upon the size of your portfolio. Choose industries that are likely to have better growth than the economy as a whole.
Another way to diversify is to buy companies of various sizes in different industries. Size can be measured by the dollar figure for sales, (up to $400M = small company; above $4Billion = large company; middle-sized companies are in between.)
 
Diversified Common Stock Fund


A mutual fund that invests its assets in a wide range of Common Stocks. The fund’s objectives may be growth, income, or a combination of both.
 
Dividend Payout Ratio


A measurement of the percentage amount of net income paid out in dividends rather than retained by the business to help it grow. Recent payout figures higher than 50% (and higher than the average payout) may forewarn of a dividend cut. This cut may result in the stock price falling. Sometimes, although the dividend payout is more than earnings, the company has strong cash flow and can cover the dividend. However, a company paying out dividends in excess of earnings on a recurring basis is a risky investment.
 
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