If you're involved in the world of money, investing, or simply want to better understand the Economic newsto have a good financial dictionary in Spanish It's practically mandatory. Instead of isolated definitions, here's a comprehensive and well-organized glossary that gathers, explains, and connects the key terms used in finance, stock markets, accounting, and economics.
In this article you will find concepts such as explained in easy-to-understand language stocks, debt, derivatives, futures, options, profits, cash flows, stock market indices, risks or valuationsAll of this is adapted for use in Spain, but understandable to any Spanish speaker, including how markets, compensation, guarantees, and the role of participating entities work. Furthermore, it addresses issues related to... accounting that help to understand financial statements.
General functioning of financial markets and regulation
Before going into specific definitions, it is important to understand the context in which these concepts are used: the stock markets, intermediaries and regulatory bodiesA stock market is the place, physical or electronic, where stocks, bonds, and other instruments are traded. The most famous is the New York Stock Exchange, but other notable markets include the IBEX in Spain, the DAX in Germany, the CAC40 in France, the FTSE 100 in the United Kingdom, the Nikkei in Japan, and the Nasdaq, which specializes in technology companies. If you are interested in an overview of market structures and competition, you can read about [the relevant section/article/etc.]. stock markets and its structural advantage.
These markets involve figures such as broker or stockbroker, which acts on behalf of clients by buying or selling securities and charging a commission; the market maker, which undertakes to provide purchase and sale counterparties to maintain an orderly market in certain securities; and the Financial intermediaries In general, they are located between the investor and the issuer of the securities or between buyers and sellers.
In parallel, there are authorities and regulatory bodies These regulatory bodies oversee these markets and ensure that transactions are transparent, financial information is reliable, and investors are protected. They may use cookies and analytics tools on their websites and warn users that their portals contain links to external sites with their own privacy and cookie policies. This regulatory layer is essential for the financial system to function with confidence and legal certainty.
We also found the role of the central counterpartiesThese mechanisms intervene in derivatives and certain securities transactions to manage default risks and facilitate clearing and settlement. This ensures that even if one party fails, the system can continue to function and systemic risk is reduced.
Basic dictionary of key financial terms
One of the fundamental concepts is the actionA share represents each of the parts into which a company's share capital is divided. Anyone who buys shares becomes a shareholder and acquires economic rights (such as receiving dividends) and, usually, political rights (such as voting at shareholder meetings). There are different types: ordinary shares These are the most common, with the right to vote and to receive part of the benefit; preferred stock They usually give priority in receiving a fixed dividend but with fewer voting rights; there is also talk of small-cap stocks, issued by relatively small companies, or of protective actions when they refer to values ​​that have suffered sharp drops in their price.
Related to the actions we have the figure of shareholderwhich can be an individual or a legal entity. There are minority shareholders, who own a small portion of the capital, and majority shareholders, who control a significant percentage. The total number of issued shares, with their par value, constitutes the capital of the company, which appears on the balance sheet within shareholders' equity. When the company issues new shares above their par value, that difference is called share premium and it also forms part of the net worth.
Another central piece is the assetThis includes everything a company owns or is owed as a result of past operations. It is generally divided into fixed or non-current assets (assets that are held for more than one year, such as real estate, machinery or intangible assets) and current assets (items that can be converted into cash in the short term, such as inventory, accounts receivable, or short-term financial investments). Fixed assets are further divided into: tangible assets (physicists) and the assets (such as trademarks, patents, goodwill, or licenses).
On the opposite side of the balance sheet is the passivewhich represents the company's debts and obligations. It is separated into short-term liability, with a maturity of less than one year (for example, accounts payable to suppliers, outstanding salaries or interest), and long-term liabilitieswith a higher maturity. The difference between assets and liabilities is the net worth or equity, which includes the value attributable to shareholders, including reserves and accumulated results.
A term frequently cited in markets is the bondA bond is a debt security through which an issuer (state, company, or other entity) commits to repay the principal on a specific date and pay periodic interest at a predetermined rate. Many variations exist, such as... Yankee bonds issued in the United States in dollars by foreign entities, the zero coupon certificates of deposit (issued at a steep discount and do not pay periodic coupons; all the return is collected at maturity) or the mortgage obligations, backed by mortgages on real estate or equipment.
We also found financial derivativeswhose prices depend on an underlying asset (which can be a stock, an index, a bond, a currency, or even a commodity). Among the best known are the future, Options and other complex instruments. These tools are used both for speculation and for hedging against price fluctuations, and they form the basis of many contracts traded on organized markets. For a more technical overview of structures and applications, see financial engineering.
Company profit, margin, and profitability metrics
To assess the health of a company, concepts such as profit, margin, income and expensesProfit is the amount remaining when revenues exceed expenses in a given period, typically a fiscal year. If the opposite occurs, it's called a loss. Revenues represent all the money coming into the company, whether from sales, services, or financial activities, while expenses include the resources spent or committed to obtain goods or services.
A commonly used measure is the earnings before interest and taxes (EBIT)which focuses on operating profit without taking into account the financing structure (debt interest) or taxes. From here, variants such as the EBIT (profit before interest, taxes, depreciation and amortization), which again adds back expenses that do not involve a cash outflow due to depreciation or amortization, or the EBITAThis excludes only the amortization of intangible assets. These indicators help to compare the operating profitability of companies from different countries or with different accounting policies.
El net profit It is the final result after subtracting interest, taxes, and extraordinary items. When it is adjusted to eliminate exceptional transactions or the amortization of goodwill, it is referred to as adjusted net profitTo relate the results to the number of actions, the following is used: earnings per share (EPS), which is the net profit of the last 12 months divided by the weighted average of shares outstanding.
El profit margin It is obtained by dividing profit by sales, showing what percentage of each euro sold becomes a positive result. Margins can be calculated on net profit, EBIT, or EBITDA. Other efficiency indicators include... return on capital employed (ROCE), which compares EBIT with invested capital, or the return on equity (ROE), which relates net profit to shareholders' funds.
It also looks at total return for the shareholderwhich combines the appreciation of shares on the stock market with the dividends received over a specific period. dividend yield It is calculated by dividing the net dividend per share by the share price, while the disbursement ratio It indicates what portion of net profit is allocated to paying dividends instead of being retained as reserves.
Cash flows, investment and business valuation
Beyond the accounting benefit, analysts place great importance on the cash flowsThat is, the actual movements of money that enter and leave the company. operating cash flow Part of the operating profit, adds depreciation and amortization (which do not involve a cash outflow) and adjusts for changes in net working capital. free cash flow Add to this base the investments in fixed assets (CAPEX) and the variations in working capital, resulting in the cash available to remunerate shareholders and creditors.
One variant is the operating free cash flow (OpFCF), which is calculated as EBITDA less maintaining capital expenditure and net maintaining working capital. This measure attempts to isolate the cash generated by the core business, without distortions from accounting changes, and is widely used in valuations based on EV/OpFCF multiples.
To value a company, techniques are frequently applied to discounted cash flow (DCF)The classic method of discounted cash flow of the company It takes the company's future free cash flows (pre-financing, post-tax) and discounts them at a rate that is usually the weighted average cost of capital (WACC)This yields the Enterprise Value (EV). Net debt and other non-operating liabilities or assets are then adjusted from this value to arrive at the equity value.
Another technique is net present value (NPV)NPV compares the present value of a project's future cash flows to the initial investment. If the NPV is positive, the investment creates value. Related to this is... internal rate of return (IRR)which is the type of discount that makes the NPV zero. These tools are used to decide whether a project or acquisition is worthwhile. If you want to learn more about NPV and IRR, see What are NPV and TIR?.
There are alternative approaches such as the Adjusted present value (APV)This method first values ​​the company as if it had no debt (only equity) and then adds the present value of the tax savings generated by debt interest. The following are also used: valuation multiplesThese ratios include the P/E ratio (price-to-earnings ratio), the price-to-book ratio (P/BV), the price-to-cash flow ratio (P/CFR), and EV-based multiples (EV/EBIT, EV/EBITDA, EV/Sales, EV/NOPLAT, EV/OpFCF). These ratios allow for the comparison of companies within the same sector.
In this context, the following becomes relevant: economic value createdwhich measures the additional value generated by the company in a given period. It is calculated by combining the cash flow generated, the value of new investments, and the value increased by improvements in franchises, efficiency, or sales. All of this is based on the concept of cost of capital, which represents the minimum return that investors demand for contributing equity or debt, considering the risk assumed.
Debt, leverage and financial risk
La debt It is a basic source of financing. It includes bank loans, bonds, mortgages, and other securities that obligate the borrower to repay a nominal amount on a specific date and to pay periodic interest. A distinction is made between short-term debt (expiration date less than one year) and long-term debt (longer term), and one can talk about floating debt when it comes to short-term debt that is frequently renewed. net debt It is obtained by adding up all debt with interest costs and subtracting cash and liquid securities.
The use of debt generates financial appeceamentIn other words, it increases risk but can also boost the return on equity if the company earns more than it pays in interest. Indicators such as Debt-to-equity ratio and net debt/net worth They show the extent to which the company is indebted in relation to its equity. Another relevant ratio is the interest coverage, which divides EBIT by financial expenses to see how many times the interest payment can be covered by operating profit.
The cost of this financing is the interest ratewhich represents the price of borrowed money. At the bond level, we talk about profitability or yield, and yields of different bonds can be compared using the performance ratio or the profit margin. For complex funding campaigns, structures such as the mezzanine financing, which combines subordinated debt, preferred shares or other hybrid instruments between traditional debt and equity.
Regarding risk, a distinction is made between diversifiable risk (or specific), which affects a particular company and can be reduced by investing in a sufficiently diversified portfolio, and non-diversifiable or market riskwhich is linked to macroeconomic factors and cannot be eliminated by diversification. beta It measures the systematic risk of a stock relative to the market: a beta greater than 1 indicates higher volatility than the benchmark index, and a beta less than 1 indicates lower volatility.
The beta version is implemented in models like the CAPM (Capital Asset Pricing Model)This is used to estimate the cost of equity based on the risk-free rate, the market risk premium, and the company's beta. It is also referred to as unleveraged beta when calculated assuming the investment is financed solely with equity. Above this, there is a component called alpha, which reflects the additional profitability achieved by a fund or portfolio once the market risk has been adjusted; it is considered the residual risk or the manager's skill.
Derivatives markets: futures, options and clearing
Within the derivatives, the futures contracts and options They occupy a central place in risk management and financial speculation. underlying asset It is the financial instrument on which the contract is based: it can be a stock market index, a specific stock, a currency, or a bond. All standard futures and options contracts that refer to the same underlying asset form a type of contracts.
Un futures contract It is a standardized agreement in which the buyer commits to acquire the underlying asset at a futures price predetermined in a settlement date future, and the seller undertakes to sell it under the same conditions. In many markets, these obligations can be replaced by a settlement for differencesThat is, only the difference between the agreed price and the settlement price at maturity is exchanged, without physical delivery of the asset.
An financial option It is a contract that grants the buyer the right, but not the obligation, to buy or sell the underlying asset to a exercise price determined on a future date. There are call optionswhich give the right to buy, and put optionswhich grant the right to sell. The buyer pays a before purchasing, to the seller of the option, who assumes the opposite obligation if the right is exercised. Depending on when they can be exercised, options are classified as European style (only at expiration) and American style (at any time up to the expiration date).
In markets like MEFF or similar platforms, the execution of an options order requires a counterparty willing to execute the transaction with the same characteristics: same contract class, option type, strike price, expiration date, and premium. For futures, the underlying asset, expiration date, and futures price must match. This matching of orders results in an transaction, which is recorded in the market and clearinghouse systems.
The transactions are recorded in clearing accountswhich record open positions, associated margins, and movements resulting from settlements. compensation It aggregates all payment or delivery obligations as they arise, calculating a net position that simplifies the flows between participants. The entity that stands between buyers and sellers is called the intermediary. central counterpartand its role is key to limiting the risk of non-compliance.
To cover that risk, the following are required: deposits in escrow or margins to members and customers. These guarantees are calculated using parameters such as the rating interval and evaluation pointsThese adjustments capture potential fluctuations in the underlying asset's price, ensuring that even if markets move sharply, the clearinghouse has sufficient buffer. Throughout the contract's life, adjustments are made daily profit and loss settlementswhich adjust the accounts based on the daily settlement price, so that positions are continuously updated and accumulated debt is prevented from spiraling out of control.
Orders, registration, due dates and settlement rates
When an investor wants to trade derivatives, they send a order through a market member. It can be a simple order, which affects a single series of contracts without additional conditions, or a combined orderwhich involves several series and requires that it either run in its entirety or not at all. transmission of an order It is the act by which the member enters the order into the electronic trading system so that it can be matched with another order of the opposite direction.
Once married, the operations register both in the general register managed by the clearinghouse and in the detailed registers of members who trade for end clients. Each position is thus associated with a specific account. If later it becomes necessary to transfer a position from one account to another (for example, because a client changes intermediaries), a transfer in the system, moving entire contracts or fractions of the position.
Several dates are key in the life of a futures or options contract: the first day of quotationwhich is when negotiations can begin; the exercise datewhich indicates when the right can be exercised in the case of options; the expiration date, last day the contract can be open; and the settlement date, on which the contract is finally fulfilled, either by delivery of the underlying asset or by payment of the difference. All these dates are included in the general conditions of each contract.
Upon reaching the expiration date, a delivery settlement, in which the seller delivers the underlying asset and the buyer pays the agreed price; or a settlement for differencesIn this type of contract, only the cash corresponding to the difference between the strike price (or the futures price) and the settlement price at expiration is exchanged. In any case, the calculations are based on a settlement price at expiration and in daily liquidation prices that are also used to recalculate margins and P&L.
If at any time one of the parties fails to meet its payment obligations or provide guarantees, it is considered a breachThe chamber's regulations describe the circumstances that define it and the procedures for managing it, including the use of guarantees, the forced closure of positions in a certain reaction time estimated and other measures to protect the rest of the participants and maintain the stability of the system.
With all this intricate web of concepts—from company balance sheets to the most sophisticated futures and options contracts—the financial world may seem dense, but having a structured glossary Explaining calmly what each thing is, how it relates to others, and why it matters in practice, turns that technical language into a useful tool for making better decisions about saving, investing, and managing your finances on a daily basis.
