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Income Statement – a financial statement, which shows a company’s revenues and expenditures resulting in either a profit or loss during a financial period. Also called the statement of profit and loss, the statement of earnings. Does not include payments such as investments and borrowings.
Index Fund – a fund that buys a large cross section of stocks such as the S&P 500 Index rather than picking individual companies in an effort to outperform the market.
Index Option – an option whose underlying security is an index, e.g. the DJIA. A trader can buy index options and bet on their future direction.
Indicated Dividend – total amount of dividends that would be paid on a share of stock over the next 12 months if each dividend were the same amount as the most recent dividend. Usually represented by the letter e in stock tables.
Indicated Yield – the yield, based on the most recent quarterly rate times four. To determine the yield, divide the annual dividend by the price of the stock. The resulting number is represented as a percentage.
Individual Retirement Account (IRA) – a plan for retirement saving that allows assets to grow tax deferred. Contrary to popular belief, all US citizens with income over $2000 are eligible to contribute to an IRA. Certain individuals who are not eligible for other retirement plans may receive an income tax deduction for their contribution.
Industry – the category describing a company’s primary business activity. This usually is determined by the largest portion of revenue.
Inflation – a generalized, sustained trend of rising prices. The Fed aims to keep inflation from moving too high. An important measurement of the rate of economic growth in the country. See also Consumer Price Index.
Initial Public Offering (IPO) – the first time a company sells its shares to the public, also known as “going public”, or a “new issue”. The securities are described in a legal document called the prospectus. Usually, the IPO process includes a road show during which the company travels around to meet with investors to explain the information in its prospectus. The prospectus will indicate the expected range of prices at which the shares will be sold. Investors submit indications of interest (IOI) to the underwriters. Having received indications for more than the total number of shares, the underwriters “price” the issue. The underwriters usually seek a price that will be modestly below where the stock is expected to trade. The initial “pop” in the stock price provides an incentive for investors to get to know the company.
Inside Day – a day in which the total range of price is within the range of the previous days price range.
Insider – all directors and senior officers of a corporation and those who may also be presumed to have access to insider information concerning the company; also anyone owning more than 10% of the voting shares in a corporation.
Insider Information – relevant information about a company that has not yet been made public. It is illegal for holders of this information to make trades based on it, however received.
Insider Report – a report of all transactions in the shares of a company by those considered to be insiders of the company and submitted each month to securities commissions.
Insider Trading – there are both legal and illegal versions of insider trading. They are very different even though the same term is used for both. The legal version is buying or selling for their personal accounts by officers, directors, or others who do not at the time have material non-public information. Such trading is reported to the SEC, and most companies have policies restricting the trading to periods of time when earnings have recently been reported, and no major nonpublic news that could affect the stock is known to company insiders. The illegal version refers to anyone, including both company insiders and others who are not employees but may have a special fiduciary relationship to the company, buying or selling shares based on information that is material and nonpublic and which was obtained through a violation of a fiduciary duty. The laws on what constitutes illegal insider trading are somewhat vague, in part because of the difficulty of defining it precisely, and in part because the SEC prefers to keep it vague as an additional deterrent.
In-the-money – a call option with a strike price below the underlying security. A put option with a strike price above the underlying equity.
Intrinsic Value – the amount, if any, by which an option is in-the-money.
Inventory – for non-financial companies, inventory is items available for sale or being prepared for sale. Can be further classified as finished goods, work in process, and raw materials. Methods to value inventory for accounting purposes include First-in-first-out (FIFO), Last-in-first-out (LIFO), Lower-of-cost-or-market (LCM). Inventory accounting can be important in affecting reported earnings. For securities firms, inventory may refer to securities bought and held by a broker or dealer for resale.
Inventory Turnover – the ratio of annual sales to inventory. Low turnover is an unhealthy sign, indicating excess stocks and/or poor sales.
Investment Banking – the practice of raising money for companies. Common methods of capital raising are IPO’s, private placement of stock, bond offerings, and other methods.
IRR – Internal Rate of Return. Analogous to the yield to maturity on a bond. The rate of discount that makes the net present value of an investment equal to zero. The investment is represented as a series of cash flows into and out of the asset at various dates. The initial cash flow is usually negative, representing the cost to the investor of the investment. Subsequent cash flows are usually positive, representing dividends received by the investor, and a final cash flow is usually large and positive, representing the sale of the investment. The standard IRR calculation assumes that all cash flows are discounted at the same rate.
Island Reversal – in technical analysis: a trading range where there is an exhaustion gap down, then prices trade in a narrow range, then there is a breakaway gap up. This leaves a sort of island of prices in the middle. If the trading range is only one day, it is considered a one-day reversal.
Issuer – the entity (usually a company, but it can be a government entity or an investment trust) that sells securities.