annuity: A series of equal payments received over time

bond: A type of long-term debt issued by large corporations, universities, and governments that involves a promise to repay a large amount of money at a fixed future date.

collateral: Assets pledged as security for the payment of a debt.

compound interest: Interest that is earned on interest earned in prior periods.

contingent liabilities: Existing or possible obligations arising from past events. The liability is contingent (dependent) on whether some uncertain future event occurs that will confirm either its existence or the amount payable, or both.

coupon interest rate: The rate stated in a bond certificate used to determine the amount of interest the borrower pays and the investor receives.

discount: The difference between a bond’s face value and its issue price when it is sold for less than its face value. This occurs when the market interest rate is higher than the coupon interest rate.

EBIT: Earnings (net income) before interest expense and income tax expense.

effective-interest method: A method of amortizing a bond discount or premium that results in a periodic interest expense that equals a constant percentage (the market or effective interest rate) of the bond’s carrying amount. Amortization is calculated as the difference between the interest expense and the interest paid.

employee benefits expense: Payments made by an employer for its share of Canada Pension Plan, Employment Insurance, pension, insurance, health, and/or other benefits paid on behalf of its employees.

financial liability: A form of financial instrument, represented by a contractual obligation to pay cash in the future.

future value: The value of a cash flow at the time it will be received or paid in the future.

gross pay: The total compensation (such as salaries or wages) earned by an employee.

leverage: Using borrowed funds to finance assets.

market interest rate: The rate that investors demand for lending funds to a corporation.

net pay. Gross pay less payroll deductions.

operating line of credit: A pre-arranged agreement to borrow money at a bank, up to an agreed-upon amount.

payroll deductions: Deductions from gross pay to determine the amount of a paycheque.

premium: The difference between the issue price and the face value of a bond when the bond is sold for more than its face value. This occurs when the market interest rate is lower than the coupon interest rate.

present value: The value today of an amount or series of amounts to be received or paid in the future.

principal: The original amount of a loan.

provisions: Liabilities of uncertain timing or amount. They are recorded in the accounts based on reasonable and probable estimates.

time value of money: The fact that a specified sum of money is worth more in the future because earning interest on that sum allows it to grow over time.

times interest earned: A measure of a company’s solvency, calculated by dividing net income (earnings) before interest expense and income tax expense (EBIT) by interest expense.