CFA® glossary: N

31 terms beginning with N.

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Naked call

A call written without owning the underlying. The writer's best outcome is keeping the premium, and nothing limits the loss, since there is no holding to deliver as the price rises.

Natural hedge

An offset arising from a company's own operations, such as costs or debt in the same currency as revenue, so an exchange rate move affects both sides and they largely cancel. Where it appears →

Natural language processing

Techniques that let computers read and interpret human language, turning filings, transcripts and news into variables a model can use, such as a sentiment score.

Negative covenant

A restriction on what a borrower may not do — borrow past a ratio, pledge assets elsewhere, pay large dividends. The covenants that actually protect recovery. Where it appears →

Negative screening

Excluding sectors, companies or practices that fail set ESG or ethical criteria, such as tobacco or weapons. The simplest ESG approach, and the one that says least about value.

Negative skew

A return distribution with a long left tail: many small gains and occasional large losses. Standard deviation treats both sides alike, so it understates the risk that matters. Where it appears →

Net asset value

Assets less liabilities, per share or unit. Open-end funds deal at it; shares traded on an exchange, such as a closed-end fund's, can sit at a premium or discount to it. Where it appears →

Net borrowing

New debt raised less debt repaid in a period. Added in FCFE because borrowed cash is available to shareholders, which also means borrowing can flatter FCFE. Where it appears →

Net charge-offs

Loans written off as uncollectable, less recoveries on loans written off earlier. Provisions below them mean the allowance for loan losses is being run down.

Net interest margin

Net interest income divided by average interest-earning assets: what a bank earns on its lending and investments after paying for its funding. Where it appears →

Net monetary position

Monetary assets minus monetary liabilities. During inflation a net monetary liability position gains purchasing power and a net monetary asset position loses it.

Net operating assets

Operating assets minus operating liabilities, leaving out cash, investments and debt. Its change is the balance sheet measure of accruals, scaled by its average level in the accrual ratio.

Net operating income

A property's rental income less vacancy losses and operating expenses, before financing costs, income tax and depreciation. The figure the income approach capitalises into a value. Where it appears →

Net present value

The value a project adds, in money, once every cash flow has been discounted and the outlay subtracted. Denominated in what shareholders actually receive. Where it appears →

Net realisable value

Estimated selling price less what it costs to complete and sell. Inventory is carried at the lower of this and cost, so the ceiling binds downward only.

Net return

Return after management and administrative fees have come off the gross figure. Closer to what the investor actually received, though still before tax and inflation. Where it appears →

Net stable funding ratio

Available stable funding divided by required stable funding over one year. Basel III requires at least 100%, so long-term assets are not financed with flighty short-term money.

Netting risk

In a fund of funds or multi-manager structure, the risk of paying incentive fees on one manager's gains even when losses elsewhere leave the whole portfolio flat or down.

Network effects

A product becoming more valuable to each user as more people use it. An entrant must match the incumbent's user base as well as its product, which makes a leader hard to dislodge. Where it appears →

Nominal exchange rate

The quoted price of one currency in units of another, with no adjustment for what either currency buys. It can stand still while the real rate moves.

Non-compete agreement

A contract restricting a former employee from competing, or from soliciting clients, for a period after leaving. Where one applies it can bar contact the Standards would otherwise allow.

Non-controlling interest

The share of a consolidated subsidiary's equity not owned by the parent, shown within group equity. Added in enterprise value, since consolidated EBITDA includes the subsidiary in full. Where it appears →

Non-deliverable forward

A currency forward settled in cash, usually US dollars, for the difference between the contracted and spot rates, without delivering the restricted currency itself. Used where capital controls prevent delivery.

Non-parametric test

A hypothesis test making few assumptions about the population's distribution, or testing something other than a parameter, such as ranks or randomness. Suited to ranked data, small non-normal samples or outliers.

Non-performing loans

Loans on which the borrower has stopped paying as agreed, usually 90 days or more overdue. Their share of total loans is a main gauge of a bank's asset quality. Where it appears →

Non-recourse debt

Debt secured only on a specific project or asset and its cash flows, with no claim on the sponsor's other assets if it fails.

Nonpublic

Not yet disseminated to the market. Information stays so until investors generally have had the chance to act on it, not merely once one outlet has reported it. Where it appears →

Normal distribution

The symmetric, bell-shaped distribution fully described by its mean and standard deviation. Convenient, but real returns have fatter tails, so it understates how often extreme outcomes arrive. Where it appears →

Normalised earnings

Earnings adjusted to a sustainable level, removing one-off items and cyclical highs or lows. For a private company, also restating owners' pay and related-party costs to market rates. Where it appears →

Notching

Adjusting an individual issue's rating up or down from the issuer's, for seniority and for where in a group structure the claim sits.

Null hypothesis

The statement being tested, always containing the equality, and held until the evidence against it is strong enough to reject it. Failing to reject it does not show that it is true. Where it appears →