Our Glossary of Business and financial terms is designed to help you better understand the business process. Whether you're starting a business, buying or selling a business, financing a business or operating a business, you have to understand the terms that professionals frequently use. If there is a business term that you've heard that we haven't listed, please let us know, and we'll add it to the MergerPlace.com Glossary.
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Abbreviation for "free on board". Means the buyer is paying delivery costs.
A debt security issued by face amount. The holder makes payments periodically to the issues, and the issuer promises to pay the purchaser the face value at maturity or the surrendered value if the security is presented by the maturity specified in the certificate.
A financial institution that buys a firm's accounts receivable and collects the accounts.
Sale of a firm's accounts receivable to a financial institution known as a factor.
The aggregate price at which a business would change hands between a willing buyer and a willing seller, neither being under a compulsion to buy or sell and both having reasonable knowledge of relevant facts. This term is also often referred to as Enterprise value or market price.
The rate of return that state governments allow a public utility to earn on its investments and expenditures. Utilities then use these profits to pay investors and provide service upgrades to their customers.
A set of requirements for a plan of reorganization to be approved by the bankruptcy court.
An investment banker's professional opinion as to the price an acquiring firm is offering in a takeover or merger.
In the context of general equities, may not be able to produce as indicated in one's advertised market, due to less help (than anticipated) from other parties or due to changing market conditions.
A sudden drop in a stock's price resulting from failed or poor business deals gone bad or falling through.
Bonds that at the time of issue were considered investment grade but that have dropped below that rating over time.
Financial Accounting Standards Board.
The US accounting standard that replaced FASB No. 8. US companies are required to translate foreign accounts in terms of the current rate and report the changes from currency fluctuations in a cumulative translation adjustment account in the equity section of the balance sheet.
U.S. accounting standard that requires US firms to translate their foreign affiliates' accounts by the temporal method; that is reporting gains and losses from currency fluctuations in current income. It was in effect between 1975 and 1981 and became the most controversial accounting standard in the US It was replaced by FASB No. 52 in 1981.
The interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. The Fed funds rate often points to the direction of US interest rates. The most sensitive indicator of the direction of interest rates, since it is set daily by the market.
The seven-member governing body of the Federal Reserve System, which is responsible for setting reserve requirements, and the discount rate, and making other key economic decisions.
Issues by the US government to the public through the Federal Reserve Banks and their member banks. They represent money owed by the government to the public. Currently, the item "Federal Reserve notes amounts outstanding" consists of new series issues. The Federal Reserve note is the only class of currency currently issued.
The monetary authority of the US, established in 1913, and governed by the Federal Reserve Board located in Washington, D.C. The system includes 12 Federal Reserve Banks and is authorized to regulate monetary policy in the US as well as to supervise Federal Reserve member banks, bank holding companies, international operations of US banks, and US operations of foreign banks.
A wire transfer system for high-value payments operated by the Federal Reserve System.
One who must act for the benefit of another party.
Warehouse rented by a company on another firm's premises.
An accounting method for determining the Cost of Goods Sold where the items purchased first are assumed to be used first. If the cost of acquiring inventory is rising, the FIFO method should result in more accurate inventory figures, a lower Cost of Goods Sold. and thus a higher profit than the alternate LIFO (Last In, First Out) method would.
A discipline concerned with determining value and making decisions. The finance function allocates resources, including the acquiring, investing, and managing of resources.
The total cost of credit a customer must pay on a consumer loan, including interest.
A company whose business and primary function is to make loans to individuals, while not receiving deposits like a bank.
Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP).
Analysis of a company's financial statement, often by financial analysts.
Also called securities analysts and investment analysts. Professionals who analyze financial statements, interview corporate executives, and attend trade shows, in order to write reports recommending either purchasing, selling, or holding various stocks.
Claims on real assets.
An individual, group or entity seeking acquisitions that provide favorable profits and cash flow.
Common stock, preferred stock, bonds and retained earnings. Financial capital appears on the corporate balance sheet under long-term liabilities and equity.
The management of a firm's costs and expenses in relation to budgeted amounts.
Presentation of a company's financial information to the outside parties.
Events preceding and including bankruptcy, such as violation of loan contracts.
Legal and administrative costs of liquidation or reorganization. Also includes implied costs associated with impaired ability to do business (indirect costs).
Insurance created to cover losses from specified financial transactions.
Design of any new financial product, such as exotic currency options and swaps.
An enterprise such as a bank whose primary business and function is to collect money from the public and invest it in financial assets such as stocks and bonds.
Insurance coverage for loans.
Institutions that provide the market function of matching borrowers and lenders or traders as well as buyers and sellers.
Long-term, noncancellable rental agreement.
A measure of the amount of debt used in the capital structure of a business to increase the expected Return on Equity.
Common ratios are debt divided by equity a debt divided by the sum of debt plus equity. Related: capitalization ratios.
An organized institutional structure or mechanism for creating and exchanging financial assets.
A blueprint relating to the financial future of a firm.
Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against that plan.
Criteria describing a corporation's choices regarding its debt/equity mix, currencies of denomination, maturity structure, method of financing investment projects, and hedging decisions with a goal of maximizing the value of the firm to some set of stockholder.
The account status of a firm's or individual's assets, liabilities, and equity positions as reflected on its financial statement.
Media devoted to reporting financial news.
The chance there will be unexpected changes in a financial price, including currency (foreign exchange) risk, interest rate risk, and commodity price risk.
Public relations division of a company charged with cultivating positive investor relations and proper disclosure information.
The result of dividing one financial statement item by another. Ratios help analysts interpret financial statements by focusing on specific relationships.
Show the relationships that exist between various items appearing in balance sheets, income accounts. These ratios are used to measure and evaluate the economic condition and operating effectiveness of a business and help with the interpretation of financial statements by focusing on specific relationships.
A report of basic accounting data that helps investors understand a firm's financial history and activities.
Evaluation of a firm's financial statements in order to assess the firm's worth and its ability to meet its financial obligations.
Practices a firm adopts to pursue its financial objectives.
The way in which a company's assets are financed, such as short-term borrowings, long-term debt, and ownership equity. Financial structure differs from capital structure in that capital structure accounts for long-term debt and equity only.
Conditions that preclude the completion of a transaction subject to obtaining financing satisfactory to the buyer and its creditors.
A source of competitive advantage that depends on access to low cost sources of capital.
Decisions concerning the liabilities and stockholders' equity side of the firm's balance sheet, such as a decision to issue bonds.
Institutions that effect agreement terms between borrower and lender by reaching separate agreements with the borrower and the lender.
The fee a person or company charges for service as an intermediary in a transaction.
A type of underwriting whereby the underwriter agrees to purchase an entire issue of securities from the issuer, regardless of the underwriter's ability to resell the securities to the public. Unsold shares cannot be returned to the issuer.
A type of mortgage that through a lien gives precedence to the lender of the first mortgage over all other lenders in case of default.
Government spending and taxing for the specific purpose of stabilizing the economy.
Represents the 12-month accounting period of a company. Most firms use the calendar year, but some do not. The fiscal year is usually described by the year in which the final month falls. If the year ends in March of 2002, it would be called fiscal 2002, even though a majority of the months fall in 2001.
The end of a 12-month accounting period.
Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period.
Long-lived property owned by a firm that is used by a firm in the production of its income. Tangible fixed assets include real estate, plant, and equipment. Intangible fixed assets include patents, trademarks, and customer recognition.
The ratio of sales to fixed assets.
Costs that remain relatively constant regardless of the volume of production or sales. (rent, depreciation, property taxes, executive salaries etc.).
A country's decision to tie the value of its currency to another country's currency, gold (or another commodity), or a basket of currencies.
An interest rate swap in which the fixed rate payments are traded for a floating rate.
Securities that obligate the issuer to pay the owner interest during their term and to return the principal or face value at maturity.
An offering of securities at a fixed price.
A measure of a firm's ability to meet its fixed-charge obligations: the ratio of (net earnings before taxes plus interest charges paid plus long-term lease payments) to (interest charges paid plus long-term lease payments).
Conventional bonds for which the coupon rate is set at a fixed percentage of the par value.
A nonnegotiable debt security that can be redeemed at some fixed price or according to some schedule of fixed values, e.g., bank deposits and government savings bonds.
A one-time offer to purchase a stated number of shares at a stated fixed price, usually at a premium over the current market price.
A loan whose rate is fixed for the life of the loan.
In an interest rate swap, the counterparty who pays a fixed rate, usually in exchange for a floating-rate payment.
Method used to determine a participant's benefits in a defined benefit plan by multiplying months of service by a flat monthly benefit.
A tax which is levied at the same rate on all levels of income.
A budget that shows how costs vary with different rates of output or at different levels of sales volume and projects revenue based on these different output levels.
Expenses for an individual or corporation that can be adjusted or completely dispessed with, e.g., luxury goods.
The resale of a company or a security shortly after its being purchased.
The difference between the company's recorded cash balance on its books and the amount credited to the company by the bank. "Float" can also refer to the number of shares, or the market value of the number of shares, in a public company that are available for trading.
A bond whose interest rate varies with the interest rate of another debt instrument, e.g., a bond that has the interest rate of the Treasury bill +.25%.
Short-term debt that is renewed and refinanced constantly to fund capital needs of a firm or institution.
General attachment against a company's assets or against a particular class of assets.
An guaranteed investment instrument whose interest payment is tied to some variable (floating) interest rate benchmark, such as a specific-maturity Treasury yield.
Note whose interest payment varies with short-term interest rates.
In an interest rate swap, the counter party that pays a rate based on a reference rate.
Preferred stock paying dividends that vary with short-term interest rates.
Arrangement used to finance inventory. A finance company buys the inventory, which is then held in trust for the user.
The costs associated with creating capital through the issue of new stocks or bonds, including the compensation earned by the investment banker plus legal, accounting and printing expenses.
The practice of reporting to shareholders using straight-line depreciation but using accelerated depreciation for tax purposes and "flowing through" the lower income taxes actually paid to financial statements prepared for shareholders.
A price or interest rate change.
Distinguished from an Initial Public Offering, the Follow-On Offering is the sale of additional shares to the public after the company is already public. (Sometimes the follow-on offering is mistakenly called a secondary offering
The risk that there will be prolonged interruption of operations for a project finance enterprise due to fire, flood, storm, or some other factor beyond the control of the project's sponsors.
Occurs when a convertible security is called in by the issuer, usually when the underlying stock is selling well above the conversion price. The issuer thus assures the bonds will be retired without requiring any cash payment. Upon conversion into common, the carrying value of the bonds becomes part of a corporation's equity, thus strengthening the balance sheet and enhancing future debt capability.
Making projections about future performance on the basis of historical and current conditions data.
Process by which the holder of a mortgage seizes the property of a homeowner who has not made interest and/or principal payments on time as stipulated in the mortgage contract.
A corporation conducting business in another country from the one it is chartered in and that abides by the laws of another country.
An amendment to the Securities Exchange Act created to sanction bribery of foreign officials by publicly held US companies.
Money of another country from one's own.
An Agreement that obligates its parties to exchange given quantities of currencies at a pre-specified exchange rate on a certain future date.
Home country credit against domestic income tax. Received in return for foreign taxes paid on foreign derived earnings.
Method of financing international trade of capital goods.
The loss of rights to an asset outlined in a legal contract if a party fails to fulfill obligations of the contract.
A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information.
A form required by the SEC and the stock exchange from all holders of 10% or more of a company's stock and all directors and officers, which details securities owned.
The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock.
A method of calculating taxes on a lump-sum distribution from a qualified retirement plan that enables the tax payer to pay less than the current tax rate.
A contract that specifies the price and quantity of an asset to be delivered on in the future. Forward contracts are not standardized and are not traded on organized exchanges
Interest rate fixed today on a loan to be made at some future date.
A truncated expression for a P/E ratio that is based on forward (expected) earnings rather than on trailing earnings.
Stock owned by the original founders of a company.
Stocks amounting to less than one full share, usually resulting from splits, acquisitions, exchanges, or dividend reinvestment programs.
Contract by which a domestic company (franchisor) licenses its trade name and/or business system and practices for a fee to an independent company (franchisee) in a foreign market.
Provision of a specialized sales or service strategy, support assistance, and possibly an initial investment in the franchise in exchange for periodic fees.
Not officially an accounting term, the usual meaning is the cash flow that a company has available for discretionary purposes, after taking care of all of its required obligations.
Stock that is paid for in full and is not pledged in any way as collateral.
Used in the context of general equities. Not subject to any internal ( restricted list) or external restrictions on trading; hence, the trader is free to solicit interest.
The action of pressurizing shareholders with relatively minor amounts of stock to sell their shares after a takeover.
Agents who coordinate the logistics of transportation.
Costs, both implied and direct, associated with a transaction. Such costs include time, effort, money, and associated tax effects of gathering information and making a transaction.
The difference between an index fund return and the index it represents. The typically lower rate of return from the fund results from transactions costs.
Ideal trading environment that imposes no costs or restraints on transactions.
The "stickiness" involved in making transactions; the total process including time, effort, money, and tax effects of gathering information and making a transaction such as buying a stock or borrowing money.
A business combination that the management of both firms believes will be beneficial to stockholders.
Merger when the target firm's management and board of directors is in favor of the takeover.
Describes exchange and government regulations providing for the release and free exchange of all information pertinent to a given security.
Also called rental lease. Arrangement in which lessor promises to maintain and insure the equipment leased.
An asset that has already been charged with the maximum amount of depreciation allowed by the IRS for accounting purposes.
Earnings per share expressed as if all outstanding convertible securities and warrants have been exercised.
"Fundamentals" are the "real world" events like earnings, management changes, market shares, mergers and acquisitions, lawsuits, and so on that drive stock prices in the long-term. Fundamental analysis is the work of understanding what these factors are and predicting how they may affect the stock in the future.
Analyzing the future on the basis of fundamental relationships between economic variables and exchange rates.
Information relating to the economic state of a company or economy. In market analysis, fundamental information is related to the earnings prospects of the firm only.
Debt maturing after more than one year.
A source of funds that a firm must take overt action to arrange and that carries an interest cost.
A pension plan in which all liabilities, including payments to be made to pensioners in the immediate future, are completely funded.
Used to describe the refinancing of a debt prior to its maturity (the same as refunding). In corporate finance refers to the floating of bonds to raise finance and levels of capital. See also: refunding.
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