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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Strategy in which a third party poses as a white knight in a takeover bid, and then joins forces with an unfriendly bidder.
A curve conjecturing that economic output will increase if marginal tax rates are cut. Named after economist Arthur Laffer.
Payment of a financial obligation later than is expected or required, as in lead and lag.
Strategy used by a firm to stall payments, normally in response to exchange rate projections.
Economic indicators that follow rather than precede the country's overall pace of economic activity.
Doctrine that a government should not interfere with business and economic affairs.
A method of real estate financing; a mortgage-holding seller finances a buyer by taking a down payment and subsequent payments in installments, but holds the title until the mortgage is fully repaid.
A property owner who rents property to a tenant.
An option that no longer has any value because it has reached its expiration date without being exercised.
A stock with a high level of capitalization, usually at least $5 billion market value.
A fee a credit grantor charges a borrower for a late payment.
To move illegally acquired cash through financial systems so that it appears to be legally acquired.
The mean of a random sample approaches the mean (expected value) of the population as sample size increases.
Payment of a financial obligation earlier than is expected or required.
The head of a syndicate of financial firms that are sponsoring an initial public offering of securities or a secondary offering of securities.
Strategy used by a firm to accelerate payments, normally in response to exchange rate expectations.
Refers to timing of cash flows within a corporation.
Economic series that tend to rise or fall in advance of the rest of the economy.
A change in a measurable economic factor that is evident before the economy starts to follow a specific trend.
Release of information selectively or not before official public announcement.
A long-term rental agreement, and a form of secured long-term debt.
The legal fees and other expenses incurred when acquiring a lease.
The payment per period stated in a lease contract.
An agreement that allows for portions of lease payments to be used to purchase the leased property.
A transaction that involves the sale of some property, and an agreement by the seller to lease the property back from the buyer after the sale.
An asset providing the right to use property under a lease agreement.
An improvement made to leased property.
A firm's cash balance as reported in its financial statements.
A legal proceeding for liquidating or reorganizing a business.
Value at which a company's shares are recorded in its books.
The deposit of cash and permitted securities, as specified in the bond indenture, into an irrevocable trust sufficient to enable the issuer to fully discharge its obligations under the bond indenture.
A person or organization that can legally enter into a contract, and may therefore be sued for failure to comply with the terms of the contract.
Investments that a regulated entity is permitted to make under the rules and regulations that govern its conduct.
A list of high-quality debt and equity securities chosen by a state agency that are acceptable holdings for fiduciary institutions.
A government-regulated firm that is legally entitled to be the only company offering a particular service in a particular area.
A statement, usually written by a specialized law firm, required for a new municipal bond issue stating that the issue is legally acceptable.
The risk that new or changed legislation will have a large positive or negative effect on an investment.
To provide money temporarily on the condition that it or its equivalent will be returned, often with an interest fee.
A business that provide loans to others.
Legal action of debtor against creditors that alleges unfair enforcement of loan covenants or violation of implied terms of a loan agreement.
Traditionally the Federal Reserve Bank in the US, which assists banks that face large withdrawals of funds and in so doing stabilizes the banking system.
A contract regarding funds transferred between a lender and a borrower.
An entity that leases an asset from another entity.
An entity that leases an asset to another entity.
A form of guarantee of payment issued by a bank on behalf of a borrower that assures the payment of interest and repayment of principal.
Privately placed common stock, so-called because the SEC requires a letter from the purchaser stating that the stock is not intended for resale.
Scheduling principal and interest payments (P&I) due under a mortgage so that total monthly payment of P&I is the same. Different from the typical mortgage for which the principal payment component of the monthly payment becomes gradually greater while the monthly interest component shrinks.
A life insurance policy with a fixed face value and increasing premiums.
The use of debt financing, or property of rising or falling at a proportionally greater amount than comparable investments
A group of shareholders who, because of their personal leverage, seek to invest in corporations that maintain a compatible degree of corporate leverage.
Measures of the relative value of stockholders, capitalization, and creditors obligations, and of the firm's ability to pay financing charges. Value of firm's debt to the total value of the firm (debt plus stockholder capitalization).
Making transactions to adjust (rebalance) a firm's leverage ratio to a target ratio.
A transaction used to take a public corporation private that is financed through debt such as bank loans and bonds. Because of the large amount of debt relative to equity in the new corporation, the bonds are typically rated below investment-grade, properly referred to as high-yield bonds or junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the bonds or participation in the bank loan) or the purchase of equity through an LBO fund that specializes in such investments.
A company that has debt in its capital structure.
Stock in a firm that relies on financial leverage.
A lease arrangement under which the lessor borrows a large proportion of the funds needed to purchase the asset. The lender has a lien on the assets and a pledge of the lease payments to secure the borrowing.
The required return on an investment when the investment is financed partially by debt.
A financial obligation, or the cash outlay that must be made at a specific time to satisfy the contractual terms of such an obligation.
Investment strategies that select assets so that cash flows will equal or exceed the client's obligations.
Insurance guarding against damage or loss that the policyholder, may cause another person in the form of bodily injury or property damage.
A contract by which a domestic company (the licensor) allows a foreign company (the licensee) to market its products in a foreign country in return for royalties, fees, or other forms of compensation.
Arrangement in which a local firm in the host country produces goods in accordance with another firm's (the licensing firm's) specifications; as the goods are sold, the local firm can retain part of the earnings.
A security interest in one or more assets that lenders hold in exchange for secured debt financing.
The lifetime of a product or business, from its creation to its demise or transformation.
The length of time that an average person is expected to live, which is used by insurance companies use to make projections of benefit payouts.
A bond covenant that restricts in some way a firm's ability to grant liens on its assets.
A bond covenant that restricts in some way a firm's ability to merge or consolidate with another firm.
A bond covenant that restricts in some way a firm's ability to enter into sale-and-leaseback transactions, financing techniques that could affect creditor thinness..
A bond covenant that restricts in some way a firm's ability to borrow at the level of firm subsidiary.
Limitation of loss to what has already been invested.
A partner who has limited legal liability for the obligations of the partnership.
A partnership that includes one or more partners who have limited liability.
A warranty with certain conditions and limitations on the parts covered, type of damage covered, and/or time period for which the agreement is good.
An informal loan arrangement between a bank and a customer allowing the customer to borrow up to a pre-specified amount.
Technique for finding the maximum value of some equation, subject to stated linear constraints.
A statistical technique for fitting a straight line to a set of data points.
Method for calculating rates of return that multiplies one plus the interim rate of return.
Asset that is easily and cheaply turned into cash-notably, cash itself and short-term securities.
A market allowing the buying or selling of large quantities of an asset at any time and at low transactions costs.
Payment by a firm to its owners from capital rather than from earnings.
Occurs when a firm's business is terminated. Assets are sold, proceeds are used to pay creditors, and any leftovers are distributed to shareholders.
Sale or realization of a debtor firm's assets voluntarily agreed to by its creditors who estimate that the firm's liquidation value exceeds its going-concern value.
The rights of a firm's security holders in the event the firm liquidates.
Net amount that could be realized by selling the assets of a firm after paying the debt.
Ratios that measure a firm's ability to meet its short-term financial obligations on time, such as the ratio of current assets to current liabilities.
The risk that arises from the difficulty of selling an asset in a timely manner. It can be thought of as the difference between the "true value" of the asset and the likely price, less commissions.
A company whose stock trades on a stock exchange, and conforms to listing requirements.
An option that has been accepted for trading on an exchange.
Stock or bond that has been accepted for trading by one of the organized and registered securities exchanges in the United States.
A trust that an individual establishes during the individual's lifetime, enabling the person to control the assets contributed to the trust.
A document specifying the kind of medical care a person wants-or does not want-in the event of terminal illness or incapacity.
Temporary borrowing of a sum of money.
The timetable for repaying the interest and principal on a loan.
Assurance by a lender to make money available to a borrower on specific terms in return for a fee.
Group of banks sharing a loan.
The ratio of money borrowed on a property to the property's fair market value. will be the same over a short-term investment horizon.
Advantages (natural and created) that are available only or primarily in a particular place.
Attempt to exploit discrepancies in exchange rates between banks.
A collection and processing service provided to firms by banks, which collect payments from a dedicated postal box to which the firm directs its customers to send payment to. The banks make several collections per day, process the payments immediately, and deposit the funds into the firm's bank account.
Privilege offered a white knight (friendly acquirer) by a target company to buy crown jewels or additional equity. The aim is to discourage a hostile takeover. Sometimes referred to as Shark repellent.
Applies mainly to international equities. Interest rate the German Bundesbank uses as an upper limit to the day-to-day money rate, since no bank will pay higher rates in the money market than it has to pay for very short-term recourse to Lombard credit.
The bid rate that a Euromarket bank is willing to pay to attract a deposit from another Euromarket bank in London.
The rate of interest that major international banks in London charge each other for borrowings. Many variable interest rates in the US are based on spreads off LIBOR. By contrast with the bid rate LIBID quoted by banks seeking such deposits.
In accounting terms, one year or longer.
Value of property, equipment, and other capital assets minus the depreciation. This is an entry in the bookkeeping records of a company. It is usually established on a "cost" basis, and thus does not necessarily reflect the market value of the assets.
A profit on the sale of a security or mutual fund share that has been held for more than one year.
An obligation having a maturity of more than one year from the date it was issued. Also called funded debt.
The ratio of long-term debt to total capitalization.
A capitalization ratio comparing long-term debt to shareholders' equity.
Indicator of financial leverage. Shows long-term debt as a proportion of the capital available. Determined by dividing long-term debt by the sum of long-term debt, preferred stock and common stockholder's equity.
Liabilities repayable in more than one year plus equity.
A profit on the sale of a capital assets held longer than 12 months, and eligible for long-term capital gains tax treatment.
Financial goals expected to be accomplished in five years or longer.
A person who makes investments for a period of at least five years in order to finance his or her long-term goals.
Amount owed for leases, bond repayment, and other items due after 1 year.
A loss on the sale of a capital asset held less than 12 months that can be used to offset a capital gain.
A method for calculating US taxes owed on income from controlled foreign corporations that was introduced by the Tax Reform Act of 1986.
A technicality in some legislation or regulation that makes it possible to avoid certain consequences or circumvent a rule without breaking the law, such as in the use of a tax shelter.
Policy by the Federal Reserve Board to make loans less expensive and more available by reducing interest rates through open market operations.
A tax provision that allows operating losses to be used as a tax shield to reduce taxable income in prior and future years.
Slang for making an offer well below the fair value of an asset in hopes that the seller may be desperate to sell.
A bond with a rating of B or lower.
Refunding of a low-coupon bond with a new, higher-coupon bond.
A large one-time payment of money.
A single payment that represents an employee's interest in a qualified retirement plan. The payment must be prompted by retirement (or other separation from service), death, disability, or attainment of age 59-1/2, and must be made within a single tax year to avoid the federal government's 10% penalty tax.
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